- Gilead will pay $4.9 billion to acquire Forty Seven, a California-based biotech developing drugs that retool the body's immune system so it can better fight cancer.
- The most advanced of Forty Seven's drugs, an antibody called magrolimab, is in early- to mid-stage testing for a variety of blood cancers, including acute myeloid leukemia and B cell lymphoma, as well as solid tumors in the bladder, ovaries, rectum and colon. The drug blocks a protein found across many cancers that tells the immune system not to destroy malignant cells.
- At $95.50 per share, the deal represents an 81% premium over Forty Seven's closing stock price Friday and a 96% premium over its price Thursday afternoon, when Bloomberg first reported that Gilead had made a takeover approach. The takeout price is higher than the $3 billion that some investors predicted following the Bloomberg report.
Gilead's first big bet on oncology didn't go as well as the company or its shareholders had hoped.
For $12 billion, Gilead in 2017 became an instant frontrunner in cell-based cancer therapy through the acquisition of Kite Pharma. Yet that position also tasked Gilead with navigating a complicated supply chain and pushback from insurers — challenges the company hasn't easily overcome. Slow sales growth for Yescarta, the only product to have come from the deal so far, has also dampened investors' outlook.
Gilead seems to have acknowledged that it overpaid for Kite, disclosing in its fourth quarter earnings an $800 million impairment charge related to research assets acquired in the deal.
Still, executives say they remain committed to cell therapy and to growing the overall oncology business.
"That's an area where we are going to spend time building out, looking for opportunities, especially in immuno-oncology and working with our colleagues at Kite to make sure that we're finding the right balance and bringing the non-cell therapy portfolio up to complement the cell-based therapy," Merdad Parsey, Gilead's chief medical officer, said on an earnings call in early February.
The Forty Seven acquisition aligns with Parsey's guidance, as it provides Gilead with a mid-stage immuno-oncology asset as well as a couple preclinical drugs.
Notably, the biotech found in preclinical testing that one of those earlier drugs, when combined with magrolimab, can deplete the body's own hematopoietic stem cells in the bone marrow to allow space for donor cells. That could have useful applications for cell-based therapy, as evidenced by a recently announced research pact between Forty Seven and Bluebird bio.
Sell-side analysts covering Gilead reacted positively to Monday's announcement. Michael Yee of Jefferies called it an "incremental positive" that helps to bolster Gilead's place in immuno-oncology, whereas Brian Abrahams of RBC Capital Markets wrote that this is an "important first step," with more likely to come, in Gilead's efforts to rebuild its mid- to late-stage pipeline.
Gilead is willing to "allocate capital to medium-sized deals (rather than large-scale transactions which management noted today have a high bar)," and to do it quicker than in the past, which are "both positives in our view," wrote analysts at Mizuho Securities.
Gilead shares were up a little more than 4% late Monday morning, to trade at $72.32 apiece. Forty Seven shares were up more than 60%, trading at $93.80 apiece.