[Biotech&Pharma] Why This Biotech’s Next Chapter Is ‘TBD’ Amid Deal-Making Dearth

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Gilead Sciences' (GILD) next chapter is still murky, an analyst said Friday, noting a dearth of expected takeovers among biotech stocks during the J.P. Morgan Healthcare Conference.




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The annual J.P. Morgan Healthcare Conference in San Francisco, Calif., is notorious for a splash of deal making in the biotech world. Days ahead of the 2019 meeting, Bristol-Myers Squibb (BMY) said it would buy Celgene for $74 billion. Eli Lilly (LLY) followed with its $8 billion pursuit of Loxo Oncology.

But the 2020 iteration of the conference was relatively quiet. The biggest deal came from Incyte (INCY) and MorphoSys (MOR) which agreed to codevelop a potential blood cancer treatment. There was some hope biotech stock Gilead would jump on a transaction, Credit Suisse analyst Evan Seigerman said.

“Gilead's 'next chapter' still seems TBD (to be determined),” he said in a report to clients. “We appreciate the opportunity to interact with management, but key questions around what the company is actually going to do to solve the larger strategic issues remain unanswered.”

On the stock market today, Gilead stock sank a fraction, to 62.98. Meanwhile, shares of exchange traded funds that track biotech stocks — SPDR S&P Biotech (XBI) and ProShares Ultra Nasdaq Biotechnology (BIB) — also fell a fraction apiece.

Will Biotech Stock Gilead Buy Something?

Analysts long have clamored for Gilead to buy something. That's because its core hepatitis C drug business has been in decline for years.

But the biotech stock is now pivoting to HIV treatments and, in 2017, Gilead spent $11.9 billion to acquire Kite Pharma for its cancer treatment, Yescarta. Further, last July, Gilead inked a $5.1 billion collaboration deal with Galapagos (GLPG).

Still, Chief Executive Daniel O'Day acknowledged the merger question during the conference.

“What's on everybody's mind is what's Gilead going to buy?” he said. “And I think that has to be informed by strategy. I'm not going to tell you today what we are going to buy, but I think that has to be informed by strategy.”

Expect A Number Of Partnership Deals

The biotech stock is ultimately planning to focus on treatments that address the immune system to solve inflammatory, fibrotic or cancerous conditions, O'Day said during the presentation.

Later, in a breakout session, Chief Financial Officer Andrew Dickinson said to expect a “regular cadence of partnership,” according to FiercePharma. O'Day added the biotech stock could also be in the mood for a number of “earlier-stage” acquisitions.

Still, Credit Suisse analyst Seigerman called the overall discussion “generic.”

“While we are encouraged by management's recognition of the need for (business development) to supplement the pipeline, on a relative basis we remain concerned about earnings and revenue growth,” he said in another recent report.

He added: “The company has the capacity to transact, but we have seen how difficult it can be to extract additional value.” He kept his underperform rating and 63 price target on the biotech stock.

A representative of Gilead referred Investor's Business Daily to O'Day's presentation at JPM. In a recent blog post, O'Day also noted the company's strong base in HIV drugs, pipeline of 14 late-stage drugs and 32 strategic partnerships and investments over the past two years.

Rampant 2019 Could Mean Quieter 2020

In addition to the agreement between Incyte and MorphoSys, Cellectis (CLLS) and Iovance Biotherapeutics (IOVA) inked a deal to collaborate on cancer drugs.

But outside those two deals, the J.P. Morgan Healthcare Conference was unusually quiet. Seigerman credits a steady pace of acquisitions among biotech stocks in 2019.

“The lack of transformational M&A disappointed some, but following a year of mega deals and many smaller deals, we see less general appetite among large player,” he said. “Valuations for small- and midcap names are also higher following a healthy run late in 2019.”

Still, investors in biotech stocks seemed positive following the conference, he said.

“We think this is driven by strong science (always important in biotech) and many interesting catalysts across our coverage throughout the year,” he said. “While we're not positive on every stock in our universe, we believe that biotech will perform well in 2020.”

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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