Gilead Sciences (GILD -1.15%) can be both a hero and a goat, depending on your perspective as an investor. The stock price rose from $17 in July 2010 to $118 in July 2015, as the company introduced revolutionary HIV drugs and helped bring a cure for hepatitis C to market. Since then, the stock has been cut in half as investors have watched revenue and profits decline in the absence of new blockbuster drugs.
In management's second attempt to address this, Gilead agreed to buy Immunomedics (IMMU) for $21 billion in cash, an offer of $88 per share. The offer was more than double the share price of the smaller biotech prior to the announcement. In 2017, management acquired Kite Pharma for $11.9 billion, a union that has yet to produce needle-moving results.
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The players
Immunomedics develops monoclonal antibody-based drugs designed to deliver chemotherapy directly to a tumor. The company's flagship drug -- Trodelvy, the one Gilead is excited to get -- addresses particularly hard to treat breast cancers. These triple-negative breast cancers account for about 10% to 15% of all breast cancer cases.
The drug was approved by the U.S. Food & Drug Administration (FDA) in April and is expected to bring in $750 million in sales in 2023 with eventual peak sales of $4 billion. The drug is also being tested for bladder cancer and non-small cell lung cancer. The company has additional drug candidates for both hematological and colorectal cancers.
Unlike Immunomedics, a company that reported $20 million in sales for its second quarter, Gilead reported $5.1 billion in sales for the same period. Gilead's annual sales have declined from a peak of $32.6 billion in 2015 to a mere $22.5 billion last year. Those earlier sales were the result of a revolutionary treatment for HIV and its blockbuster hepatitis C drug. The drug, Solvaldi, was nearly the best-selling drug in the world in 2014, its first year on the market. Two CEOs later, the company is still trying to capture the same lightning in a bottle. The purchase of Immunomedics is its latest attempt.
The game
Gilead has a mixed history with respect to the success of acquisitions. Its $11 billion deal for Pharmasset was considered risky, but turned out to be a home run purchase, bringing Sovaldi into its arsenal. Prior to Immunomedics, management's move into cancer included the aforementioned $11.9 billion purchase of Kite Pharma, a $5 billion stake in Galapagos, and a $5 billion purchase of Forty Seven. So far, the bets haven't paid off.
The purchase of Kite Pharma has been written down each of the past two years: $820 million in 2019, and $800 million in early 2020. While the premium paid to Immunomedics had some analysts scratching their heads, it is in line with another questionable buy that paid off big. Gilead paid an 89% premium when it bought Pharmasset, which delivered Sovaldi.
Whether this deal turns out to be a home run like Pharmasset or a strikeout (so far) like Kite Pharma remains to be seen. With Immunomedics stock trading very near the agreed upon price, the market is betting the deal is all but official. With no upside in the stock, and shareholders getting cash from Gilead, investors should find other places to invest in biotech and avoid Immunomedics. Since other companies have had success using the monoclonal antibodies approach, anyone upset over Immunomedics' pending disappearance should look at other coronavirus treatment candidates for inspiration, and maybe a place to put their investment dollars.
