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Sciences of Gilead (GILD) and Merck (MRK) signed an agreement on Monday to co-develop combination treatments for HIV, pushing up shares of Gilead and Merck.
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Both have long-acting anti-HIV treatments that work well at low doses, the companies said in a press release. For example, companies will begin testing combinations of Gilead’s lenacapavir and Merck’s islatravir in the second half of 2021.
Investors were considering the partnership, RBC Capital Markets analyst Brian Abrahams said in a report to clients.
“The deal is expected to help strengthen Gilead’s leadership and lifecycle in HIV, turn a potential competitor into an ally, and spur future growth in its core business,” said Abrahams. It maintained its outperformance rating on Gilead stock, but did not post a rating on Merck stock.
In today’s stock market, Gilead’s stock jumped 2.5% to 63.07. Merck stock 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 to be very complementary and could significantly improve current HIV treatment options, said Geoffrey Porges, SVB Leerink analyst. Although Gilead’s equity investors may be concerned about the short-term cannibalization of its current anti-HIV drugs.
Still, the announcement was eagerly awaited 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 views on its business for years to come.”
Porges outperformed Gilead and Merck stock ratings.
Gilead carries more expenses
Under the terms of the agreement, Gilead will be responsible for 60% of the expenses. They will divide the revenue from 50 to 50 up to $ 2 billion for the oral combination. Then the sales will be split 65% to 35%, with Gilead taking the largest share. For an injectable version, they’ll cut revenue in half to $ 3.5 billion. Then the revenues will be split again, with Gilead taking 65%.
Companies have also given themselves the opportunity to license older anti-HIV drugs.
Shares of Merck and Gilead remained below their 50-day moving averages at Monday’s close, according to MarketSmith.com.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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