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Gilead to Buy Kite for $11.9 Billion in Cancer Megadeal

Aug. 28, 2017
With Kite, Gilead will gain a foothold in one of the most promising fields in oncology: treatments known as CAR-T that re-engineer the body’s own immune system to fight tumors.

Gilead Sciences Inc. will buy Kite Pharma Inc. for about $11.9 billion, making its biggest-ever deal for a breakthrough new cancer treatment that will help diversify away from its eroding franchise of medicines for hepatitis C infections.

With Kite, Gilead will gain a foothold in one of the most promising fields in oncology: treatments known as CAR-T that re-engineer the body’s own immune system to fight tumors.

The drugmaker said on August 28 that it will pay $180 a share in an all-cash deal. That’s 29% above the August 25 closing price for Santa Monica, Calif.-based Kite.

“This is a pivot to cellular therapy as our main strategy going forward,” said Gilead CEO John Milligan. The company, which hasn’t had great success in cancer so far, will continue to look for assets. “We’re not going quiet after this deal.”

The acquisition caps more than a year of search as valuations for biotechnology companies focused on breakthrough therapies soared and the best got bought by rivals. Gilead, seeking to fill a gap left by declining sales of hepatitis C medicines, said last year it was feeling “an urgency to look at external opportunities.”

Gilead was ready to pay the price for Kite, whose shares had tripled just this year through August 25. Kite, which doesn’t have a treatment on the market yet, is awaiting U.S. approval for a drug for non-Hodgkin lymphoma, a type of blood cancer. Kite said this month the treatment could be ready for a launch as soon as September, sending the shares to new records. It’s racing Swiss giant Novartis AG to get the first CAR-T product on the market.

Kite’s most advanced therapy, axicabtagene ciloleucel, would treat a group of patients with hard-to-treat non-Hogkin lymphoma. It’s expected to be approved by the U.S. Food and Drug Administration by the end of November -- although it could come sooner. Novartis applied about a month earlier for approval to treat pediatric patients with a relapsed form of leukemia. Other companies are developing rival treatments.  The Kite acquisition signals an evolution in Gilead’s thinking about CAR-T as pressure from investors grew to make a deal and some biotechs, including Kite, showed very effective results in trials. As recently as last year, CEO Milligan expressed some skepticism about the therapies, saying they’re complex and labor-intensive -- more like a bone marrow transplant than a drug.

Because they harness the body’s own immune system, CAR-Ts have had dramatic results in studies for some patients, but also showed side effects with others -- including several patients who were killed in Kite and Juno trials.

Solving Manufacturing

CAR-T are also complex to manufacture. Unlike pills or chemotherapy, the treatments can’t be stockpiled. They’re living drugs, and the production process entails drawing a patient’s blood; extracting the T-cells; inserting a gene that will enable them to identify tumors as targets; then infusing the cancer-killing compound back into the patient at a specialized medical center.

But Gilead watched Kite becoming more and more attractive through the summer, CEO Milligan said on August 28. “It became clear that the side effects would be more manageable and more importantly that the manufacturing would work,” Milligan said. “They’ve solved the manufacturing problem. It all added up to this being a very unique, special opportunity for us, and this became very compelling.”

Kite is studying its therapy for a wide range of blood cancers, including the most common and devastating types of leukemia. It is in the earliest stages of development for a half-dozen other treatments that use the immune system’s killer T-cells to treat solid tumors, in many cases working in collaboration with the National Cancer Institute.

The transaction, scheduled to close in the fourth quarter, would be Gilead’s largest by equity value, surpassing the 2012 acquisition of Pharmasset for $11.2 billion. The Kite agreement was unanimously approved by the two boards and will start add to earnings three years after completion.

By Naomi Kresge and Michelle Fay Cortez

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