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Is Gilead poised for deal-making?

Gilead is getting ready to do some M&A. Finally.

At least, that is what investors are hoping now that the big biotech has tapped Novartis' head of global oncology development to head its own fledging oncology program. Gilead announced on Tuesday that Alessandro Riva will take over as hematology and oncology therapeutic area head.

Riva spent 12 years at Novartis, where he oversaw the development and approval of more than 20 hematology and oncology candidates. He was also a member of the Novartis Oncology Division Executive Committee, Development Committee, Translational and Early Development Committee and Innovation Management Board.

Novartis is arguably one of the leading companies in the space – or at least it had been for most of the last decade. Its flagship leukemia drug Gleevec (imatinib) was a game-changing drug when it hit the market in 2001 and allowed Novartis to dominate the space. While the company has fallen behind competitors on the immuno-oncology side recently, it has been making moves to regain ground, particularly with its CAR-T program.

So what does Novartis' dominance in oncology do for Gilead?

Gilead – while still an incredibly profitable company – has been floundering. Its hepatitis C business has been so successful in actually curing patients that it's rapidly running out of patients to treat and revenues for products like Sovaldi and Harvoni have been declining. Harvoni revenues have dropped by $3 billion in the last year, going from $10.5 billion in the first nine months of 2015 to $7.4 billion for the same period of 2016.

Meanwhile, Gilead had several major setbacks in oncology. In November, Gilead announced a failure for its JAK inhibitor momelotinib. The drug failed to show superiority to Incyte's JAK inhibitor Jakafi (ruxolitinib), damaging any potential the company has to compete in the highly competitive space.

Zydelig, Gilead's first foray into the cancer space, got Food and Drug Administration approval in 2014, but has shown an unfavorable profile ever since. The company has been forced to stop several trials due to patient deaths. The drug had only $129 million in revenues in the first nine months of 2016.

With the addition of Riva to the team, Gilead is obviously interested in upping its presence in oncology and finally garnering a win for the unit. While it has a few oncology and hematology assets in its pipeline, there's little that has garnered investor enthusiasm.

Gilead also has a ton of cash on hand – $31.6 billion as of Sept. 30 – and investors have been pushing the company to make some deals. Some investors have even been pushing the company to split out the hepatitis C business entirely and keep the rest of the pipeline as a separate company. Gilead has squashed those rumors completely.

Gilead President and CEO John Milligan said recently that the company is looking to add in specific assets to the pipeline like it did when it acquired Pharmasset for sofosbuvir, the key ingredient in its hepatitis products.

Gilead may now be in the market for another acquisition like this, putting small- and mid-cap biotechs on the list. Jefferies analyst Brian Abrahams speculates that Incyte could be an ideal target for the company. Not only does Incyte have a strong oncology portfolio, but Incyte CEO Herve Hoppenot is also the former president of Novartis Oncology – a role Riva stepped into when Hoppenot left for the biotech.

Presumably this relationship could help move deal talks along for the two companies -- and that's when Riva's experience at growing product lines could come into play. Investors are likely to be watching for that scenario.

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Filed Under: Mergers and Acquisitions / Deals