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

Gilean, the biopharma giant, is stocking up on potentially lucrative cancer drugs by snapping up smaller operators.

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”.

Recommended

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?
Mortgages

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?

Increasing numbers of homeowners are paying an early repayment charge to leave their fixed-rate mortgage deal early, and lock in a new deal now. Shoul…
30 Sep 2022
Energy meter reading day: why you need submit your gas and electricity readings now
Personal finance

Energy meter reading day: why you need submit your gas and electricity readings now

Energy meter reading day - you need to submit your gas and electricity readings as soon as possible ahead of the October energy price increase
30 Sep 2022
Should you fix your mortgage? Here are the best rates available now
Mortgages

Should you fix your mortgage? Here are the best rates available now

Rising interest rates look set to spring a nasty surprise on millions of homeowners next year. You need to take steps today to protect yourself from a…
30 Sep 2022
Why the Bank of England intervened in the bond market
Government bonds

Why the Bank of England intervened in the bond market

A sudden crisis for pension funds exposed to rapidly rising bond yields meant the Bank of England had to act. Cris Sholto Heaton looks at the lessons …
30 Sep 2022

Most Popular

What to do as the age of cheap money and overpriced equities ends
Investment strategy

What to do as the age of cheap money and overpriced equities ends

The age of cheap money, overpriced equities and negative interest rates is over. The great bond bull market is over. All this means you will be losin…
29 Sep 2022
Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
Mini-Budget: will Kwasi Kwarteng’s gamble on growth work?
Budget

Mini-Budget: will Kwasi Kwarteng’s gamble on growth work?

The government has launched the biggest dash for growth in 50 years, relaunching an approach known as supply-side economics. What is the plan – and wi…
30 Sep 2022