I have followed Gilead (NASDAQ:GILD) extensively over the years. It hit a monumental home run back in 2011 with its bold $11 billion acquisition of Pharmasset. This single acquisition set it on its much storied path of curing HCV. It has worked to mimic this success over the years with a plethora of cancer acquisitions and deals.
I reviewed these efforts back in 10/2020’s “Gilead’s Cancer Follies” (“Follies”). Follies did not address Gilead’s biggest cancer deal of all; its $21 billion acquisition of Immunomedics which closed on 10/23/2020. This article:
- grades this seminal acquisition now that it has had several years of seasoning, and
- assesses its impact on Gilead’s future goal of oncology producing 1/3 of product revenue by 2030.
Gilead’s top cancer-focused acquisition has endured a lengthy gestation
Gilead’s 09/15/2020 release announcing its pending acquisition of Immunomedics lead with the following two highlights of the deal:
— Gilead Adds TrodelvyTM, First-in-Class Antibody-Drug Conjugate Approved to Treat Triple-Negative Breast Cancer, With Promise in Other Forms of Breast Cancer and Additional Solid Tumors —
— Acquisition Transforms Gilead’s Portfolio with First-in-Class Commercial Product with Significant Revenue and Best-in-Class Potential —
As I write on 11/24/2023, Trodelvy (sacituzumab govitecan-hziy) has received FDA approvals for adult patients with:
- 04/2020 — unresectable locally advanced or metastatic triple-negative breast cancer (“TNBC”) who have received two or more prior systemic therapies, at least one of them for metastatic disease;
- 04/2021 — locally advanced or metastatic urothelial cancer (“UC”) who have previously received a platinum-containing chemotherapy and either programmed death receptor-1 (“PD-1”) or programmed death-ligand 1 (“PD-L1”) inhibitor, – approved under accelerated approval by FDA, and continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials;
- 02/2023 — unresectable locally advanced or metastatic hormone receptor-positive, human epidermal growth factor receptor 2-negative (“HR+/HER2-”) breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.
In its 2023 10-K (p. 36) Gilead lists total Trodelvy revenues at $380 million for 2021 rising 79% to $680 million for 2022. So far its aggregate Trodelvy sales for the first 3 quarters of 2023 aggregate $765 million per slide 13 of its Q3, 2023 earnings presentation (the “Presentation”).
While revenues to date have been modest, management is optimistic
In its Q3, 2023 conference call (the “Call”) Gilead expressed its high hopes for Trodelvy. In his opening review during the Call CEO O’Day characterized Trodelvy as Gilead’s cornerstone oncology asset with pan tumor potential. CMO Parsey provided more granular insights for its potential as follows:
Our comprehensive clinical development program for Trodelvy consists of more than 30 active or planned clinical trials across 8 tumor types. In 2023, we’ve shared several data sets demonstrating clear signals of activity for Trodelvy across several indications. For example, in the ASCO meeting this past June, we presented data for Trodelvy that demonstrated encouraging preliminary ORR and PFS data in relapsed or refractory endometrial cancer patients in the Phase 2 TROPiCS–03 basket trial.
Exciting prospects, but talk is cheap. So far the most extreme good news relating to Trodelvy has been Gilead’s decision to buy Immunomedics for the big $21 billion price tag. Immunomedics’ shareholders reaped the benefit; Gilead shareholders are still waiting.
The clock is ticking
While Trodelvy may have truly exceptional therapeutic potential judging from a 2020 perspective, its $21 billion price tag demands that it have staying power. This time element presents a troublesome aspect of the Trodelvy story. Check out its patent and its competitive situation as discussed below.
Trodelvy’s patent situation is less than optimal for a slow developing molecule. Gilead’s 2023 10-K includes an important table as regards its key patents. It introduces the table as follows:
The following table shows the actual or estimated expiration dates (including patent term extensions, supplementary protection certificates and/or pediatric exclusivity where granted) in the U.S. and the EU for the primary (typically compound) patents for our principal products. For our products that are fixed-dose combinations or single-tablet regimens, the estimated patent expiration dates provided correspond to the latest expiring compound patent for one of the active ingredients in the single-tablet regimen.
This important table lists Trodelvy’s US expiration as 2028, with the EU in 2029. This gives Trodelvy another four full years. That is an abbreviated shelf life for a “cornerstone oncology asset with pan tumor potential”. Of course the listed expiration dates do not include exclusivity yet to be granted.
In addition to patent term expiration, the ever-constant drumbeat of competition is the other time directed drag on therapeutic assets. As reflected in the 10-K’s (p. 38) section titled “In-Process R&D Impairment” the Trodelvy intangible asset is already getting nicked on this score.
According to the 10-K, Gilead recognized a $2.7 billion in-process R&D impairment during Q1, 2022. This was stated as primarily due to a decrease in market share assumptions based on impact of delay on expected competitive environment.
Premiums on BD vary widely
During a CNBC interview questioning the >100% premium for the Immunomedics deal CEO O’Day pointed out:
- the deal was competitive with a number of interested buyers;
- Trodelvy’s MOA opened up interesting opportunities in a variety of solid tumor cancer types;
- it fit in nicely capping off Gilead’s multiple other cancer acquisitions and deals.
He did not mention, but likely Immunomedics negotiators were emphasizing that such premiums are common when a BP takes out a choice prospect. Check out the premiums on the fascinating and freely accessible BIOPHARMADIVE biotech M&A database. Percentage premiums come in all over the map for recent >billion dollar BP deals.
They range from 204% for Pfizer’s (PFE) 08/2021 >$2 billion acquisition of Trillium Therapeutics to a bargain -4% in Bristol Myers Squibb ~$4.8 billion acquisition of Mirati.
Conclusion
As for grading this deal, I give it a “B-“. As I write on 11/26/2023 Gilead carries a market cap of ~$93 billion. The $21 billion Immunomedics deal represents an investment of >20% of this amount.
Excluding Veklury, Gilead generates ~$25 billion annually in product sales. It is guiding for comparable product revenues in 2023. As we close out 2023 Trodelvy is on track to contribute something in excess of $1 billion (4%) of full year 2023 revenues.
Over the long term as described in Follies, Gilead has struggled to achieve a significant portfolio of product revenues from cancer therapies. Its Immunomedics deal represents a significant step towards its goal of generating 1/3rd of its product revenue from oncology therapies per Presentation slide 13.
The deal helped Gilead satisfy its ambition of expanding its heavily HIV-weighted revenue base into a productive new area. As disclosed by the cited database there has been no surfeit of comparable acquisition opportunities in recent years.
Gilead’s flurry of smaller deals as discussed in Follies has been expensive and has yet to produce meaningful revenues. Its Immunomedics deal compares favorably to Gilead’s scattershot cancer acquisitions.
As a note in closing, the sagacity of this “B-” grade will likely prove dependent on how much of a burden its cited patent expiration turns out to be. I expect that Gilead will find mechanisms to extend its practical Trodelvy IP well past 2028. If not the “B-” grade will likely prove exceedingly generous.
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