August 12, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Speculation that Foster City, California-based Gilead Sciences will or should buy Bristol-Myers Squibb have been floating around for at least a year. It has emerged again, largely based on Gilead having a strong cash flow but slow growth, and Bristol-Myers having low cash flow, but a good revenue and earnings growth expected. There are also significant potential synergies in oncology and infectious disease.
Gilead’s strengths are HIV and hepatitis C (HCV). It’s also working on developing hepatitis B (HBV) drugs and liver diseases such as non-alcoholic steatohepatitis (NASH). It wants to bolster its activity in the oncology market, where it has only a single drug, Zydelig, which is underperforming. It has several oncology drugs in its pipeline, including idelalisib, which is in a Phase III trial for relapsed refractory chronic lymphocytic leukemia (CLL). Pipeline candidates for myelofibrosis, myeloid leukemia and solid tumors are also in the pipeline.
Jonathan Weber, writing for Seeking Alpha, says, “We know that Gilead seeks to become a bigger player in the very huge oncology market, but so far the company’s efforts haven’t been very successful, that’s why a lot of analysts are looking for meaningful acquisitions from Gilead, which the company could easily finance thanks to its vast cash flows and sizable cash position.”
Bristol-Myers Squibb, on the other hand, has a third of its business in oncology, another 28 percent in virology, and about 16 percent of sales in cardiovascular. Bristol-Myers’ oncology business grew more than 50 percent in the second quarter, and the cardiovascular business grew by almost 80 percent in the same period. It currently has 16 candidates in its pipeline in immuno-oncology and oncology.
So the synergies between the two companies are fairly obvious. Gilead’s HCV business is dominant in the industry, but doesn’t appear to be growing. Its HIV business is big also, and is expected to grow, but not in the way Bristol-Myers’ HIV business is currently growing. Gilead is expected to have some future blockbusters in both HBV and NASH, but they’re down the road a few years.
Weber writes, “Gilead will likely have a hard time growing its sales, earnings and cash flows over the next years, but remains very profitable over that time frame. Bristol-Myers, on the other hand, will see sizable revenue growth over the next years (primarily due to its oncology franchise), but has lower revenues, earnings and cash flows right now.”
The companies have similar market caps, with Gilead’s at $105 billion and Bristol-Myers at $101 billion. They both focus heavily on research and development. If merged, they would have plenty of growth with strong cash flows.
Weber points out that there are two ways for the companies to merge. One could buy the other, probably Gilead buying Bristol-Myers, or a “merger of equals.”
The merger-of-equals would require that both companies agree on a price for each other’s shares, and if shareholders agree, combine as a single new company. The snag there would be shaking out management and headquarters and what would likely be significant redundancies.
Weber says, “Gilead as a cash-heavy, slow-growth biotech company and Bristol-Myers as a less profitable, but high-growth biotech company could form a biotech juggernaut that combines growth, profitability and high cash generation.”
Of course, in March, analysts were also suggesting that Gilead acquire Summit, New Jersey-based Celgene Corporation . Celgene has net sales of about $11 billion, and its myeloma drug, Revlimid, is projected to have sales of $6.6 to $6.7 billion. At that time, Weber, writing again for Seeking Alpha, said, “Celgene is a major player in oncology, with an established franchise, a huge pipeline, a great growth outlook, and, lastly, the company is very profitable and cash flow positive. In other words, Celgene offers everything Gilead could be looking for in an acquisition.”
Other potential targets, should Gilead actually go shopping, include Berkeley, California-based Dynavax Technologies , Santa Monica, California-based Kite Pharma , Arrowhead Research Corporation and Achillion Pharmaceuticals .
