In the company’s largest acquisition and potentially the fifth biggest biotech M&A ever, Gilead Sciences Inc. will acquire Immunomedics Inc. for $21 billion in a move that substantially transforms Gilead’s oncology portfolio.

The massive deal that has analysts and investors cocking their heads at the cost brings Gilead Trodelvy (sacituzumab govitecan-hziy), a trophoblast antigen2 (TROP2)-directed antibody-drug conjugate (ADC) that received the FDA’s accelerated approval in April for treating triple-negative breast cancer in patients who have undergone at least two prior therapies. It is the first ADC approved specifically in the indication and the first anti-Trop-2 ADC to reach patients.

If the deal closes at $21 billion, Gilead will have the top three deals involving a biotech buying another biotech, making the Immunomedics buy the largest of those. The next biggest deal is No. 11 with Gilead buying Kite Pharma for $11.9 billion in 2017. Gilead also has No. 13 in the $11.2 billion purchase of Pharmasset Inc. in 2012.

Trodelvy’s approval marked the eighth ADC to reach the market over the last two decades. Half of those approvals arrived inside the last two years, as ADC developers have ironed out at least some of the stability and toxicity problems hindering the modality’s emergence.

The acquisition also created a strong ripple of enthusiasm for two other ADC developers. Seattle Genetics Inc. (NASDAQ:SGEN) closed 14.5% higher on Sept. 14 as shares closed at $171.79 each, helped by its billion-dollar deal with Merck & Co. Inc., while Mersana Therapeutics Inc. (NASDAQ:MRSN) had an even better day as shares soared 29.6% to close at $24.17.

The acquisition price is an issue for analysts and investors. SVB Leerink analyst Geffrey C. Porges wrote Sept. 14 that investor pushback will likely be about the deal’s price, not the product or the immediate commercial opportunity.

“Gilead reassured us that the sale was highly competitive, and started with collaboration discussions and turned, over the course of several months, to outright acquisition terms,” Porges wrote. “They assured us that ‘at least four’ other global biopharmaceutical companies were actively negotiating for the asset or the company, and this competition is perhaps reflected in the price.”

Mizuho Securities analyst Salim Syed on Sept. 14 noted the “perhaps larger than expected price tag” but added that the acquisition offers Gilead the opportunity to increase its top-line in a “meaningful way,” which is what he said is “likely what the stock eventually needs to work.”

RBC Capital Markets analysts wrote Sept. 14 that Trodelvy could eventually bring Gilead a $4 billion annual out-year worldwide sales opportunity on a probability-weighted basis.

H.C. Wainwright & Co. analyst Robert Burns wrote on Sept. 14 that Gilead will likely pursue the triple-negative breast cancer indication to “make up potential lost ground” against Astrazeneca plc’s and Daiichi Sankyo Co. Ltd.’s DS-1062, an ADC for treating non-small-cell lung and breast cancers.

“Gilead may have pursued the acquisition of Immunomedics,” Burns added, “in order to establish a more secure foothold in the oncology space, following the relative disappointment of the level of traction achieved by Yescarta (axicabtagene ciloleucel) – $456 [million] in 2019 sales – in the wake of Gilead's acquisition of Yescarta's developer, Kite Pharma, for $11.9 [billion] in 2017.”

Gilead stock (NASDAQ:GILD) rose 2.2% on Sept. 14 to close at $66.34, but Morris Plains, N.J.-based Immunomedics shares (NASDAQ:IMMU) had a far stronger day, closing 97.9% upward, with shares at $83.65 each.

When approved, Trodelvy’s wholesale acquisition cost for a single-use 180-mg vial was set at $2,012, which equates to $16,096 per 21-day cycle for a 70-kg person. Based on a median five-month treatment duration, as the company maintained in its phase II study known as IMMU-132-01, the price amounts to about $113,000 per course of therapy – about 20% lower than Padcev (enfortumab vedotin-ejfv), the Nectin-4 targeted ADC from Tokyo-based Astellas Pharma Inc. and Seattle Genetics, of Bothell, Wash., approved in late 2019 for metastatic urothelial cancer.

Gilead has spent a lot of time and money in the past two years to strengthen its oncology portfolio, completing 12 deals that include the acquisition of Forty Seven Inc. in March for $4.9 billion. That deal brought Gilead magrolimab, a monoclonal antibody in clinical development for treating several cancers, including myelodysplastic syndrome, acute myeloid leukemia and diffuse large B-cell lymphoma.

Daniel O'Day, Gilead’s chairman and CEO, reassured investors in a Sept. 13 conference call that the deal is the right move, despite the enormous price tag.

“From a financial perspective, following the closing of the transaction, Trodelvy will immediately contribute revenue and will significantly enhance our growth prospects in the near term and longer term,” O’Day said. “We expect the acquisition to create significant value for our shareholders. The transaction reflects the potential value as well as the synergies it brings to our existing platform and our future pipeline.”

The deal is expected to close during the fourth quarter of 2020.

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