Kite flying high on $12B takeout by Gilead
- Gilead Sciences, Inc. announced first thing Monday morning it will acquire the hot CAR-T biotech Kite Pharma, Inc. for $180 per share in cash, finally making the kind of large acquisition shareholders have been desiring.
- The deal, valued at $11.9 billion, has been approved by both companies’ boards of directors and is expected to close in the fourth quarter.
- Gilead’s interest is in Kite’s cell therapies for the treatment of hematologic cancer and solid tumors. Kite’s most advanced therapy is the chimeric antigen receptor (CAR)-T cell therapy axicabtagene ciloleucel (axi-cel), which looks set to win U.S. approval later this year.
Shareholders of Gilead have been pushing the big biotech to use its $30 billion-plus cash hoard for the better part of two years. Yet, the company has frustrated many, holding off on doing any M&A while waiting for the right deal.
That deal came in the form of Kite Pharma, a small biotech which has been making headlines for competing neck and neck with Novartis to bring the first CAR-T therapy to market.
Kite is expected to gain approval for axi-cel by its November 29 user fee action date for the treatment of refractory aggressive non-Hodgkin lymphoma. Axi-cel could also gain approval in Europe by early 2018.
While the deal surprised many, a major acquisition in oncology had looked increasingly likely. Gilead made a major addition to its management line-up in January when it hired Alessandro Riva, a former Novartis veteran who had overseen the development of nearly 20 hematology candidates.
Gilead is best known for its mega-blockbuster hepatitis C franchise — which encompasses three essentially cures for the liver disease — and its strength in HIV. Yet sales of the hepatitis C drugs have begun to decline as Gilead moves beyond those patients most accessible to treatment and the market levels off.
In a bid to diversify, the California biotech has made forays into oncology, but its efforts have largely been unsuccessful.
In November, Gilead announced a failure for its JAK inhibitor momelotinib: the drug failed to show superiority to Incyte's JAK inhibitor Jakafi (ruxolitinib). Zydelig (idelalisib), Gilead's first entry into the cancer space, won Food and Drug Administration approval in 2014, but has had safety issues and revenues have been minimal.
Unlike some of its peers, Gilead is incredibly discerning about the acquisitions it makes. Many industry spectators thought Gilead overpaid when it acquired Pharmasset in 2011 for $11 billion. The company proved everyone wrong, however, turning sofosbuvir into its goldmine hepatitis C franchise.
This time, no one is accusing Gilead of overpaying. In fact, shareholders of both companies are particularly excited. Shares of Kite jumped 28% in early morning trading to drive the share price up to $179 per share, while Gilead’s stock rose 2% to trade near $75.
Gilead CEO John Milligan told investors on an Aug. 28 call that the company considers the risk/benefit profile for Kite’s CAR-T platform to be "no-question" a positive.
R&D as well as commercialization operations for Kite will remain in Santa Monica, California, with product manufacturing staying in Kite's El Segundo, California facility — sited purposefully close to the L.A. airport to optimize transport of cell therapies. Milligan also intends to keep Kite’s scientific staff intact.
Analysts estimate Kite will bring in $200 million in revenues in 2018 and as much as $1.2 billion by 2021.This will be a major boon to Gilead, which expected to see revenues from its hepatitis C franchise bottom out in the next couple of years.
While Kite is slightly behind Novartis in bringing the first CAR-T therapy to market, the two companies first bids for approval are in different indications. Novartis already won the backing of an advisory panel for its treatment in July, while Kite has given no indication that a committee meeting is on the calendar for axi-cel.
- Gilead Press release
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