Gilead's acquisition of Kite Pharma
Key product acquired:
Why Gilead did it:
Gained a top asset in one of the industry's hottest fields and diversified its portfolio as hepatitis business wanes
How cell therapy fits with the company's historical focus on hepatitis C and HIV
The FDA's early approval of Yescarta supports Gilead's decision to pull the trigger, but the next year will be crucial to proving the commercial viability of CAR-T.
Six years ago, Gilead inked a deal to buy a biotech company called Pharmasset Inc. for $11 billion. At the time, it was a risky bet on a new type of hepatitis C medicine that would face competition from promising new drugs developed by Merck & Co. and Vertex Pharmaceuticals Inc.
In the more than half-decade since, Gilead has soared higher on the back of what eventually became Sovaldi (sofosbuvir) and a world-beating hepatitis C franchise. Together, Sovaldi and its successor Harvoni (ledipasvir/sofosbuvir) have earned nearly $50 billion in sales since approval.
That success has always had a time limit, though. With cure rates of its medicines well north of 90%, Gilead essentially ran out of patients it could easily reach and treat.
Over the past 18 months, sales of Gilead's hepatitis C drugs have fallen rapidly — surprising investors by the steepness of the decline. Flush with more than $30 billion in cash from its hepatitis C success, Gilead needed to make a deal.
That Gilead chose cancer cell therapy for its next big M&A splash came as a bit of a surprise. While CAR-T development has advanced rapidly, company CEO John Milligan had downplayed the idea of an acquisition in the space as late as last year.
But what Gilead saw this year gave Milligan the confidence to buy Kite Pharma, one of CAR-T's leaders, in a $11.9 billion deal that drew instant comparisons to Gilead's deal for Pharmasset six years ago.
Gilead finally inks a deal, but pays a premium
Cornerstone of treating cancer?
In Kite, Gilead acquired a now-approved product that offers novel approach to treating blood cancer, much as Sovaldi represented a new direction for hepatitis C.
The similarities end there, though. Unlike a small molecule drug such as Sovaldi, Kite's Yescarta (axicabtagene ciloleucel) is a "living" drug. In CAR-T, patient immune cells are extracted, genetically modified with a receptor to target certain cancer cells, then reinfused back into the patient. The process is complex, individualized and costly.
Additionally, Yescarta's market will be much smaller — at least initially. Each year, there are only about 7,500 patients who would fall under Kite's current label for treatment of relapsed or refractory diffuse large B-cell lymphoma (DLBCL).
"Everybody was spoiled with the Pharmasset deal which paid for itself the very next day," said Brad Loncar, founder of a cancer immunotherapy exchange-traded fund. "This is a very long-term deal."
On a call with analysts immediately following the deal's announcement, Milligan explained that Gilead became convinced cell therapy will be the "cornerstone" of treating cancer. That word choice is notable, explained Loncar, given the extremely limited patient population for Yescarta.
"I think truly that the real payoff for this is a very long-term play on the cellular therapy space succeeding in other things and becoming more widely used, used earlier," Loncar said.
That promise factored heavily into Gilead's decision to go after Kite, as commentary from executives following the deal made clear.
We believe that cell therapy will be the cornerstone of treating cancer.—John Milligan, CEO, Gilead Sciences Inc.
A trial known as ZUMA-7, for example, will test Yescarta in the second-line setting, where bone marrow transplant is currently the standard of care. Emerging data from Kite, as well as other biotechs like Bluebird Bio Inc. and Nanjing Legend Biotech, point toward potential promise in other blood cancers like multiple myeloma.
Solid tumors, an area that CAR-T currently hasn't been shown to be effective in, remain "more distant," according to Gilead's Chief Scientific Officer Norbert Bischofberger.
Even with Yescarta alone, Gilead may have a future blockbuster. Salim Syed, an analyst from Mizhuo Securities USA LLC, forecasts as much as $1.5 billion in peak annual sales for the therapy's current indication — although that will depend on how payers react to its $373,000 price tag.
Despite hopes that Kite will be Gilead's next Pharmasset, CAR-T will present unique challenges. Integrating Kite's current expertise into a larger biopharma organization will be essential if Gilead is to avoid being out positioned by rivals in the fast-moving field. Novartis AG, with its competing CAR-T Kymriah (tisagenlecleucel), looms large.
Additionally, no company has successfully commercialized a treatment like CAR-T, with its complex supply chain and manufacturing demands. Kite appears to have prepared well, boasting a sector-leading vein-to-vein time from apheresis to infusion of around 17 days. Still, moving from clinical to commercial production will be a test.
Deal of the year
Challenges aside, Gilead's acquisition is a clear sign of confidence in CAR-T — both in the present and down the road. Overnight, Gilead transformed itself into a leader in one of the industry's hottest fields and revitalized its to-date marginal efforts in oncology.
"Kite's CAR T therapy and investigational next-generation technologies and therapy candidates, coupled with its impressive manufacturing capabilities, will serve as a foundation for building one of the leading cell therapy programs in the industry," Gilead said in an emailed statement.
For Gilead investors, Yescarta and Kite's pipeline offer a much-needed new source of growth as Gilead's hepatitis C business looks set for further declines. Importantly, buying into CAR-T diversifies the company for the future.
For CAR-T, Gilead's splash was the second domino in a chain of events that have catalyzed the space: a landmark OK for Novartis' Kymriah in acute lymphoblastic leukemia, Gilead's $11.9 billion buy, followed quickly by approval of Yescarta.
For the biotech industry, Gilead finally moved off the sidelines and delivered a major deal in a time when major M&A has been few and far between. While Johnson & Johnson's acquisition of Actelion Ltd. had more financial heft, Gilead's bet on cell therapy — if it comes to pass as Milligan envisions — could transform one of biotech's A-list companies. Already, the deal has injected further energy into a space brimming with new competitors and technologies.
How well Gilead integrates Kite, while preserving the biotech's expertise, will be an important indicator of the company's prospects for maintaining its lead in cell therapy. At the same time, the acquisition should boost interest in an already red-hot sector.