Why Gilead Sciences Shares Soared 10.6% in August

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What happened

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After Gilead Sciences (NASDAQ: GILD) surprised investors by announcing an $11.9 billion splash into cancer treatment, its shares jumped 10.6% in August according to S&P Global Market Intelligence.

So what

Investors waiting to find out what Gilead Sciences would do with the tens of billions of dollars in its balance sheet were rewarded when the company announced it will be acquiring Kite Pharma (NASDAQ: KITE) in a deal valued at nearly $12 billion in cash.

Acquiring Kite Pharma catapults Gilead Sciences to the forefront of research into cellular therapy that supercharges patient immune systems to better seek out and destroy cancer cells. Specifically, Kite Pharma is a leader in chimeric antigen receptor T-cell therapy (CAR-T), a complex process that involves removing T-cells, reengineering them to spot cancer cells, and reinfusing them back into patients.

So far, this approach has delivered impressive results in blood cancers. including a complete response rate north of 50% in heavily pretreated non-Hodgkin's lymphoma patients.

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Now what

Gilead Sciences dominates HIV and hepatitis C treatment, and this acquisition provides a platform it can use to try to become a top-tier player in oncology. In addition to CAR-T, Kite Pharma is developing T-cell receptor (TCR) technology that may provide a second platform that Gilead Sciences can use to develop treatments for solid tumor cancers, including non-small cell lung cancer.

A Food and Drug Administration decision on Kite Pharma's first CAR-T drug, axi-cel, is expected on November 29, and following the approval last week of Novartis' CAR-T drug Kymriah for acute myeloid leukemia, odds are that axi-cel will also get a green light soon.

If so, then Gilead Sciences' investment may pay off quickly. Axi-cel could be used in up to 4,000 patients in the first year following its launch, and top-tier pricing could quickly turn it into a billion-dollar blockbuster. Given the potential for a fast return on its investment, it's no wonder investors bid Gilead Sciences shares up last month.

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Todd Campbell owns shares of Gilead Sciences. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.