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Biotech waiting game still paying off for Gilead

February 9, 2016
Life sciences

It’s no secret that Gilead Sciences is on the hunt for acquisitions. But the dismal market for biotech stocks means management can be as patient as it wants.

Monday was another ugly day for biotech. The Nasdaq Biotechnology Index fell more than 3%. It has lost 27% this year and is off nearly 40% from its peak hit last July. Meanwhile, the SPDR S&P Biotech ETF, which includes more speculative biotech companies, has shed half its peak value.

But Gilead closed slightly higher Monday.

The selloff hasn’t exactly spared Gilead, one of the main biotech index’s biggest components; the stock is down 16% year to date and 30% from its peak. But in this environment, that’s almost respectable. And Monday, the shares weren’t punished anywhere as much as peers.

Plus, with biotech stocks showing no sign of getting off the mat any time soon, Gilead stands to benefit from the gloomy environment. For one thing, Gilead has made clear it is looking to replenish its pipeline.

Investors are concerned that Gilead’s Hepatitis C franchise is maturing, but the business still generates huge cash flows. The pile of cash and securities on Gilead’s balance sheet now exceeds $26 billion. And as the biotech bear market grinds on, it’s likely that some smaller companies will warm to the certainty of being bought out.

Gilead is bound to open its wallet at some point. But as long as stock-market action like Monday’s is the norm, waiting only increases the bang Gilead will eventually get for its buck.

Source: Wall Street Journal

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