Why Gilead Can't Easily Copy Celgene's 'Partner Partner Partner' Deal-Making Playbook
When it comes to business development, Gilead Sciences (GILD) - Get Report should act more like Celgene (CELG) - Get Report . Partner, partner, partner. Open the wallet wide. Spend millions, billions even, on dozens of drug and technology licensing deals with smaller biotech companies.
This is easy advice to offer, but the execution is a lot more difficult to pull off.
The Celgene "string of pearls" business development strategy works for Celgene because it has current products still delivering strong sales growth. Celgene wants to diversify away from being so heavily reliant on Revlimid, but as long as the blood cancer drug continues to post impressive year-over-year revenue growth, the company has the luxury of patience. It can spend heavily on partnering deals and afford to wait years to see if those bets pay off.
In the past two years, Celgene has committed $3.2 billion in cash to partnership deals (upfront licensing fees and equity stakes), according to Endpoints. $1 billion of Celgene cash is spent on Juno Therapeutics. Jounce Therapeutics gets a $200 million upfront and an equity investment for drugs that haven't even started human studies. Epizyme, Bluebird Bio, Acceleron, OncoMed -- the list of Celgene partnerships is impressive.
Gilead is an entirely different situation. In 2015, total revenue hit $32.6 billion due, in large part, to the incredible success of its hepatitis C franchise. But the hepatitis C patient pool is shrinking and so is Gilead's revenue. The company is expected to record $30.6 billion in revenue this year, with the downtrend continuing through 2017, 2018 and 2019, based on current forecasts.
When your top line is in decline, it's much harder to convince investors that it's okay to wait three, four, five years or more to see if a partnership in an early-stage biotech company delivers a new, home-run drug. This is why, until very recently, investors were hoping to see Gilead pull off a huge, transformative deal like possibly acquiring (or merging with) Bristol-Myers Squibb. A blockbuster deal like that would be impactful immediately.
Celgene and Gilead are peers in that both companies are members of the big-cap, profitable biotech club. We think of them as roughly equivalent. But they're really not. In almost all ways financial, the metrics that matter most, Gilead dwarfs Celgene in size.
Last year, Celgene's total revenue was $9.25 billion. Gilead's: $32.6 billion. Gilead generated three and half times more revenue than Celgene. Celgene's operating and net income last year were $2.25 billion and $1.6 billion, compared to $22.2 billion and $18.1 billion for Gilead.
To borrow a popular phrase these days, Gilead is YUGE!! next to Celgene.
When it comes to business development strategies and finding new revenue growth streams, size matter a lot. It is much easier for Celgene to move the revenue growth needle than it is for Gilead.
Gilead may not have a choice but to follow Celgene's aggressive biotech partnering strategy, but it won't be easy.
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.