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Barry Cohen
Barry Cohen
Articles (160) 

Gilead Continues to Build Cancer Franchise

Partnership with Arcus Biosciences follows acquisitions of Kite Pharmaceuticals and Forty Seven

May 29, 2020 | About:

It its latest foray into oncology, Gilead Sciences Inc. (NASDAQ:GILD) chose to rent rather than own.

Instead of acquiring Arcus Biosciences Inc. (NYSE:RCUS), as has long been rumored, Foster City, California-based Gilead struck a $2 billion partnership deal with the five-year-old biotech. Under the 10-year pact, the companies will develop and market therapies designed to treat cancers through the body’s immune system.

Though the agreement may be highly lucrative for Arcus down the line, investors had been looking for a quicker payday. They had bid the stock up nearly 280% since the beginning of the year, banking on a buyout. On Wednesday, Arcus shares were down about $10 from the previous week but recovered somewhat to close Friday at $31.35.

Gilead is on a mission to gain a foothold in the growing business for oncology drugs. In 2017, the company bought Kite Pharmaceuticals for just under $12 billion. So far the deal has fallen short of expectations, as sales of the key Kite lymphoma drug Yescarta have been disappointing. During the first quarter of the year, sales totaled $96 million, $7 million less than analysts expected.

In the HIV drug market, Gilead holds a commanding market position, according to an article in BioPharm Dive. While GlaxoSmithKline (NYSE:GSK) is trying to make inroads, Gilead is expected to remain the leader thanks to strong sales of its drug Biktarvy and several other products, such as Truvada. Piper Jaffray expects U.S. sales from Gilead's five top-selling HIV medications to be about $13 billion this year, representing 92% of the total HIV drug market. That forecast may be conservative given that first-quarter sales of Gilead’s HIV products topped $4 billion, up nearly 14% from the same period a year earlier.

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The outlook for Gilead’s hepatitis C business is far less rosy. Once a major growth driver for Gilead, hepatitis C revenue has declined as many patients have been cured of the liver-damaging virus and rival products, particularly from AbbVie Inc. (NYSE:ABBV), which has captured market share in a shrinking patient population.

Chronic hepatitis C virus (HCV) product sales were $729 million for the first quarter 2020 compared to $790 million for the same period in 2019. The decline in Gilead’s HCV business is a primary reason the company is intent on building a cancer franchise. Besides the Arcus deal and Kite acquisition, Gilead earlier this year bought Forty Seven for nearly $5 billion. The crown jewel in the purchase was Forty Seven’s drug magrolimab, which is being tested in a number of cancers.

Investment analysts’ opinion of the Arcus deal were generally favorable, according to an article in Feedspot. The piece reported that Baird analyst Brian Skorney wrote in a note to clients that “Overall, we like this deal, but do not see it as thesis changing, at this point.” Gilead’s stock has a “neutral” rating from the term. RBC Capital Markets’ Brian Abrahams was more upbeat, writing that the Arcus partnership provides Gilead with “additional pipeline expansion optionality in a space where it continues to galvanize its expertise.” He gave Gilead’s shares a positive rating.

Disclosure: The author has a position in Gilead Sciences.

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About the author:

Barry Cohen
Barry Cohen has nearly 40 years experience in communications and marketing, the majority in senior positions at large international health care companies, including Abbott Laboratories and Bayer Inc.

He has contributed to a number of financial websites, writing primarily about the stocks of health care companies.

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