Why Gilead Sciences Might Not Make an Oncology Acquisition

Is Gilead Sciences (NASDAQ:GILD) backing away from its plans to acquire a smaller biotech focusing on oncology? That could be the case. Gilead CEO John Milligan reportedly told Leerink analyst Geoffrey Porges that the company “might end up doing nothing in oncology.”

Just a few months ago, Milligan and other Gilead executives were openly talking about the possibility of an acquisition to bolster its oncology portfolio. What’s changed? And what could this mean for Gilead?

Notepad with M&A and drawing of big fish about to eat small fish
Image source: Getty Images.

Small pool of bigger fish

It’s not that Gilead Sciences doesn’t want to make a deal. CFO Robin Washington stated in the company’s second-quarter conference call that Gilead is still prioritizing its use of capital for partnerships and acquisitions to grow the business over the long term.

According to Geoffrey Porges, the problem seems to be that Gilead wants to make a “transformative” acquisition — but can’t find the right candidate in oncology. Milligan doesn’t want to buy a smaller biotech that won’t be able to contribute significantly to growth until several years from now.

There aren’t many smaller biotechs that have a solid oncology portfolio that would be big enough to move the needle for Gilead. Incyte (NASDAQ:INCY) is probably the best fit. Jakafi is already a winner in treating myelofibrosis and polycythemia vera. Late-stage pipeline candidate epacadostat is one of the most eagerly anticipated immunotherapies in development.

Milligan also told Porges that Gilead is looking for a company with “substantial data, value, and scale.” Incyte arguably has the data, with promising clinical results for epacadostat and Jakafi. It also has scale, with a pipeline that includes several other experimental cancer drugs. Value is another matter altogether. Incyte’s market cap currently stands at close to $26.5 billion, but the biotech only posted revenue of $1.1 billion last year.

It’s a big gap between Incyte and the next tier of smaller biotechs focused on oncology. Exelixis (NASDAQ:EXEL) also has a solid cancer lineup with Cabometyx, Cometriq, and Cotellic. Its market cap is around $8 billion. There should be a lot for Gilead to like about Exelixis, but the big biotech might not think an acquisition of the company would be transformative enough. Buying any of the many cancer-focused biotechs smaller than Exelixis wouldn’t be all that transformative, either.

Looking elsewhere

Milligan’s comments to Porges could indicate that Gilead is…