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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