Gilead 30 Aril: After reporting unexpectedly high earnings, biotech Gilead indicated it was shopping for ways to spend that cash.
In the weeks leading up to Gilead Sciences’ first-quarter earnings Thursday, investors had one burning question on their minds: Who would the biotech company buy next?
While other biopharmaceutical firms had been snatching each other up in a hurry, Gilead, with a market value of $149 billion, had remained immune from the M&A fever. It hasn’t struck a major deal since its 2011 purchase of rival drug maker Pharmasset. And investors were getting impatient for a new acquisition to reinvigorate the company. Without one, they worried that Gilead’s drug pipeline could dwindle and the stock would run out of steam.
Indeed, despite the fact that Gilead GILD 4.48% more than doubled its sales and nearly quadrupled its profits last year, it was trading at just 10 times expected 2015 earnings as of market close Thursday. That’s the cheapest valuation among major biotech companies and about half as expensive as the average Nasdaq stock. Analysts have recently suggested takeover targets for Gilead ranging from Vertex VRTX 1.88% , which is valued at $29.5 billion, to $6 billion Intercept Pharmaceuticals ICPT 0.86% .
But Gilead surprised investors Thursday with higher-than-expected sales, soaring profits and a fresh appetite for mergers and acquisitions. Evercore ISI biopharma analyst Mark Schoenebaum summed up his reaction to the results with a single word: “Wowza.”
In the first quarter of 2015, Gilead’s revenues grew 52% year over year to $7.6 billion. Profits, meanwhile, nearly doubled to $4.3 billion. The company reported diluted earnings per share of $2.76, clobbering Wall Street’s consensus estimate of $2.21. It also raised its expectations for 2015 product sales by $2 billion, to as much as $29 billion—a move that “speaks volumes,” given that Gilead generally offers conservative guidance, Schoenebaum wrote in a note to clients.
With that hefty cash flow, CEO John Martin said he was ready to spend some of that money on significant acquisitions—whether large or small. “We are open to suggestions,” he said during Thursday’s earnings call in a nod to the rampant speculation on possible targets.