Gilead Analysts Dissect Immunomedics Deal: 'Pricier But Bold Move Into Oncology'

Gilead Sciences, Inc. GILD announced over the weekend a deal to buy Immunomedics, Inc. IMMU, which recently transitioned to a commercial-stage biopharma following FDA approval of its antibody-drug conjugate Trodelvy as a third-line treatment for metastatic triple-negative breast cancer.

The Gilead Analysts: SVB Leerink analyst Geoffrey Porges maintained an Outperform rating on Gilead and lowered the price target from $88 to $94. 

Raymond James analyst Steven Seedhouse maintained a Market Perform rating. 

Jefferies analyst Michael Yee maintained a Buy rating and $78 price target.

Cantor Fitzgerald analyst Alethia Young reiterated an Overweight rating and $84 price target. 

The Immunomedics Analyst: H.C. Wainwright analyst Robert Burns downgraded Immunomedics from Buy to Neutral and raised the price target from $56 to $88.

SVB Says Deal Price Assumes Historic Revenues: Gilead's proposed acquisition of Immunomedics for $21 billion is the largest deal in Gilead's history, Porges said in a note. Immunomedics brings to Gilead's stable the first derisked solid tumor oncology program, the analyst said. 

Following Trodelvy's launch in the second quarter, the drug fetched sales of $20 million, he said. 

The upcoming ESMO presentation of Trodelvy's activity in triple-negative breast cancer and bladder cancer could alter investor perceptions of the drug and create significant upward pressure on the company's value, Porges said, citing Gilead.

Gilead's purchase price represented a 100% premium to Immunomedics' recent stock price, and the price requires "heroic revenue assumptions" to create value, with break-even being revenue at current consensus peak sales of about $4 billion, the analyst said.

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Immunomedics Deal A Good Move, Raymond James Says:  The proposed M&A looks like a good move, bringing something to Gilead that it was lacking, Seedhouse said.

The status quo position at Gilead wasn't inspiring, with NASH fading away, filgotinib facing rejection/delay, HIV PrEP competitive headwinds, slow CAR-T churn and remdesivir moonshot that probably won't materialize, the analyst said.

It remains to be seen whether Trodelvy is the Opdivo or Keytruda of ADCs, including in triple-negative breast cancer, where it faces threat from AstraZeneca plc AZN/Daiichi Sankyo's DS-1062, he said. 

"Our positive view of the deal is not enough for us to upgrade the stock though, since the implied >$3B remdesivir sales baked into 2020 guidance looks improbable."  

Morgan Stanley Says Deal Could Expand Gilead's Oncology Footprint: The Immunomedics deal builds Gilead's oncology pipeline, Harrison said.

Immunomedics' ADC platform features a novel proprietary hydrolyzable linker and validated payload SN-38, and its lead drug Trodelvy is undergoing pivotal trials for additional indications, including HR+/HER2- metastatic breast cancer and metastatic urothelial cancer, the analyst said. 

"This appears to be both an asset and a platform deal, as Trodelvy would immediately provide Gilead with a potential $1B+ approved indication, label expansion opportunities and the validated ADC platform with additional clinical/pre-clinical stage assets could expand Gilead's footprint in oncology."

Morgan Stanley sees the acquisition to be 5% accretive to earnings per share for 2024.

Jefferies On Catalysts, Headwinds From Deal: The acquisition will help Gilead move quickly into a commercial footprint for solid tumors and to prepare for other pipeline, Yee said.

"We think GILD is in a better place for 2021 than a year ago and the stock is still at 10x and out of favor," the analyst said.

A strongly Trodelvy launch; great bladder data; and positive data from the Phase 3 HR+ breast cancer study that's due in the first half of 2021 could serve as catalysts for increasing the Street's confidence in the deal, he said. 

The primary pushback is the pricier deal, given the uncertainty over HR+ Phase 3 breast cancer data and the recent complete response letter issued for filgotinib, according to Jefferies. 

Cantor Sees Bold Step Into Oncology: The deal is a big step toward establishing a growth business in hematology/oncology, Young said. 

"We see this deal as a bold step into oncology which brings a revenue generating asset into GILD's portfolio immediately," the analyst said.

GILD, IMMU Price Action: Gilead shares were adding 3.3% to $67.04 at last check Monday, while Immunomedics shares were skyrocketing 99.54% to $84.30. 

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