Adam Feuerstein of TheStreet.com on Tuesday discussed the merits of Gilead Sciences, Inc. GILD acquiring Vertex Pharmaceuticals Incorporated VRTX Tuesday.
Feuerstein highlighted a report from Bernstein analyst Geoff Porges that suggested Gilead’s “long-term revenue cliff problem” could be solved by purchasing Vertex and “its growing cystic fibrosis drug franchise for $45 billion.”
According to Feuerstein, “Gilead's stock price has significantly underperformed the broader biotech market over the past six months, in part because investors are concerned about increasing competition eroding its most important HIV and hepatitis C drug franchises.”
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It was anticipated that Gilead stands to lose 30 to 40 percent of its revenue between 2017 and 2021. However, “Gilead also has an enormous stockpile of cash and access to cheap debt with which it can make another transformative acquisition, just like the company did twice before,” the article noted.
Porges felt that the company needed to secure an “incremental $5-7 billion of revenue to reassure investors about their future outlook,” and that an acquisition would also need to provide “optionality for even higher revenue.”
Feuerstein observed that the acquiring company in such deals often sees its stock fall on news of a large acquisitio; However, in this case, the stock could rise as investors anticipate a higher earnings multiple that would be “on par with other profitable biotech and drug companies.”
Shares of Gilead Sciences recently traded at $104.67, up 3.99 percent.
Vertex Pharmaceuticals also traded higher, up 5.38 percent at $132.31.
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