Last week, Gilead Sciences (NASDAQ: GILD) generated plenty of buzz with the announcement of its planned acquisition of Kite Pharma (NASDAQ: KITE). On Wednesday, several of the company's top executives sat down at the Citi biotech conference to field questions.
Continue Reading Below
Gilead Sciences COO Kevin Young, chief scientific officer Norbert Bischofberger, and CFO Robin Washington participated in what was billed as a "fireside chat." Here are five questions that Gilead's management answered that you'll want to know about.
1. Why buy a company with no current revenue?
It's not surprising that the first question out of the gate for Gilead's executives was related to the Kite acquisition. With Gilead's revenue and earnings falling as a result of slipping hepatitis C virus (HCV) franchise sales, why did Gilead choose to buy a company with no current revenue?
Kevin Young responded that Gilead's primary focus was to "seek innovation." He described cell therapy as the "new vanguard, the new movement in hematological malignancies." Young added that Kite Pharma is "the best company in cell therapy."
With that being said, Young acknowledged that Gilead wanted to "see revenue on the horizon." Kite expects an FDA decision on its lead cell-therapy product, axicabtagene ciloleucel (axi-cel), in November. When Gilead first announced the deal, the company projected the acquisition would be accretive to earnings after year three. Gilead CFO Robin Washington also reiterated that the purchase of Kite would diversify the biotech's revenue, as well as add a new innovative area.
Continue Reading Below
2. Will Gilead price axi-cel using a pay-for-performance model?
Novartis (NYSE: NVS) recently won FDA approval for the first CAR-T cell-therapy product, Kymriah, for treating B-cell precursor acute lymphoblastic leukemia (ALL). The big drugmaker also announced that it will use a pay-for-performance, or outcomes-based approach, for pricing.
Does Novartis' pricing decision mean that Gilead will follow the same path? Kevin Young noted that Gilead closely monitored what Novartis was doing with Kymriah. He said that Kite Pharma has "done a lot of thinking on pricing" for axi-cel, but no final decisions have been made.
Although Young stated that axi-cel and Kymriah target different indications for their first FDA submissions, the reality is that Novartis' pricing approach will likely put tremendous pressure on Gilead to also use some type of pay-for-performance model. Is it possible that one company could use pay-for-performance and another not do so? Young only said that "time will tell."
3. How concerning is potential HIV competition?
Gilead has been the leader in treating HIV for a long time. Norbert Bischofberger, the biotech's chief scientific officer, was asked about his thoughts related to potential competition from GlaxoSmithKline's (NYSE: GSK) doublet therapies. Bischofberger didn't seem too worried.
He stated that recent data presented at the International AIDS Society conference in Paris by GlaxoSmithKline raised questions about whether or not the company's two-drug regimen would be "enough by themselves." Kevin Young stated that Gilead has spoken with physicians -- and they want triple-combo therapies to avoid resistance and maintain patients into their later years.
Bischofberger added that the zero resistance from studies of its bictegravir/F/TAF combo "resonated" with key opinion leaders. Gilead is optimistic about FDA approval of the HIV combo by February 2018.
4. Will there be more cuts to HCV drug pricing?
Another rival could be shaking things up for Gilead's HCV franchise. AbbVie (NYSE: ABBV) won FDA approval for Mavyret in August. The bad news for Gilead is that AbbVie priced its new HCV drug at a steep discount to current drugs on the market.
Kevin Young admitted that Mavyret is "the closest thing we've seen to the profile of our HCV drugs." He also said that Gilead wasn't surprised by AbbVie's pricing. At the same time, though, Young mentioned that Gilead "will think carefully" about the new competition heading into 2018 and was "strongly committed to ensuring that there's always access as a choice to our HCV drugs." That sounds like price cuts for Epclusa and other Gilead HCV drugs could be on the way.
5. What's the outlook for more acquisitions?
Perhaps the most important thing for investors to know from Gilead's management team's comments at the Citi conference was this statement from Kevin Young: The Kite Pharma acquisition "was not necessarily a one-and-done deal." Young said that Gilead continues to look at potential additive partnerships or acquisitions in the area of cell therapy. He also said that if "something interesting" comes along in the broader oncology landscape, Gilead could pursue a deal outside of cell therapy.
Norbert Bischofberger chimed in with more details on what kinds of companies and/or assets might attract Gilead's attention. He ticked off several areas, including gene editing, on/off switches, things that modify cell therapy, and allogeneic approaches.
Robin Washington added that Gilead wants to "maintain financial flexibility for future acquisitions." She stated that while the company plans to use some debt to finance the Kite deal, Gilead's free cash flow will rapidly reduce that debt. She also expressed the hope that any corporate tax reform in the U.S. would include lower tax rates for repatriating cash parked overseas.
After Gilead's announcement of the Kite Pharma deal, I wrote that investors should get ready for more acquisitions. The comments made by its management team on Wednesday hint that it's less a question of if those acquisitions will come than it is of when they'll happen.
10 stocks we like better than Gilead Sciences
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Gilead Sciences wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017