A sky-high price tag for Kite

Gilead secures Kite Pharma for $11.9B in second-largest deal of 2017

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FOSTER CITY, Calif.—Gilead Sciences Inc. is aiming for big growth and the lion’s share of the emerging cell therapy market, having announced at the end of August a definitive agreement to acquire Kite Pharma Inc. for roughly $11.9 billion. Both companies’ boards of directors unanimously approved the deal, which is slated to close in the fourth quarter of 2017.
Per the terms of the transaction, Gilead’s wholly owned subsidiary will commence a tender offer to acquire all of Kite’s outstanding shares of common stock at $180 per share in cash, which represents a 29-percent premium to Kite’s closing stock price as of August 25, and a 50-percent premium to Kite’s 30-day volume weighted average stock price. Once the tender offer is completed, Gilead will acquire all remaining shares not tendered to the offer via a second step merger at the same price of $180 per share. The closing of the deal is subject to several conditions, including a minimum tender of at least a majority of outstanding Kite shares on a fully diluted basis and the expiration or termination of the waiting period under the Hart Scott Rodino Act, among others.
Kite’s research and development and commercialization operations will remain based in Santa Monica, Calif., Gilead noted in a press release, and its product manufacturing will stay in El Segundo, Calif.
“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,” Dr. John F. Milligan, president and CEO of Gilead, remarked in a statement. “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. We are greatly impressed with the Kite team and what they have accomplished, and share their belief that cell therapy will be the cornerstone of treating cancer. Our similar cultures and histories of driving rapid innovation in order to bring more effective and safer products to as many patients as possible make this an excellent strategic fit.”
Kite specializes in cell therapy, and boasts a pipeline of engineered cell therapies expressing either a chimeric antigen receptor (CAR) or an engineered T cell receptor (TCR), depending on the type of cancer being targeted. Among the drug candidates Kite is advancing through the clinic is KITE-585, a CAR-T therapy targeting BCMA expressed in multiple myeloma. The company’s most advanced compound is axicabtagene ciloleucel (axi-cel), a CAR-T therapy. It is currently under priority review by the U.S. Food and Drug Administration (FDA), and the FDA has set a target action date of November 29 under the Prescription Drug User Fee Act. Axi-cel is expected to be the first candidate to market as a treatment for refractory aggressive non-Hodgkin lymphoma (NHL), including diffuse large B-cell lymphoma, transformed follicular lymphoma and primary mediastinal B-cell lymphoma—Kite has submitted a marketing authorization application for the latter three indications with the Europeans Medicines Agency, with approval expected next year.
Kite also has several development programs underway meant to expand the use of axi-cel in earlier lines of therapy in the indications of aggressive NHL and other B-cell malignancies, and its pipeline is advancing TCRs within solid tumors and CAR-Ts for the treatment of multiple myeloma and acute myeloid leukemia.
“From the release of our pivotal data for axi-cel, to our potential approval by the FDA, this is a year of milestones. Each and every accomplishment is a reflection of the talent that is unique to Kite. We are excited that Gilead, one of the most innovative companies in the industry, recognized this value and shares our passion for developing cutting-edge and potentially curative therapies for patients,” commented Dr. Arie Belldegrun, chairman, president and CEO of Kite. “CAR-T has the potential to become one of the most powerful anticancer agents for hematologic cancers. With Gilead’s expertise and support, we hope to fulfill that potential by rapidly accelerating our robust pipeline and next-generation research and manufacturing technologies for the benefit of patients around the world.”
This deal is notable for its size, both on a personal scale for Gilead and on a global scale—according to Mergermarket, this is Gilead’s largest acquisition ever, topping its $10.4-billion deal for Pharmasset Inc. in 2012, and is the second-largest pharma deal globally for 2017, the largest being Johnson & Johnson’s purchase of Actelion Pharmaceuticals for $29.6 billion. Though the field of cell therapy is somewhat untested of yet in terms of successful therapies making it to the market, interest in the field is growing and results from Kite are promising enough that investor opinion is positive on the deal and its large price tag. For its part, Gilead is ready to commit wholeheartedly to the promise of cell therapy, noting in a press release that “Axi-cel, coupled with Kite’s leading manufacturing capabilities and its portfolio of next-generation technologies and therapy candidates, will serve as a foundation for Gilead’s efforts to build an industry-leading cell therapy franchise.”
“We note that investors were expecting Gilead to announce an acquisition in the near term given the decline in the once lucrative hepatitis C (HCV) market due to competitive pressure. Gilead is known for its presence in the HCV market because of its blockbuster HCV drugs, Sovaldi and Harvoni. However, the HCV franchise is under pressure because of competition and pricing issues. We note that Harvoni, Sovaldi and Epclusa face competition from AbbVie’s Viekira Pak and Viekira XR, among others … While the deal might look expensive given the premium Gilead paid for Kite, the CAR-T space is expected to be revolutionary in treatments for cancer. The CAR-T space represents immense potential at this juncture and a potential approval of axi-cel will be a significant boost for Gilead’s prospects, which has dampened of late,” Zacks Equity Research opined in a note on the deal.
Kite is not alone in this field, however, and this deal has kicked up interest in other contenders’ cell therapy efforts as well. Juno Therapeutics, Bluebird Bio and Cellectis are also advancing CAR-T therapy candidates, and saw their stocks jump 16.3 percent, 9.7 percent and 11.8 percent, respectively, on news of the Kite acquisition, according to a note from Morningstar’s MarketWatch. Novartis has its hat in the ring as well, announcing just two days after the Gilead-Kite deal was revealed that its tisagenlecleucel-T had received the first-ever approval from the FDA for a CAR-T cell therapy on August 30. The therapy in question, marketed as Kymriah, was approved for children and young adults with B-cell acute lymphoblastic leukemia that is refractory or in second or later relapse.

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