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Gilead can lever up to 4X EBITDA for M&A: B of A

April 21, 2017

BofAMerrill Lynchh analyst Ying Haung views M&A as a top priority for Gilead Sciences (NASDAQ: GILD) as its pipeline is insufficient to address faster-than-expected declines in HCV sales. The firm provided an analysis on speculated takeover targets, including: Incyte (NASDAQ: INCY), TESARO (NASDAQ: TSRO), Clovis Oncology (NASDAQ: CLVS), Vertex Pharma (NASDAQ: VRTX) and Bristol-Myers Squibb (NYSE: BMY).

Haung said GILD’s cash flow of $16 billion in 2016 supports up to 4x EBITDA in leverage.

The analyst sees oncology as one focus area, making INCY, TRSO, CLVS and BMY potential candidates. Meanwhile, VRTX’s rare disease focus in cystic fibrosis could generate significant future cash based on approved Orkambi and Kalydeco, as well as triple combinations for larger market.

While they see a deal likely, a takeover of INCY, TRSO, CLVS, VRTX or BMY would not be sufficient to return the company to its previous growth levels, the analyst said.

Based on their analysis, BMY would contribute the most, bringing potential combined revenue growth to a 2% CAGR over 2018-2012. However, BMY would be the most dilutive at 15.2% dilutive in 2018. Meanwhile, VRTX would be most accretive at 4.1% accreation to 2018.

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