Gilead's takeover of Forty Seven should soothe shareholders' worries

Biopharmaceutical giant Gilead Sciences has been facing “increasing unrest” from shareholders recently, says Josh Nathan-Kazis in Barron’s. They have been asking what it plans to do with its “substantial” amount of cash. Now they have their answer. Gilead has decided to buy “small cancer-focused biotech” Forty Seven for $4.9bn. Gilead hopes that the deal, which has boosted Forty Seven’s shares by 62%, will add “significant potential” to its clinical pipeline, particularly in the field of immuno-oncology, where the emphasis is on using the body’s own immune system to fight cancer. One particularly promising drug by Forty Seven is magrolimab, designed to treat several cancers, including myelodysplastic syndrome (in which some blood cells in bone marrow do not mature properly and become unhealthy) and a form of leukaemia.

Gilead needed to do something, say Marthe Fourcade and Kristen Brown on Bloomberg. While Gilead’s hepatitis C franchise may have turned the company into a “drug-industry giant”, sales of the treatments have “slipped from their peak” and the firm “has struggled to find new streams of revenue”. The deal with Forty Seven complements its 2017 acquisition of Kite Pharma, bringing on board “an experimental therapy that has potential to be the first in its class”. If Gilead hadn’t jumped on Forty Seven a competitor would probably have snapped it up; “other potential suitors” had been eyeing it up. 

Why cancer drugs are all the rage

Whether the deal proves a success or not, Gilead “is not alone” in turning to mergers and acquisitions to bolster its portfolio of cancer drugs, say Ortenca Aliaj and Eric Platt in the Financial Times. For example, early last year Bristol-Myers Squibb purchased Celgene for $93bn, while Pfizer snapped up Array BioPharma for $11bn in June. Rivals Eli Lilly and GlaxoSmithKline have also “bet billions of dollars” on cancer treatments over the past 18 months. The takeover of Forty Seven also “shares many of the hallmarks of other big cancer deals, where a recently listed start-up is acquired after its treatments show good progress in clinical trials”.

It’s not surprising that many companies are starting to invest in oncology, says Joseph Walker in The Wall Street Journal. Cancer drugs can “command high prices and receive relatively fast regulatory approvals”. US spending on cancer drugs has more than doubled to $56.7bn in 2018 from $27.3bn in 2013. Gilead has been working on an “experimental antiviral treatment which is being tested against... Covid-19”, says Robert Cyran on Breakingviews. However, it “can be hard to profit from epidemics because they are often short lived and always politically fraught”. As a result, it’s “always nice to have other options”, especially as Forty Seven’s price is “reasonable enough for a deal of this kind”.