As potential acquisitions get cheaper, Gilead Sciences might be a beneficiary of recent market turmoil.
http://www.wsj.com/articles/gilead-waiting-is-the-best-part-1440433562
Charley Grant, 8/24/15
No pain, no gain. Shareholders in Gilead Sciences may want to repeat that workout mantra as they watch markets slide.
True, Gilead has taken some lumps. It was down 2% at one point Monday and is off about 9% over the past five trading days. The Nasdaq Biotechnology Index, meanwhile, is down about 9% over the same period.
Yet both Gilead and the index remain up slightly more than 9% so far this year. And while the index remains in positive territory, this belies a good deal of pain among its constituent companies. As of Monday morning, more than 70% of stocks in the index were trading at a discount of more than 20% to their 52-week high.
That may provide Gilead with some opportunities or at the least the chance to tell critics, “I told you so.” The company has so far refused to join in the recent biotech deal-making frenzy. And that has been despite investors clamoring for a transformative deal as Gilead’s hepatitis C franchise matures. Analysts surveyed by FactSet expect the hepatitis C drugs, Sovaldi and Harvoni, to fetch $18.4 billion in sales this year but just $9.2 billion by 2019.
Given the recent decline in biotech stocks, and considering Gilead ended the second quarter with $14.7 billion in cash and equivalents on its balance sheet, its chances of finding a quality asset at a fair price seem to have improved. Plus, Gilead has a good deal-making record. It acquired its hepatitis C program in the first place, by buying Pharmasset in 2011, but for what now seems like a bargain-basement consideration of $10.2 billion.
So by standing pat, Gilead may have been keeping another mantra in mind: that it is better to buy low and sell high.