Gilead Sciences to Acquire Immunomedics for $21 Billion; Target Price $75

Gilead Sciences Inc, an American biopharmaceutical company that researches, develops and commercializes drugs, announced to acquire a pharmaceutical company Immunomedics Inc for $21 billion or $88.00 per share in cash, a move that will help strengthen its drugs portfolio for cancer.

The agreement will provide Gilead with Trodelvy, a first-in-class Trop-2 directed antibody-drug conjugate that was granted accelerated approval by the U.S. Food and Drug Administration in April for the treatment of adult patients with metastatic triple-negative breast cancer who have received at least two prior therapies for metastatic disease, the company said.

Gilead anticipates closing the deal during the fourth quarter of 2020.

“Investors may take some time to digest all the deals but these add lots more drivers and clear momentum in oncology and less reliance on HIV. Maintain Buy. We are positively biased on the acquisition as this moves Gilead Sciences (GILD) quickly into a commercial footprint for solid tumors and to prepare for other pipeline,” said Jefferies’ equity analyst Michael J. Yee, who gave a price target of $78.

“We think GILD is in a better place for 2021 than a year ago and the stock is still at 10x and out of favor. Digesting it all, we think a strong launch for Trodelvy, great bladder data, and upside positive data from the Phase III HR+ breast cancer study could be the catalyst that makes Street more confident GILD did a good deal,” Yee added.

Lazard and Morgan Stanley & Co. LLC are acting as financial advisors to Gilead. Centerview Partners LLC and BofA Securities are acting as financial advisors to Immunomedics. Cowen & Company, LLC also provided advice to Immunomedics. Davis Polk & Wardwell LLP is serving as legal counsel to Gilead and Watchell, Lipton, Rosen & Katz is serving as legal counsel to Immunomedics.

Gilead Sciences’ shares ended 2.83% higher at $65.58 on Friday; the stock is up about 1% so far this year, gaining over 5% from 2020 low.

Executive comments

“This acquisition represents significant progress in Gilead’s work to build a strong and diverse oncology portfolio,” Gilead Chief Executive Officer Daniel O’Day said in a statement.

“Trodelvy is an approved, transformational medicine for a form of cancer that is particularly challenging to treat. We will now continue to explore its potential to treat many other types of cancer.”

Gilead Sciences stock forecast

Twenty-two analysts forecast the average price in 12 months at $79.06 with a high forecast of $105.00 and a low forecast of $67.00. The average price target represents a 20.56% increase from the last price of $65.58. From those 22 equity analysts, ten rated “Buy”, 11 rated “Hold” and one rated “Sell”, according to Tipranks.

Gilead Sciences had its price target cut by Truist to $67 from $74.00. SunTrust Banks raised their target price on shares of Gilead Sciences to $74 from $73 and gave the company a “hold” rating. Oppenheimer raised their target price to $105 from $90.

Other equity analysts also recently updated their stock outlook. Mizuho restated a “buy” rating and issued an $81.00 price target. Wells Fargo & Co raised their price target to $76 from $69 and gave the company an “equal weight” rating. Credit Suisse Group lowered their stock price forecast to $73 from $75 and set a “neutral” rating. At last, Cfra raised their price target to $74 from $71 and gave the company a “sell” rating.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a selling opportunity. However, in the best-case scenario target price $75.

Analyst views

“Our merger analysis suggests mid-to-high single-digit % accretion by 2024E: We built a preliminary acquisition model through 2024, with the following key assumptions: (1) $21B acquisition cost financed with $15 billion in cash and $6 billion in debt; (2) debt interest rate of 3%; (3) cash interest rate of 0.75%; (4) We assume mgt. will spend more to accelerate the pipeline and commercial effort in the near- to mid-term. Overall, we see the acquisition as 5% accretive by 2024E,” Matthew Harrison, equity analyst at Morgan Stanley.

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