![Daniel O'Day Gilead CEO, formerly of Roche]()
- Roche Pharmaceuticals veteran Daniel O'Day will take over as CEO of Gilead Sciences next year.
- Wall Street is hoping O'Day will put Gilead's cash to work in big deals, but some say his track record for deals is limited.
- Gilead's flagging pipeline of drugs will need to be a top priority for O'Day — and there are already some hints about what his focus will be.
Gilead Sciences' quest for a new CEO came to an end early Monday, with the struggling pharmaceutical company announcing that Roche Pharmaceuticals CEO Daniel O'Day will take the helm starting in early March 2019.
O'Day, who has spent his entire 31-year career at Swiss healthcare giant Roche, was praised by many on Wall Street as a qualified and uncontroversial choice for the position.
O'Day's total compensation package is valued at just under $31 million in his first year, including a base salary of $1.6 million, a bonus opportunity of up to $2.4 million, and millions in stock options and restricted stock units, which vest over a period of a few years.
Analysts also enjoyed the opportunity to make some puns.
"At the end of the day, no huge surprise," RBC Capital Markets analyst Brian Abrahams said, dubbing it a "Brand new day for GILD."
The pharmaceutical veteran's career has spanned a dizzying array of Roche's business units, with stretches in Switzerland, Japan, and Denmark.
O'Day led some dealmaking during his time at Roche, prompting hopes that he will put Gilead's billions in available cash to work.
The search for a replacement for John Milligan, Gilead's current CEO, has spanned roughly 4 1/2 months and left many investors unsure what to think about the drugmaker's future.
Gilead is seen as a company in need of a turnaround, and the resignations of several high-profile executives haven't helped.
Even before Milligan's departure was announced in late July, Chairman John Martin and Norman Bischofberger, the company's then chief scientific officer, both said they were exiting the company. Andrew Cheng, who was appointed chief medical officer in March, also departed in recent months.
The company has been predicting a return to growth for the entire past year, and in recent quarters its financial results have beat Wall Street estimates.
Yet Gilead's stock continues to slump, dropping 8.4% over the last three months but still outperforming the broader biotech sector.
Milligan plans to wrap up his 28 years at Gilead at the end of 2018, and longtime Gilead executive Gregg Alton will hold the position between January and March.
O'Day's compensation package also includes perks for leaving Roche, including $8.5 million in restricted stock options, a one-time cash payment of $5.68 million, and $750,000 a year for his first five years in return for the pension benefits he's leaving behind.
Gilead said in an SEC filing that it will also provide relocation benefits to help O'Day move to Northern California (Gilead headquarters are located in Foster City).
By way of comparison, Milligan's pay package totaled about $15.4 million in 2017. A company spokesperson declined to comment on the compensation package beyond the filing.
O'Day likely won't put out his agenda until he starts at Gilead. But here are some of Wall Street's best thoughts on the company's key challenges — and how the new CEO may address them.
Building out a pipeline with a new focus on cancer
Hepatitis C and HIV medications have long been Gilead's core franchises, but they have become less dependable sources of growth.
In large part, that's been because Gilead's hepatitis C medications have done a good job curing patients and because of patent expiries.
O'Day will be looking for ways to diversify the company's product pipeline, and his experience in oncology looks like a clear signal to many onlookers.
Cancer "historically has not been GILD's strong suit, so the hiring of an exec from a major oncology company reflects in part GILD's future direction," Jefferies analyst Michael Yee said.
Building out cancer partnerships could also provide a nearer-term lift for Gilead than something like cellular therapies, which O'Day will likely continue to invest in, according to RBC's Abrahams.
Read more: Gilead's CEO is leaving by the end of the year, and the biotech giant still hasn't picked a replacement. Wall Street has a few ideas.
Notably, Gilead bought cell-therapy biotech Kite Pharma in 2017, and its cutting-edge chimeric antigen receptor T cell therapy, Yescarta, was approved for lymphoma later that year.
Inflammation and respiratory, where Gilead has done some work so far, as well as neurology, are also potential areas for investment, Abrahams said.
Deals, deals, deals
Gilead has almost $30 billion in available cash, according to Cantor Fitzgerald analyst Alethia Young's calculations, stoking anticipation on Wall Street that there's dealmaking ahead.
Roche did at least 17 deals between 2014 and 2018, according to Young, with most valued below $1 billion.
One notable exception is Roche's $8.3 billion acquisition of biotech company InterMune in 2014, the largest acquisition it made during that time period.
Other large deals include Roche's $1.9 billion purchase of cancer-data platform Flatiron Health and a $1.7 billion deal for cancer-drug maker Ignyta.
O'Day's track record, though, could be a bone of contention for investors, Morgan Stanley analyst Matthew Harrison said, noting that O'Day has overseen a "limited number" of deals.
"Investors are looking for the new CEO to put Gilead's cash to work and given O'Day's history, we think investors will take a wait and see approach related to his ability to transform Gilead through [mergers and acquisitions]," he said.
But Barclays analyst Geoff Meacham argued that the new job should mark a change of pace for O'Day, who "is more likely to be more aggressive on the deal and biz-dev front, which is a strategy that investors favor as it would help further diversity the core HIV franchise."
Moving to focus on operations
In spite of his experience, O'Day is an unusual choice in some ways for Gilead.
He is the first outside CEO Gilead has appointed in 20 years and the first CEO in 20 years without a PhD or medical degree, Mizuho analyst Salim Syed said.
The latter quality could make operations at Gilead more of a priority, he said, noting that "the company is also much larger today, so it's not necessarily a bad thing in our view."
O'Day might also try some new strategies to perk up declining businesses, Cantor Fitzgerald's Young said.
"One of his key legacies from Roche, in our view, was to weave products with companion diagnostics," Young said.
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