Gilead Sciences (VALUE) and Merck (HRC) on Monday reached an agreement to develop joint HIV treatments, which will increase Gilead and Merck’s stocks.
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Both have long-acting HIV treatments that work well at low doses, the companies said in a news release. The companies will therefore start testing in the second half of 2021 with combinations of Gilead’s lenacapavir and Merck’s islatravir.
Investors are looking forward to this partnership, RBC Capital Markets analyst Brian Abrahams said in a report to clients.
“The agreement should help strengthen Gilead’s leadership and life cycle in HIV, make it a potential ally of an ally and drive future growth in its core business,” Abrahams said. He maintained his better performance rating on Gilead shares, but not a rating on Merck shares.
In the current stock market, the Gilead share rose by 2.5% to 63.07. Merck shares rose 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 look very complementary and could significantly improve the current treatment options for HIV, said Geoffrey Porges, analyst at SVB Leerink. Although Gilead stock investors may be concerned about the short-term cannibalization of current HIV drugs.
The investor in Gilead shares still expected the announcement to be made.
“Investors have long expected it to be the most likely combination partner for lenacapavir,” he said. Meanwhile, “for Merck, the deal validates islatravir and helps shape investors’ views on its business over the years.”
Porges outperformed Gilead and Merck shares.
Gilead has more expenses
According to the agreement, Gilead is responsible for 60% of the expenses. They will divide the revenue from 50-50 to $ 2 billion for the oral combination. Then sales will be split 65% to 35%, while Gilead takes the bulk. For an injectable version, they will halve revenue to $ 3.5 billion. Then the revenue will be redistributed with Gilead taking 65%.
The companies also gave each other the ability to give each other’s HIV medicine of earlier consent.
Both Merck shares and Gilead shares remained below their 50-day moving average, according to MarketSmith.com.
Follow Allison Gatlin on Twitter @IBD_AGatlin.
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