Gilead Embraces Change

Five years after Gilead Sciences seemed to say "good riddance" to therapeutic areas outside its core competency of infectious disease, the company is taking another stab at a new market--raising questions about the best way to group a mid-size company.

With its acquisition of Myogen, Gilead, which is best known for its HIV franchise, will add products for pulmonary hypertension and heart failure to its portfolio. The move is a retreat from a strategy it pursued in 2001, when it sold its oncology assets to OSI in order to focus on infectious disease.

"One of the challenges of focus is that, at some point, you need to broaden horizons again," Howie Rosen, Gilead's vice president of commercial strategy, told Pharmaceutical Executive in March. "When you get there, how do you maintain discipline, and at the same time get comfortable out of the existing zone of expertise?"

Although the acquisition--in which the Westminster, CO-based Myogen will receive $52.50 per share, or about $2.5 billion--diversifies Gilead's portfolio, the company will maintain its focus on specialty pharmaceuticals.

Myogen's product line, including hypertension drugs Flolan (epoprostenol) and Phase III candidate ambrisentan, complement the respiratory and pulmonary products Gilead absorbed through its August acquisition of Corus.

"They said for a long time that they wanted to expand into new verticals," said Sharon Seiler, a biotechnology analyst who covers Gilead at investment bank Punk Ziegel & Company, adding that the company "saturated the chronic antiviral" space.

Seiler questioned whether the pulmonary market is the best place for Gilead to expand, but noted that, like antivirals, the already-sizeable pulmonary market is growing as physicians make more frequent and earlier diagnoses.

Myogen wasn't actively looking for a buyer but was intrigued by Gilead's offer, according to Derek Cole, Myogen's director of investor relations.

He acknowledged that the compounds themselves "are not a direct overlap," but said Myogen saw advantage in Gilead's bigger resources, access to niche markets, and "substantial experience growing out franchises."

The challenge for growing companies is to expand product offerings in areas where they have scientific and commercial competencies--not just pursue growth for growth's sake, noted Jerry Cacciotti, managing director of life sciences at consulting firm Strategic Decisions Group.

He pointed to companies like Merck and Pfizer that changed course to focus on a core group of therapeutic areas, however broadly defined.

"That's been the success template for the small and mid-sized companies," Cacciotti said. "The single bullet sale is no longer possible. I think you're going to [see companies with] a richer commitment to a therapeutic space."

With a greater ratio of older to new drugs on the market, companies are finding that developing core areas of expertise brings certain advantages, such as consistent relationships with regulators and the ability to develop combination products.

At the same time, growing a company also means diversifying its competencies. "You can't have that growth strategy and stay focused on one therapeutic category," Cacciotti said.