Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Gilead is sitting on the second biggest cash pile in biotech, $21 billion, and wants to become a cancer-drug power player. Investors are clamoring for proof it can still grow, as its blockbuster hepatitis C drugs start their inevitable decline.

But a mega-deal for another giant company seems unlikely, and the company isn't interested in any deal for the hottest current cancer treatments. Gilead is years behind on the first generation of immuno-oncology (IO) drugs, which weaken tumor defenses and help the immune system recognize cancer. Swarms of firms are chasing such targets. And the company is cautious about another new and increasingly crowded IO approach, so-called "cell therapies," which harvest human cells and genetically modify them to hunt cancers.

Spurning the hottest areas in cancer research, while trying to divine what will be hot many years out, seems risky. But there's a lot to be said for skipping something exactly because it's popular. 

Past Glory
Gilead's forward P/E is the lowest among the big biotechs. Its best selling hepatitis drugs are starting to slow down, and there's no clear replacement in its pipeline.
Source: Bloomberg
Mature biotech is the mean P/E of the four companies included on the chart.

The first super-successful IO drugs, such as Bristol-Myers Squibb's Opdivo, are expected to exceed $19 billion in sales by 2020. Combinations of those drugs with others will only boost their effectiveness. 

But there are 16 drugs of Opdivo's general class being tested or prescribed in humans, according to an analysis from a partner at biotech venture capital firm Atlas Venture. More than 50 others are in earlier stages of development. The pileup is such that the FDA's cancer chief has criticized drugmakers for all trying to do the same thing.

Gilead could try to force itself into this traffic jam. But any deal for a drug in early stage development means a long wait for approval, a late arrival on the market, and a bad competitive position against a number of already marketed medicines. Unsurprisingly, the company has said it isn't interested. As much as short-term-oriented investors might want it, analysts say the sort of huge acquisition it would take to leap to the front of the IO pack would be out of character for Gilead.

And, cultural and integration issues aside, buying a Bristol-Myers would be a financial stretch.

A Mouthful
Gilead is unlikely to pursue a mega-deal for a company like Bristol-Myers with its $21 billion in cash.

As for genetically modified super-cells, Gilead CEO John Milligan told Bloomberg News that he's cautious. Cell therapies are labor-intensive; the first generation of these treatments have to be made separately for each individual patient, and a great deal of expensive preparation and supportive care is required to use them. 

He's not wrong. These drugs are likely to be pricey and can have serious side effects. It's uncertain they'll succeed commercially, despite the big bets on them made by companies such as Juno and Kite. Others are already working on new approaches, including using Crispr gene-editing technology, that could make these early attempts obsolete. 

Gilead's disinterest in this stage of IO and Milligan's cell-therapy doubts suggest the company is looking further into the future for its cancer strategy. If it's focused on what's going to be cutting-edge five years from now, then a string of smaller, earlier-stage deals seems most likely. 

That's not necessarily a bad strategy. Bristol-Myers landed Opdivo --  and its expected $13 billion in peak sales -- through a $2.1 billion deal for Medarex in 2009. The question is whether Gilead can pick 'em in cancer as well as it has for viruses, and if investors will be patient enough to give it a shot. 

Gilead has rewarded trust in the past, on its way to being the dominant drugmaker in both AIDS and hepatitis. Under some scenarios, its hepatitis decline may be slower than many expect. And it has nearer-term bets on other liver diseases and inflammation drugs. And there's enough "me-too" already in the market. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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