Gilead (GILD - Get Report) could be both a buyer and a seller in coming months, as analysts and investors speculate about the company's need for assets that could boost revenue as well as its floundering hepatitis division.
One idea that has been floated in financial circles is a spin-off of the company's hepatitis C division, which saw an 18% year-over-year decline in sales for the second quarter of 2016. This primarily came from Gilead's three hepatitis C drugs, Harvoni, Sovaldi and Epclusa.
"We find that spinning off HCV [hepatitis C] would help GILD's long-term growth profile - which could improve sentiment - though there would still be earnings lumpiness in the underlying HIV business, which could weigh on the multiple," analyst Brian Abrahams of Jefferies LLC wrote in a note.
According to analyst Michael Yee of RBC Capital, some think the company, which rakes in $30 billion in revenue, could be too large and may benefit from a spin off.
In Yee's view, Gilead could continue to hold the company and operate it as a separate entity, and let it bring in cash and generate a dividend yield.
Abrahams said in a note that this could improve the company's long term growth profile, which could then improve investor sentiment.
However, speculation has been floating that instead of, or in conjunction with spinning off the hepatitis C division, Gilead could look to become a buyer, either by acquiring one large biopharmaceutical company, or several smaller ones, in a "string of pearls" type of strategy.
"The outstanding question about Gilead now is what it does next; with nearly $20 billion in operating cash flow, and close to $17 billion in free cash flow, it has plenty of opportunities," analyst Geoffrey Porges of Leerink wrote in a note. "So far, its internal pipeline does not seem to have the scope, or probability of success, to materially improve its outlook or offset what increasingly looks like a steadily eroding mountain of HCV revenue."
Large cap companies like New York-based Bristol-Myers Squibb (BMY - Get Report) and Summit, N.J.-based Celgene (CELG - Get Report) could be acquisition targets, Yee said. Neither could be reached for immediate comment.
"I think there is reluctance to do those types of large deals because those large M&A situations are challenging," Yee said in an interview. "The second, more likely thing is that they'll embark on a string of pearls plan."
He added that small to mid-cap companies with interesting data and new drugs would likely be a better fit for Gilead. The company has said in the past that it is looking into the oncology space specifically for acquisitions.
According to Abrahams, the targets that make sense within that space include Wilmington, Del.-based InCyte Corp. (INCY - Get Report) and Boston-based Vertex Pharmaceuticals Inc. (VRTX - Get Report) . Neither could be reached for immediate comment.
There has been some speculation too that Gilead could be taking a look at Medivation.
However, Yee added, Medivation (MDVN) , which Gilead has been reported to be a bidder for, likely isn't the best fit for the oncology biotech company.
"I don't think that Gilead is the best fit for Medivation," Yee said. "They don't have a solid tumor presence to make that work. They would be better suited to look to build better oncology assets elsewhere."
Gilead, which has a market cap of $107.7 billion, was trading at $80.92 per share Monday, up 1.8% from market's open.