Incyte Who? Why This Biotech Would Give Gilead a Bang for Its Buck

Incyte Who? Why This Biotech Would Give Gilead a Bang for Its Buck January 26, 2017
By Alex Keown, BioSpace.com Breaking News Staff

FOSTER CITY, Calif. – What company will Gilead Sciences buy? That’s a question that many analysts and investors have been pondering for months. Gilead is under pressure to make an M&A move due to lagging sales in its hepatitis C pipeline.

One company often at the top of the list for acquisition is Wilmington, Del.-based Incyte Corporation and its lead cancer drug Jakafi, which generates about 70 percent of the company’s revenue. Jakafi is expected to become a billion dollar drug by 2020, which makes it an attractive prospect. Gilead, which dominates the HCV market, has said in the past itwants to strengthen its oncology line and many analysts have suggested Jakafi would be a good drug to do that. With a market value of about $19 billion, Incyte is within affordability for Gilead, which has about $30 billion in funds it could use for M&A. But, writing in the Motley Fool on Wednesday, analyst Maxx Chatsko urges caution on Incyte. He said that Incyte is a great company, but he said it’s not a great company to acquire due to the price it would demand.

Incyte started 2017 with a massive surge in stock value following the announcement of a collaboration with Merck , which increased the company’s market value to about $22 billion, Chatsko said. This morning Incyte shares are up, trading at $122.51.

Chatsko is not the only analyst writing in the Motley Fool to question the price tag Incyte could carry for Gilead. In December analyst Keith Speights said Gilead would have to shell out far more than the (at the time $19 billion value), which would not be the best value for the Foster City-based company.

Instead of Incyte, Chatsko suggests Gilead look at Belgium-based Galapagos and its arthritis pipeline–a company Gilead already has a relationship with. He said at a value of $3.2 billion, Galapagos would be “relatively cheap” for Gilead. While the company does not yet have an approved drug on the market, Chatsko said Galapagos would give Gilead “an influx of new shots on goal.” Galapagos has one phase III trial, four phase II trials, three phase I trials, five preclinical trials and 20 discovery programs, he said.

“That includes programs for osteoarthritis and cystic fibrosis, partnered with Servier and AbbVie , respectively. Its most advanced drug candidate, a JAK1 inhibitor called filgotinib, is partnered with Gilead Sciences in three separate trials targeting rheumatoid arthritis, Crohn's disease, and ulcerative colitis,” Chatsko said.

Gilead already retains a 14.7 percent stake in Galapagos and Chatsko said that would lessen any acquisition cost for Gilead. If the drugs are commercialized, the company would ultimately recoup some of those costs, pleasing investors.

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