Gilead Gears Up to Fight Cancer

When Gilead Sciences (Nasdaq: GILD  ) purchased Arresto Biosciences late last year, I wondered whether the HIV specialist was inching into the cancer market. Today, with the purchase of privately-held Calistoga Pharmaceuticals, the company dove straight in.

Let's just hope it doesn't crack its head open on the bottom of the diversification pool.

Calistoga offers Gilead one compound, CAL-101, that's in phase-2 trials for a couple of different cancers and a pipeline of preclinical compounds that might be worth something down the line. Gilead is paying $375 million upfront, and it's on the hook for up to an additional $225 million if milestones are met. The deal seems reasonable on the surface, and Gilead can certainly afford it; at the end of last year, the company had $5.3 billion in the coffers.

But just because it's a decent deal doesn't mean Gilead should be jumping into the cancer realm. Does it really want to be competing with Celgene (Nasdaq: CELG  ) , Amgen (Nasdaq: AMGN  ) , Onyx Pharmaceuticals (Nasdaq: ONXX  ) , and the other companies with more experience in that arena?

Gilead tried this once before. A decade ago, it licensed a bunch of cancer drugs but eventually sold the entire division to OSI Pharmaceuticals.

Admittedly, the company needs to diversify if it wants to grow; its top three drugs made up nearly 80% of revenue last year. Once the patents expire, sales will come crashing down, and the up-and-coming HIV drugs in its pipeline will have a difficult time competing against cheap generics. But I'm not initially convinced that cancer drugs are the way to go.

Admittedly, I don't have any better suggestions for Gilead to diversify into; branching out into heart drugs hasn't exactly been the best move.

Maybe Gilead would be best off sticking with other infectious diseases -- the company has a fairly strong hepatitis C pipeline -- and returning the free cash to shareholders in the form of a dividend. Sure, it's not as sexy and the cash flow will dry up when the HIV drugs start declining, but it might be more beneficial to shareholders in the long run.

Interested in keeping track of Gilead as it diversifies into oncology? Click here to add it to My Watchlist, which will help you keep track of all our Foolish analysis on Gilead.

Gilead Sciences is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


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  • Report this Comment On February 23, 2011, at 8:22 PM, herpesfinder wrote:

    If you have been recently diagnosed with positive, you may be upset and confused and think your sex life is over. However, it's not the end of the world, and it's not the end of your social life. You are not alone! Check STDromance==COM.......Many cities in the US and around the world have herpes/HIV/HPV social and support groups that you can join to meet others who are in the same situation.

  • Report this Comment On February 24, 2011, at 11:51 AM, mhy729 wrote:

    hehe...this spammer found your article with the keywords 'HIV' and 'hepatitis C'. damned spammers.

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