March 30, 2017

Has Gilead Sciences Lost Its Way?



Since John Milligan took over as the CEO of Gilead Sciences (NASDAQ:GILD) roughly one year ago, the biotech's shares have steadily marched lower to the tune of a 24% decline. And one of the biggest reasons why is Milligan's decision to invest heavily in share repurchases and forgo a large acquisition -- or a series of smaller acquisitions -- to bring in some much-needed revenue.

The $13.5 billion spent on share repurchases in the past year, after all, could have netted a handful of modestly sized acquisitions. For example, Japan's Takeda Pharmaceutical bought Ariad Pharmaceuticals and its leukemia drug portfolio for only $5.2 billion, and Jazz Pharmaceuticals grabbed Celator's acute myeloid leukemia drug Vyxeos for a mere $1.5 billion -- casting doubt on Milligan's prior assertion that valuations were simply too high to warrant an acquisition frenzy. 

The big picture issue is that the bottom has dropped out of the biotech's hepatitis C franchise in the past year, and 2017 is on track to produce another 40% dip in the biotech's hepatitis C sales, according to Gilead's own dismal forecast. Yet Gilead has stubbornly refused to buy a revenue-generating peer to address this issue head on -- despite exiting 2016 with $32.4 billion of cash, cash equivalents, and marketable securities and a biotech landscape that arguably sports a surfeit of worthwhile buyout targets.




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