Gilead Sciences (GILD) and Merck (MRK) struck a deal on Monday to co-develop combined HIV treatments, increasing Gilead and Merck’s shares.
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Both have long-term HIV treatments that work well at low doses, the companies said in a press release. Thus, companies will begin testing combinations of Gilead’s lenacapavir with Merck’s islatravir in the second half of 2021.
Investors were looking forward to this partnership, said RBC Capital Markets analyst Brian Abrahams in a report to clients.
“The deal should help strengthen Gilead’s leadership and life cycle in HIV, transform a potential competitor into an ally and drive future growth for its core business,” said Abrahams. He maintained his superior performance rating on Gilead’s shares, but did not list a rating on Merck’s shares.
In today’s stock market, Gilead’s shares jumped 2.5% to 63.07. Merck’s shares jumped 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 appear highly complementary and can significantly improve current HIV treatment options, said Geoffrey Porges, an analyst at SVB Leerink. Although investors in Gilead shares may be concerned about the short-term cannibalization of their current HIV drugs.
Still, the announcement was long awaited by investors in Gilead shares, 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 investors’ opinions about their businesses in the years to come.”
Porges surpassed Gilead and Merck’s stock ratings.
Gilead carries more expenses
Under the terms of the deal, Gilead will be responsible for 60% of the expenses. They will split the 50-50 revenue up to $ 2 billion for the oral combination. Then, sales will be divided from 65% to 35% with Gilead taking the majority. For an injectable version, they will split the revenue in half, up to $ 3.5 billion. Then, the revenue will again be shared with Gilead with 65%.
The companies also gave each other the ability to license each other’s anti-HIV drugs.
Merck and Gilead shares remained below their 50-day moving averages at the close of Monday, according to MarketSmith.com.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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