Gilead Makes Long-Awaited Splash With $12B Bet on Kite, Cell Therapy

Xconomy San Francisco — 

Investors have been waiting for years for Gilead Sciences to make another big splash. This morning, it finally did, agreeing to buy Kite Pharma for close to $12 billion in a significant bet on the success of an emerging, cutting edge type of cancer immunotherapy known as CAR-T.

Gilead (NASDAQ: GILD), of Foster City, CA, is paying $180 per share in cash for Santa Monica, CA-based Kite (NASDAQ: KITE), a 29 percent premium to the company’s $139.10 per share closing price on Friday and a deal that values the company at $11.9 billion. Kite shares promptly climbed 16 percent, to $162 apiece, early Monday. The agreement was first reported by the Wall Street Journal. It is expected to close during the fourth quarter. Kite’s lead product, to treat desperate cases of non-Hodgkin lymphoma, is expected to get FDA approval by the end of 2017.

For Gilead, the acquisition shows a renewed effort by the big drugmaker to make a dent in the oncology field. Gilead is known for its HIV drugs and more recently hepatitis C treatments, thanks to an $11 billion buyout of Pharmasset in 2011 that gave it the mega-blockbuster drugs sofosbuvir (Sovaldi) and sofosbuvir-ledipasvir (Harvoni). But over the years, Gilead has also steadily made a series of business development moves in oncology, among them an acquisition of Calistoga Pharmaceutials that gave the company its first, and to this point, only marketed cancer drug, idelalisib (Zydelig). In 2016, the drug generated $168 million in sales.

Gilead has been hoping for much more than that in cancer, and the pressure for the company to do something significant to generate excitement about its future has been building over the past few years as competing hepatitis C treatments have arrived and eroded its market share. Shares of Gilead are down almost 40 percent from their all-time highs in the summer of 2015 as calls for Gilead to use its pile of cash—it had $36.6 billion on hand at the end of June—on a transformative deal have intensified.

Will the Kite buyout be the jumpstart Gilead has been searching for? The deal is a gamble on a field of high promise, but substantial risk: a type of cancer immunotherapy treatment known as CAR-T, in which a patient’s immune cells are removed, modified, and re-infused into the body to find and kill cancer. The approach has shown promise in certain forms of blood cancer, in some cases wiping out leukemias or lymphomas in patients at death’s door, and is close to its first FDA approval. Novartis (NYSE: NVS) could bring the first CAR-T product, CTL019, to market later this year, and Kite’s axicabtagene ciloleucel (or axi-cel for short) could follow close behind. Kite has also filed for approval of axi-cel in Europe; a decision is expected next year.

“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,” said Gilead president and CEO, John Milligan, in a statement.

Milligan added that the cell therapy field has “advanced very quickly, to the point where the science and technology have opened a clear path toward a potential cure for patients.” And Gilead appears to be going all in, saying in its statement that it wants to build an “industry-leading cell therapy franchise.” But there are lingering questions about CAR-T’s overall potential. It comes with safety risks, namely figuring out how to harness the altered cells without causing the body significant harm in the process. A common reaction to treatment, for instance, is an immune system reaction called cytokine release syndrome that has proven deadly in some cases. Kite and Seattle competitor Juno Therapeutics (NASDAQ: JUNO) have also seen certain instances of brain swelling—Juno had to abandon its most advanced treatment after the side effect led to multiple deaths in clinical testing.

In addition, CAR-T treatments haven’t yet worked in solid tumors, which include more prevalent cancers of the breast and lung. They also involve a complex manufacturing process and are likely to be very expensive; their commercial prospects are uncertain.

“We are encouraged that Gilead has finally executed an acquisition and we think that the Kite deal is a major strategic positive,” wrote Barclays analyst Geoff Meacham, in a research note. “[T]he question will be if Kite will be big enough to move the needle and re-accelerate earnings growth to Sovaldi/Harvoni-launch levels.”

Here’s more on CAR-T’s promise and the questions that lie ahead for its developers.

Gilead will hold a conference call this morning to discuss the deal.