Market Overview

Gilead-Vertex Deal Has 'Low Probability' Of Happening, RBC Capital Says

Share:
Related GILD
AMD, Bank Of America, Gilead, Intel: Fast Money Picks For September 19
Najarian Brothers See Unusual Options Activity In Tripadvisor And Gilead
Vertex Plans To Eradicate Cystic Fibrosis, And Go From There (Investor's Business Daily)
Related VRTX
Vertex's Rocky September Causes Vetr To Urge Sell
Mid-Afternoon Market Update: Scripps Rises On Report Of Merger Talks With Discovery; DryShips Shares Slide
Stocks To Watch: Neurocrine Biosciences Sees Relative Strength Rating Jump To 91 (Investor's Business Daily)

In a report published Tuesday, RBC Capital Markets analyst Michael Yee commented on the increasing Street "appreciation" over the idea that Gilead Sciences, Inc. (NASDAQ: GILD) should acquire Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX).

Yee noted that many investors are working under the assumption that shares of Gilead are cheap (trading at an industry-low 10x PE while its peers and big pharmaceutical names are trading at 15-20x) and "activism" could help create value by calling for more deals or a more aggressive buyback given the company's "significant" cash flow valuation.

However, acquiring Vertex would give Gilead control of a $220,000-300,000 drug for an orphan indication for kids and the "absolute high price" may cause some questions as Gilead has already been placed in the spotlight over its $85,000 Hep C drug.

Related Link: Should Gilead Buy Vertex?

Moreover, a deal with a price tag of $40 billion to $50 billion is something that is "doable" for Gilead, but the analyst suggested that the company could (and may want to) buy "a lot of other things," like 10 companies at $1 billion to $5 billion each to create more value.

Yee continued that Gilead's management has stated they derive the greatest value by acquiring Phase II assets and helping smaller companies through Phase III and manufacturing.

In addition, management has also noted that it generally is seeking oncology assets, leading the analyst to argue that the company will continue to seek out Phase II and Immuno-oncology assets to build a five-year plan, rather than jump into an acquisition to drive earnings per share accretion.

Bottom line, Gilead acquiring Vertex makes "great sense on paper" but there is a "pretty low probability" of such a transaction occurring.

Latest Ratings for GILD

DateFirmActionFromTo
Sep 2017RBC CapitalInitiates Coverage OnOutperform
Aug 2017ArgusUpgradesHoldBuy
Aug 2017Credit SuisseMaintainsOutperform

View More Analyst Ratings for GILD
View the Latest Analyst Ratings

Posted-In: Gilead Hep C Immuno-oncology Michael YeeAnalyst Color Biotech Analyst Ratings General

 

Related Articles (GILD + VRTX)

View Comments and Join the Discussion!
Loading...
Loading...