Gilead Sciences, Inc. (NASDAQ: GILD)
Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX)
There’s a big rumor that started circulating outlets recently revolving around the idea that Gilead Sciences may move to acquire Vertex Pharmaceuticals. With so much buzz around the topic, I had to do a bit of my own research to see if the acquisition made sense. From what I’ve seen, I don’t think that the acquisition is actually going to happen. Here’s why…
GILD & Hepatitis C
One of the main reasons that a mention of a VRTX acquisition came about is that some analysts believe that Gilead Sciences will lose 30%-40% of its hepatitis C revenue between the years 2017 and 2021. This is something that I understand, but strongly disagree with. The idea here is that when GILD patents expire, generics will come into the market, making it hard for them to maintain control of the market. However, Gilead has incomparable depth in the market and extremely high success rates. Not to mention, the company is already making small changes to their cocktail that will not only make the treatment better, but protect the company’s interests in the process.
Vertex Pharmaceuticals Is Overvalued
Another thing that we have to keep in mind when deciding if an acquisition is a good idea is the value of the company being acquired. Currently, VRTX simply isn’t worth the amount of money that GILD would have to pay for the acquisition. Currently, Vertex is trading at 34 times forward earnings; I’m not quite sure where the profit is there if an acquisition was to happen.
What An Acquisition Would Actually Take
If Gilead Sciences did decide to acquire Vertex Pharmaceuticals, we would be talking about a $45 billion plus acquisition. That’s not chump change! To do so, GILD would have to essentially give up on its HCV pipeline and focus heavily on Cystic Fibrosis. I just don’t see this happening?
Where Is GILD Headed For The Long Run?
I think that there’s a bit of overreaction to what’s going on with GILD’s patents. The reality is that Gilead Sciences has proven time and time again that they are capable of mixing things up, pushing back competition, and maintaining control in the market. Although I could see a slight, maybe 10% reduction in Hep C sales from now to 2021, I’m honestly not concerned in the slightest. The way I look at it, GILD will do what it’s known for doing; maintain control of the markets it takes part in and continue to grow!
What Do You Think?
Where do you think GILD is headed and why? Let us know in the comments below!