Gilead Sciences (GILD) and Merck (MRK) inked a deal Monday to co-develop combined HIV treatments, sending Gilead stock and Merck stock higher.
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Both have long-acting HIV treatments that work well at low dosages, the companies said in a news release. So, the companies will begin testing combinations of Gilead’s lenacapavir and Merck’s islatravir in the second half of 2021.
Investors were looking ahead to this partnership, RBC Capital Markets analyst Brian Abrahams said in a report to clients.
“The deal should help reinforce Gilead’s leadership and life cycle in HIV, turn a potential competitor into an ally and drive future growth in its core business,” Abrahams said. He kept his outperform rating on Gilead stock, but didn’t list a rating on Merck stock.
On today’s stock market, Gilead stock jumped 2.5% to 63.07. Merck stock popped 2.2% to 76.23.
Gilead Stock, Merck Stock Pop
Gilead and Merck plan to test oral and injectable combinations of their drugs.
The two drugs seem highly complementary and could meaningfully improve upon current treatment options for HIV, SVB Leerink analyst Geoffrey Porges said. Though Gilead stock investors could be worried about near-term cannibalization of its current HIV drugs.
Still, the announcement was highly anticipated by investors in Gilead stock, he said.
“Investors have long anticipated that this would be the most likely combination partner for lenacapavir,” he said. Meanwhile, “for Merck, the deal validates islatravir and helps reshape investor opinion of its business in out-years.”
Porges has outperform ratings on Gilead stock and Merck stock.
Gilead Carries More Expenses
Under the terms of the deal, Gilead will be responsible for 60% of expenses. They will split revenue 50-50 up to $2 billion for the oral combination. Then, sales will be split 65% to 35% with Gilead taking the larger portion. For an injectable version, they will split revenue in half until $3.5 billion. Then, revenue will again be split with Gilead taking 65%.
The companies also granted each other the ability to license each other’s earlier-state HIV drugs.
Both Merck stock and Gilead stock remained below their 50-day moving averages as of the close on Monday, according to MarketSmith.com.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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