Gilead to Buy CV Therapeutics

Gilead to Acquire CV Therapeutics for $1.4 Billion

In a surprise move this morning, Gilead Sciences (GILD - Analyst Report) announced it has signed a definitive agreement to acquire CV Therapeutics, often referred to as "CVT" (CVTX) for $1.4 billion, or $20 per share. The news comes a month after CVT rejected an unsolicited bid from Astellas Pharmaceuticals for $1.0 billion, or $16 per share. Once the deal closes, CV Therapeutics will become a wholly-owned subsidiary of Gilead.

We are surprised by the announcement this morning considering the move is outside Gilead's core focus of infectious diseases such as HIV and Hepatitis C. CV Therapeutics' leading product, Ranexa, is indicated for the treatment of chronic angina.

The HIV/AIDS franchise drugs -- Viread, Truvada and Atripla -- accounted for 81% of Gilead's $5.3 billion in revenues in 2008. Gilead management is making a bold move to diversify its revenue stream with the acquisition of CVT. Gilead made a similar bold move in 2006 with its $2.5 billion acquisition of Myogen and with it, leading product Letairis for pulmonary arterial hypertension.

CV Therapeutics' Ranexa  posted sales of $109 million in 2008. CVT's revenues also include royalties on Lexiscan, a recently approved pharmacologic stress agent sold by Astellas. In total, CVT delivered total revenues of $154.5 million in 2008.

Our financial model forecasts this number to increase by a 40% compound annual rate (CAGR) through 2013 to $467 million thanks to strong sales of Ranexa in both the U.S. and rest of world. CVT posted a net loss of $94 million in 2008. Our financial model forecasts profitability for CVT on a standalone basis starting in 2011.

Gilead will finance the transaction through available cash on hand. At the end of 2008, Gilead had approximately $3.2 billion in cash and equivalents. CV Therapeutics exited 2008 with approximately $263 million in cash and equivalents and $292 million in convertible debt. Gilead expects the transaction to be dilutive to earnings in 2009, neutral to accretive in 2010, and accretive thereafter starting in 2011.