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Why Gilead Sciences, Forty Seven, and Trillium Therapeutics Are Moving Higher Today

By George Budwell - Mar 2, 2020 at 9:48AM

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Gilead Sciences and Forty Seven are reportedly tying the knot through a $4.9 billion buyout agreement. Shares of Trillium Therapeutics, a fellow CD47 drugmaker, are also jumping on this news.

What happened

Gilead Sciences (GILD -0.40%) and cancer drugmaker Forty Seven (FTSV) have reportedly agreed to an all-cash buyout worth $4.9 billion. Last week, Gilead was rumored to be in buyout or licensing talks with Forty Seven, with discussions centering around the biotech's novel monoclonal antibody, magrolimab, which blocks the CD47 "don't eat me" cell signaling pathway. Forty Seven's stock is up by 61.9% in premarket trading in response to this buyout news.

Gilead's shareholders also seem pleased with the deal. The biotech's stock is up by 1.3% on the heels of this major pipeline addition in oncology, despite the market's dour mood in general over the novel coronavirus outbreak. Fellow CD47 drugmaker Trillium Therapeutics (TRIL) is also on the move in the wake of this rather rich tender offer. Specifically, Trillium's stock jumped by as much as 65% in premarket trading Monday morning. Since hitting that premarket high, the biotech's shares have cooled off a bit, but they are still up by a healthy 44.7% as of 8:15 a.m EST.  

Wooden blocks that spell out "buy-out" laying on top of a set of graphs, with stacks of coins in the background.

Image source: Getty Images.

So what

This is a fantastic deal for Gilead in a multitude of ways. In a nutshell, the blue-chip biotech is gaining a well-differentiated, high-value oncology asset with magrolimab. Magrolimab has the potential to rack up numerous lucrative indications in both the solid and liquid tumor settings in the years ahead. We're talking several billion in peak annual sales if this drug lives up to the hype.  

What about Trillium Therapeutics? Trillium Therapeutics stock is on fire this morning because of the perceived valuation gap between it and rival Forty Seven. Prior to this deal becoming public knowledge, Forty Seven's market cap was roughly 10 times that of Trillium Therapeutics. In short, investors appear to be speculating that Trillium Therapeutics will be the next CD47 drugmaker to fetch an offer, partly because of its far cheaper valuation. 

Now what

Even after forking over close to $5 billion for Forty Seven, Gilead still has tons of cash left over to pursue other value-creating transactions this year. The next transaction, in fact, is likely to be a tuck-in acquisition that will have an immediate impact on the biotech's top line. In brief, Gilead could seriously use another near-term growth driver. This pipeline-oriented Forty Seven acquisition doesn't change that fact.  

As far as Trillium's near-term prospects are concerned, it's probably a bad idea to chase this sympathy play today. Trillium's intriguing anti-cancer pipeline may attract a suitor at some point down the line, but it's highly unlikely that another deal in the exact same therapeutic area will occur anytime soon. That's just the nature of the mergers and acquisitions scene in biopharma.

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Stocks Mentioned

Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$62.83 (-0.40%) $0.25
Forty Seven, Inc. Stock Quote
Forty Seven, Inc.
Trillium Therapeutics Inc. Stock Quote
Trillium Therapeutics Inc.

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