Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

My First Take On Gilead's Big M&A Move

|About: Gilead Sciences, Inc. (GILD)

I use basic option strategies (buy-write's, covered calls, and bull put spreads) within my personal biotech portfolio, but I am certainly no expert in this field. For those that want to learn about more advanced option strategies to put in their investor 'toolbox', I highly recommend the free 30 minute report and 7 minute video my Investors Alley's colleague Jay Soloff has recently put together. Jay has been teaching about and using option strategies successfully for two decades. The free video and report can be downloaded HERE

Curiosity is only vanity. We usually only want to know something so that we can talk about it.” - Blaine Pascal

After almost two years of being prodded by analysts and shareholders alike to pursue acquisitions to develop a new business aside from their core market leading HIV and HCV, management of Gilead Sciences (GILD) finally took the plunge this morning.

The biotech stalwart acquired midcap CAR-T concern for $180 a share.  This amounts to a mostly cas ~$11 billion purchase at an approximate 30% premium to Friday's closing price.  Ironically this is almost the same amount Gilead laid out for Pharmasset in 2011.  That turned out to be one of the most accretive acquisitions in the history of the industry as it brought Gilead its blockbuster hepatitis C franchise.

While larger than the $1 billion to $5 billion purchase range that management has guided to consistently in recent years, it did expand Gilead into one of its key focus areas; oncology.

Kite has a vast pipeline of promising candidates.  The most advance of which is KTE-C19 (axicabtagene ciloleucel) which is the company's lead candidate and is being evaluated in a series of clinical trials (ZUMA) in the treatment of different types of lymphoma.  This compound has a November 29th PDUFA date to hopefully to be approved for Refractory Non-Hodgkin's Lymphoma {NHL} - cancer.  I would say that based on trial data, Gilead must be mighty confident of getting the 'green light' from the FDA to enter into this purchase prior to this decision.

The initial reaction by the market to this purchase is positive.  Gilead's shares are trading up some three percent in mid-day trading.  While the purchase price appears large, it amounts to approximately three quarters of the company's operational cash flow.  This points to what a cash flow machine Gilead is, and I doubt this will be the last purchase to expand the company's footprint into oncology; something I think investors and analysts will continue to applaud.

Credit Suisse, while surprised Kite Pharma was the target, reiterated its Outperform rating and $79 price target on GILD.  It believes Gilead is done making large acquisitions, but thinks it could make 'bolt on' purchases to expand its presence in the emerging CAR-T.

Even before this acquisition news hit the wires,  the stock was starting to show some strength recently despite continued competition in the hepatitis C market.  Perhaps recent wins in its HIV franchise and advancement in the other parts of its pipeline are finally becoming bigger focus areas for investors; as they should.  Today's acquisition news should further boost sentiment on the shares.  My recent prediction that GILD would broached the ~$75 level looks better after today's news.

Pride is the mother of arrogance.” - Toba Beta

We recently launched a separate SA feed called the Busted IPO Forum.  This Forum is focused exclusively on stocks that have been public for 18 months to five years that are significantly under their offering price.  Many times after the initial analyst hyperbole has died and lockups have expired, these same companies can be had for 30 to 50 cents on the dollar to where the shares went public.  I have found many multi-baggers like ZELTIQ Aesthetics and AskJeeves over the years trolling this neglected space and I have talked about these opportunities consistently in my seven years writing here on SeekingAlpha.  If you would like to get these free articles as soon as they are published, just become a real-time follower to Busted IPO Forum by clicking HERE and hitting the big orange 'follow' button, selecting the 'real-time' option.

Pride costs us more than hunger, thirst, and cold.”  - Thomas Jefferson

Thank You and Happy Hunting

Bret Jensen

Founder, Biotech Forum & Insiders Forum

Disclosure: I am/we are long GILD.