Gilead Sciences Inc. (GILD) recently announced that it has signed a definitive agreement to acquire Arresto Biosciences Inc., for $225 million in cash. California based, privately held Arresto Biosciences is a biotechnology firm engaged in developing therapeutics for fibrotic diseases and cancer. The transaction also includes additional future milestone payments based on sales.
The acquisition is expected to close in the first quarter of 2011. Gilead plans to finance the acquisition with cash on hand.
Arresto’s lead pipeline candidate is AB0024, a humanized monoclonal antibody (mAb) targeting the human lysl-oxidase-like-2 protein. AB0024 is being studied in phase I trails for the treatment of idiopathic pulmonary fibrosis (IPF), a rare and fatal lung disease, and advanced solid tumors. Arresto is also conducting preclinical studies for certain candidates targeting proteins associated with various inflammatory diseases.
We believe the Arresto acquisition represents a good strategic fit given Gilead’s respiratory/early-stage cancer franchise. Moreover, we believe the acquisition will complement Gilead’s pipeline, particularly, Letairis which is being studied (phase III) for the treatment of IPF. Letairis is currently marketed for the treatment of pulmonary arterial hypertension (PAH).
Our View
We currently have a Neutral recommendation on Gilead, which is supported by a Zacks #3 Rank (short-term Hold rating). We remain optimistic on the growth potential of Gilead’s HIV franchise drugs, Truvada and Atripla and the company’s progress with its pipeline. However, the company’s HIV drugs are facing patent challenges from companies seeking to launch generic versions of the drugs.
Small acquisitions of early stage companies like Arresto and CGI Pharmaceuticals (mid-2010) are minimally dilutive and add to the company’s pipeline. However, they are unlikely to reduce investor concern regarding HIV franchise patent expiration over the next decade.
GILEAD SCIENCES (GILD): Free Stock Analysis Report
Zacks Investment Research
