How Could Gilead Sciences Restore Its Growth?



Gilead Sciences: Restoring growth

With its continuous revenue fall, Gilead Sciences (GILD) could opt to restore its growth through acquisitions. Such a move could lead to positive investor sentiment, as they could see top line growth despite a falling HCV segment. As more patients are cured of HCV, Gilead Sciences faces an existential threat and need to overcome it through high-growth business acquisition.

Although it is looking for targets, Gilead Sciences remains disciplined for the move. A strong balance sheet and an ~1.3x ratio for adjusted debt-to-adjusted EBITDA offers acquisition flexibility to Gilead Sciences. Additionally, its cash and investments totaled $31.6 billion while its total adjusted debt stood at $27.3 billion at the end of 3Q16.

The attractive acquisition targets for Gilead Sciences in the rare disease space could include BioMarin Pharmaceuticals (BMRN), Alexion (ALXN), and Vertex Pharmaceuticals (VRTX). Considering its interest in oncology, Gilead Sciences could consider Incyte (INCY) as the one of the choices.

A strategic acquisition could boost GILD’s stock. For diversified exposure to GILD, you can consider the First Trust NYSE Arca Biotechnology Index ETF (FBT). FBT holds ~3.1% of its total assets in Gilead Sciences.

Currently, Gilead Sciences’s HIV franchise seems to be driving its growth. However, these HIV drugs were associated with a controversy related to patent manipulation.

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Controversies associated with Gilead Sciences

Gilead Sciences was the focus of allegations made by the AIDS Healthcare Foundation (or AHF) with respect to the manipulation of patents. AHF argued that despite knowing the safety benefits in 2001, Gilead Sciences didn’t offer its TAF-based (tenofovir alafenamide) regimen earlier and delayed the testing to protect its old TDF-based (tenofovir disoproxil fumarate) franchise.

For details on Gilead Sciences’s TAF-based products, please read Descovy and Odefsey: Gilead Sciences’ Recently Approved TAF-Based Products.

AHF further challenged Gilead Sciences’s TAF-based regimen’s patents to be invalid based on the argument that they are just modified versions of TDF-based therapy. In July 2016, Gilead Sciences won the case against AHF.

GILD’s HCV drugs were also criticized for their high price. However, considering the value proposition offered by a complete cure from HCV, it seemed to be justified.

In the final part of this series, let’s have a look at what analysts are saying about Gilead Sciences’s stock.


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