Cash-rich Gilead should consider Incyte takeover, but it won't come cheap

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A combined pipeline would cover a range of immuno-oncology targets.

With investors clamoring for a deal to broaden its focus, Gilead could do a lot worse than make a bid for Incyte, say analysts at Leerink, though they admit it could be a pricey deal given Incyte's $28 billion enterprise value.

Putting the two businesses together would give Gilead a big step up in oncology—one of its strategic target sectors along with inflammation and liver diseases—with the potential to pair up some interesting cancer drugs in their respective pipelines, according to Leerink's Geoffrey Porges and Bradley Canino.

"We have written extensively about the imperative for Gilead to diversify their portfolio and secure additional pipeline programs," they write in a research note. Buying Incyte would give Gilead a JAK inhibitor Jakafi (ruxolitinib) on the market for myelofibrosis and polycythemia vera, along with a pipeline with a number of candidates pitched at emerging immuno-oncology drug targets.

"Incyte is one of the few acquisitions in the oncology field that could fill the gaps in Gilead’s portfolio while meaningfully impacting its outlook and growth trajectory with significant immediate revenue," they write, noting that consensus estimates for Jakafi's peak sales are running north of $5 billion by 2029.

As it stands, Gilead has drugs targeting MMP9, Syk, BTK and BET in clinical trials. Incyte's pipeline would add drugs targeting FGFR, IDO, GITR and OX40, providing plenty of opportunity for developing combination recipes that are expected to become the foundation for cancer immunotherapy in the future. Chief among these is epacadostat, which has the chance to become the first IDO1 inhibitor to reach the market with positive data in non-small cell lung cancer and bladder cancer, and potential sales of more than $4 billion by 2025.

Taken together, the combined pipeline would extend well beyond Gilead's current focus on blood cancers and include hematological proliferative disorders like myelofibrosis and solid tumors, and would also include scope for cost-cutting.

Gilead has had a frustrating time breaking into the cancer sector so far. Leukemia and lymphoma drug Zydelig (idelalisib) reached the market in 2014 but has been held back by side effects that have hindered sales expectations. Meanwhile, Gilead's own JAK inhibitor momelotinib posted lackluster data in myelofibrosis trials last year and has been suspended from development—which was crushing news at the time but has cleared aside an overlap with Incyte's portfolio.

Gilead recently hired Alessandro Riva as its head of oncology from Novartis, and this has already led to speculation that the company may be thinking about an offer for Incyte, given that Novartis partners Jakafi outside the U.S. market.