The Gilead, Galapagos Pipeline Opportunities That Are Turning Morgan Stanley Bullish

Gilead Sciences, Inc. GILD and its R&D partner Galapagos ADR Representing Ord Shs GLPG received an upgrade each from Morgan Stanley.

The Gilead, Galapagos Analyst: Matthew Harrison upgraded Gilead from Equal-weight from Overweight and increased the price target from $67 to $83.

Harrison also upgraded Galapagos from Equal-weight to Overweight and reduced the price target from $159 to $129.

Gilead's HIV, Oncology Sales Opportunity: The optimism on Gilead stems from the prospects for Gilead's Trodelvy in hormone-receptor-positive metastatic breast cancer and the opportunity provided by a combo therapy for HIV, Harrison said in a Tuesday upgrade note.

Trodelvy in HR-positive breast cancer represents a significant commercial opportunity, the analyst said.

Morgan Stanley expects success in the ongoing Phase 3 study in third-line-plus patients.

"Positive data could result in billions in additional peak sales and see a positive change to investors' view of mgt.'s capital allocation strategy," Harrison said. 

The combination of Gilead's long-acting HIV capsid inhibitor lenacapavir with another long-acting HIV drug represents a real opportunity to extend HIV cash flows for potentially another 10 years, into the 2040s, the analyst said.

Even if Gilead scouts an external partner for the combo therapy option and would have to share the economics, such a deal would be highly meaningful to long-term cash flows and could add over $15/share in discounted cash flow value, he said. 

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How Pipeline Updates Could Drive Galapagos Shares: The market is heavily discounting the risks associated with Galapagos' European filgotinib launch and has overlooked multiple potential upside drivers in 2021, Harrison said.

Although the peak sales opportunity for filgotinib in Europe is modest, Galapagos will be disciplined with expenses, facilitating a net present value positive opportunity, the analyst said.

With Galapagos' current cash balance greater than the market cap of its shares, the market is overlooking the upside optionality from the idiopathic pulmonary fibrosis futility analysis and the Toledo program, he said. 

"We believe positive evidence of activity from either study can drive GLPG substantially higher." 

The downward adjustment of the Morgan Stanley price target comes as a result of the removal of U.S. filgotinib sales and alower probability of success for ulcerative colitis/Crohn's, Harrison said. 

GILD, GLPG Price Action: At last check, Gilead shares were moving 

6.38% higher to $67.37, while Galapagos shares were up 6.08% at $106.09. 

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