A Good Fit. On the Surface.

On the surface, Gilead Sciences' (Nasdaq: GILD) purchase of privately held Arresto Biosciences looks like a good fit.

Arresto's AB0024 is in a phase 1 trial for idiopathic pulmonary fibrosis (IPF), and Gilead has an IPF drug, ambrisentan, in phase 3 trials. At worst, AB0024 acts as a backup compound if ambrisentan fails, and at best, the drug might complement ambrisentan clinically and allow Gilead to flex its IPF sales force against InterMune's (Nasdaq: ITMN) Esbriet, which is headed toward an approval in the EU and eventually in the U.S.

A closer look makes you wonder where Gilead is going with the $225 million purchase, though. AB0024 attacks a protein involved in making fibroids that cause IPF, but the protein is also involved in making the matrix that forms around tumors. AB0024 is also being tested against solid tumors.

Remember, Gilead is a company specializing in antiviral drugs. Expanding into heart drugs and IPF seemed reasonable; you can only develop so many compounds for HIV and hepatitis. The number of patients in these indications is relatively small, which can keep sales costs down.

But cancer? Does Gilead really want to get into that highly competitive business? Look at how much its peers spend on hocking their drugs to large markets.

Source: Capital IQ, a division of Standard & Poor's.

Plus, there's the fact that AB0024 is an antibody, a drug class that Gilead has no experience with.

Who knows -- maybe Gilead will out-license the cancer rights to Celgene, Amgen, or one of the big pharmas. But if this is the future of Gilead, investors would be wise to make sure the new Gilead is still a good fit for their portfolio.

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