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In a bid to expand its oncology pipeline, biopharmaceutical company Gilead Sciences Inc. (GILD - Analyst Report) inked a definitive agreement to buy a Canada-based drug development company, YM BioSciences Inc. for $2.95 per share. The all-cash deal, already cleared by the Board of Directors at YM BioSciences, is worth approximately $510 million.

The closure of the deal is dependant on the approval of the stockholders of YM BioSciences along with the satisfaction of certain other customary conditions. Gilead expects to close the acquisition in the first quarter of 2013. The offer price of $2.95 per share represents a premium of 81% over YM BioSciences’ closing price of $1.63 on December 11 2012.

As per the terms of the deal, each shareholder of YM BioSciences will be eligible to receive $2.95 for each share in cash. Moreover, holders of warrants and stock options will be eligible to receive the difference between the offer price of the deal and the exercise price of the warrant or stock option in cash.

On completion of the deal, Gilead’s oncology pipeline will be strengthened by the addition of CYT387, which is YM BioSciences’ lead candidate. CYT387 has completed phase I/II studies for the myelofibrosis indication. The candidate is expected to be moved into phase III studies for the same indication in the second half of 2013. Gilead intends to evaluate CYT387 in other oncology indications as well, once the candidate becomes part of its pipeline.

Currently, the lead oncology candidate at Gilead is idelalisib (formerly GS-1101). The candidate, added to Gilead’s pipeline through its 2011 acquisition of Calistoga Pharmaceuticals, is under development for the chronic lymphocytic leukemia and indolent non-Hodgkin’s lymphoma indications. Another oncology candidate at Gilead is simtuzumab (formerly GS- 6624). The candidate, added to Gilead’s pipeline through its 2010 acquisition of Arresto Biosciences, is being evaluated in multiple oncology indications.

Our Recommendation

We currently have a long-term Neutral recommendation on Gilead. The stock carries a Zacks #3 Rank (Hold) in the short run. Another biopharmaceutical company, Questcor Pharmaceuticals, Inc. carries a Zacks #2 Rank (Buy) in the short run.

We have a Neutral stance on YM BioSciences. The stock carries a Zacks #2 Rank (Buy) in the short run.

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