- Gilead's buyout of cell therapy specialist Kite Pharma has drawn considerable criticism from skeptical Wall Street analysts in the two and a half years since the $12 billion deal was signed. On Tuesday, Gilead acknowledged what it bought is worth less than it once thought, cutting the accounting value for research assets it acquired by $800 million.
- The disclosure isn't the first time Gilead has written down the value of Kite. Last year, the biotech recorded a similarly sized $820 million impairment charge to reflect its decision to end development of a multiple myeloma drug Kite was pursuing before the takeover.
- Valuing experimental drugs, particularly ones that originated in another company, is an inexact science, and writedowns like those taken by Gilead this year and last aren't out of the ordinary. But Gilead's future is uncertain, making the diminution of a company bought to secure a leading position in oncology a disappointing admission.
The immediate draw for Gilead in buying Kite was Yescarta (axicabtagene ciloleucel), a CAR-T cell therapy approved to treat a type of lymphoma that's unresponsive to other therapies.
In 2019, Gilead earned just over $450 million from sales of Yescarta, up 73% from last year's total but still low for a drug Gilead spent nearly $12 billion to acquire. And after steady growth, Yescarta sales have flattened over the past three quarters, suggesting Gilead will have its work cut out to build a blockbuster drug franchise.
When selling the Kite deal to investors, Gilead's former management team heavily emphasized a long-term vision in which CAR-T cell therapies would become a "cornerstone" of cancer care. While that could still come to pass — as the work of numerous biotechs invested in the space would suggest — Gilead's $1.6 billion in writedowns over the past two years show getting there isn't as easy as investors probably would like.
This year's $800 million charge, for example, is tied to a diminished outlook for Kite assets in indolent non-Hodgkin lymphoma, a slower growing subtype of the blood cancer.
Gilead expects to have data in the second half of this year from a Phase 3 study testing Yescarta earlier in treatment, which, if positive, could expand the cell therapy's market and drive sales higher. An approval for a slightly different version of Yescarta, dubbed KTE-X19, would give Gilead another product to grow.
"If Yescarta is able to provide an undisputable benefit in this trial, it could help to open up a much larger market opportunity for the medication, which is something we would expect Gilead would definitely welcome," wrote Brian Skorney, an analyst at Baird, in a Feb. 5 note to investors.
But it's clear Kite alone won't be enough to help Gilead climb back from two years of rapidly declining hepatitis C sales, sustaining pressure on the company to explore other dealmaking.
So far, company CEO Dan O'Day has moved to tie Gilead's future closer with that of Belgian drugmaker Galapagos, developer of the rheumatoid arthritis drug filgotinib. O'Day acknowledged, however, the company has a "sense of urgency" to build up its research pipeline further, with oncology a likely target.
"We're actively pursuing and evaluating innovative programs and technologies externally to build our presence in oncology," said Merdad Parsey, Gilead's new chief medical officer, on a call with investors Tuesday evening.
Gilead's interest, Parsey noted, is in other cancer treatment approaches as well as cell therapy.