Gilead Sciences to Buy Kite Pharma for $11.9 Billion: Is It Enough to Move the Needle?

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What happened

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Gilead Sciences (NASDAQ: GILD), prompted by its falling sales of its hepatitis C drugs over the past year, has finally pulled the trigger on a much-anticipated buyout: On Monday, it offered to acquire Kite Pharma (NASDAQ: KITE) for $11.9 billion in an all-cash deal. Kite's shares were up by 28.87% in pre-market trading on heavy volume as a result. 

Kite is a leader in the field of next-generation cancer treatments known as chimeric antigen receptor T-cell (CAR-T) therapies. The biotech's lead CAR-T candidate, axicabtagene ciloleucel, or Axi-Cel for short, is currently under review by the U.S. Food and Drug Administration as a potential treatment for aggressive non-Hodgkin lymphoma. The FDA is expected to hand down a final decision on Axi-Cel in November.

Shares of fellow CAR-T developers Bellicum Pharmaceuticals (NASDAQ: BLCM) and Juno Therapeutics (NASDAQ: JUNO), and ZIOPHARM Oncology (NASDAQ: ZIOP) are all trading in positive territory on the back of this news.  

So what

Not long ago, the future of the CAR-T therapies was in serious doubt after Juno Therapeutics' then-lead clinical candidate, JCAR015, was shelved due to a handful of patient deaths. The big picture issue is that while CAR-T therapies have produced unprecedented responses against some forms of hard-to-treat blood cancers, they have also caused a number of deadly side effects, such as cytokine release syndrome and neurotoxicity.

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Consequently, Bellicum and ZIOPHARM -- the late-comers to the adoptive cell therapy party -- have both had trouble garnering much interest from investors: Both have been trading at market caps that are small fractions of their respective CAR-T pipelines' commercial potential. Gilead's rather rich buyout of Kite Pharma for what amounts to a 29% premium, however, suggests that the top players in the industry have faith in the power of this novel anti-cancer fighting platform. 

Now what

By acquiring Kite, Gilead may have gained a significant new source of revenue with the potential to help offset its declining hep C franchise. EvaluatePharma, for instance, forecasts Axi-Cel's sales will top $1.7 billion by 2022, and thinks it will turn out to be one of the top-selling oncology products over the course of the next decade. Even so, this acquisition isn't quite enough to move the needle from a top-line standpoint. Sales of Gilead's hep C line are expected to nosedive in the next two to three years due to the emergence of a game-changing competing treatment from AbbVie.

Based on that, Gilead might be gearing up to acquire additional assets in the CAR-T space to shore up revenues. The biotech, after all, will have another $24 billion or so in cash remaining following this acquisition, and at their current rock-bottom valuations, Bellicum, Juno, and ZIOPHARM may prove too attractive to pass up. Stay tuned. 

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George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Juno Therapeutics. The Motley Fool has a disclosure policy.