Gilead needs 'heroic' Immunomedics revenues to get a return on $21B deal: analyst

Gilead Sciences has long needed to diversify beyond its core antivirals business, and oncology seemed a wise choice for expansion. But should it be paying $21 billion for Immunomedics?

Analysts have some doubts, at least for now.

Granted, first-in-class anti-TROP-2 dug Trodelvy, the centerpiece of the deal, has delivered strong data in third-line triple-negative breast cancer (TNBC) and bladder cancer. But to justify the $21 billion sticker, the med would need good traction in earlier lines of treatment in multiple tumor types, a scenario Bernstein analyst Ronny Gal said remains way too early to call.

Currently, the only certainty around Trodelvy is about $1.5 billion in peak sales from third-line TNBC and bladder cancer use, Gal figures. Therefore, to justify a good revenue multiple of 5x, “Gilead needs to believe in the $2.5 billion upside beyond the initial indications, which would mean eventual approval in 1L TNBC, HR+/HER2- mBC or other cancer type,” he said in a Monday note to clients.

Is that easily achievable? Probably not, SVB Leerink analyst Geoffrey Porges wrote after talking to an academic breast cancer expert.

There’s no doubt Trodelvy will achieve widespread use in its current FDA-approved third-line TNBC indication, given its impressive clinical data, the aggressiveness of the disease and lack of treatment options.

However, earlier in TNBC is a different story, Porges summarized the expert as saying. Front-line chemotherapy has already set a high bar for Trodelvy to reach in terms of response rate and time before cancer progression.

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To the expert, Trodelvy is more of a “fancy chemotherapy” than a true targeted therapy. The drug uses an antibody to direct a toxic chemo drug to tumors expressing TROP-2. But the protein target isn’t specific for tumor tissues “and is not even associated with an assay or biomarker for treatment eligibility,” the expert noted. So, he views the drug as rather a potent chemo agent with somewhat better tolerability—but one that still can’t avoid some side effects that are also associated with systemic delivery of chemo dugs.

That factor could limit Trodelvy's combination options in earlier lines of treatment. Nevertheless, in line with the potential Gilead has highlighted, the expert also sees opportunity for pairing the drug with checkpoint inhibitors.

HR+/HER2- breast cancer, which according to Porges is a population several times larger than that of TNBC, might also pose some hurdles for Trodelvy. “This form of disease is generally viewed as more treatable, and therefore a longer progression-free survival with chemotherapy alone would set a higher bar for Trodelvy,” he said.

At current consensus peak Trodelvy sales of less than $4 billion, Gilead would only break even with the $21 billion it’s paying. “The purchase price requires heroic revenue assumptions to create value,” Porges wrote in a Monday note.

The transaction essentially depletes Gilead’s cash at hand, Gal noted, calling it more of a “bet-the-farm move.”

“From the Gilead perspective, this is clearly not about filling a revenue gap left by the loss of Truvada or meeting near-term numbers. This is intended to be a bold strategic move to gain an anchor asset,” Gal added. As Gilead CEO Daniel O’Day put it, the intention is to nab a “transformative cornerstone therapy” that the company can build a whole oncology franchise around.

Will it work? Only time will tell.