Growth-hungry Gilead acquires Kite at $12B for its nearly approved CAR-T treatment

Under pressure from a waning hep C franchise, Gilead Sciences CEO John F. Milligan, has finally announced a deal aimed at growing sales in a new field. The company agreed to pay nearly $12 billion for Kite Pharma and its CAR-T candidate, winning the would-be cancer blockbuster he wanted.

The deal will push Gilead to the front of the room in individualized cell-based cancer cures.

The company will pay $180 cash per share, a 29% premium over Friday's closing price, and a figure that it said values Kite at $11.9 billion. The deal should be a hit with antsy investors and will push Gilead to the front of the room in individualized cell-based cancer cures with Novartis, at a time when its own revenue is sliding.

With up to $2 billion in sales expectations, the Kite med could help fill that gap. The target population for Gilead's big-selling Sovaldi and Harvoni—and its follow-up hep C meds—is shrinking as patients are cured with next-gen therapies, leaving fewer in need of treatment.

The acquisition is slated to close in the fourth quarter of 2017, which is also when Kite expects an approval for its treatment for refractory aggressive non-Hodgkin lymphoma. The intensive therapy is expected to offer an immediate revenue boost, adding $200 million to Gilead's sales next year, one analyst said.

Gilead has been expected to do some kind of big deal to put itself back on a growth trajectory. Milligan, since taking the helm of Gilead last year, has been under intense pressure to take the company’s cash hoard and do something to offset the declining sales of its hep C portfolio. While Gilead posted Street-beating revenue in the last quarter, sales were still down 8% from the same period last year, demonstrating the need for new offerings at the company.

Milligan had conceded that a sizable acquisition was needed in order to grow in the near term and the company's name has come up in any number of rumors of deals about to be done. The CEO has said several times that oncology is an area that interests him. And the CAR-T niche, with its cutting-edge technology and potential to provide a cure for some cancers, is seen as right in line with Gilead’s approach.

Jefferies, in a note to investors after speaking with Gilead said that the deal is not only good for Gilead but could "jump-start some biotech M&A."

Jefferies analyst Michael Yee said that for Gilead investors, the focus will shift somewhat away from the company’s hepatitis meds portfolio and toward executing on an "oncology strategy." He expects Gilead’s declining revenues to bottom out in 2020 to 2021 and its EPS to then stabilize.

Evercore ISA analyst Joshua Schimmer told clients today that if Kite’s treatment is approved on its Nov. 29 PDUFA date, it should add about $200 million in revenue for Gilead’s top line in 2018, growing to $1.2 billion in 2021. Other analysts have pegged the med with even higher sales, up to $2 billion.

Because of their potential to cure patients, CAR-T drugs are expected to carry very large price tags, something Gilead knows about. In December, Novartis said 41 out of 50 pediatric and young adult patients in a trial saw complete remission, while Kite reported that 9 out of 11 adult and pediatric ALL patients treated with its CAR-T med achieved those results in a preliminary analysis from a phase 1 study.

Mizuho Securities noted to investors that while Gilead is not prepared to talk about pricing of the new therapy, it had noted that Kite had already done some "excellent work" in talking with payers, paving the way for healthy reimbursements. 

"This is a very targeted population without other alternatives so that focus is very appealing to hospitals," and regulators in both the U.S. and Europe, the firm said in a note today. 

Mizuho also noted that Kite's manufacturing approach appears efficient and that with Gilead's help, costs for the intensive, personalized processes should be able to come down over time.

Unlike the hep C field, where Gilead was way out in front, allowing it to suck up loads of cash for a year before rivals got to market, with CAR-T it will start out neck-and-neck with a competitor. In July, an FDA panel voted unanimously to endorse Novartis’ tisagenlecleucel-T to treat some ALL patients. Novartis has a PDUFA date in October, about a month ahead of Kite. A third competitor, Juno’s JCAR015, has been sidelined, first by the FDA and then voluntarily late last year after several patient deaths in clinical trials.

"The acquisition of Kite establishes Gilead as a leader in cellular therapy and provides a foundation from which to drive continued innovation for people with advanced cancers...The field of cell therapy has advanced very quickly, to the point where the science and technology have opened a clear path toward a potential cure for patients." Milligan said in a statement.