Gilead Sciences' (NASDAQ: GILD) executives answered several questions about its pending acquisition of Kite Pharma (NASDAQ: KITE) last week at the Citi biotech conference. However, that discussion didn't include the company's CEO, John Milligan.
Milligan and Gilead's head of hematology and oncology Alessandro Riva faced even tougher questions about the Kite deal at the Morgan Stanley healthcare conference on Monday. Here's how the big biotech's top management team responded to five key questions about the Kite buyout.
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1. Why was buying Kite the right move for Gilead when no other company was bidding?
There really are two underlying questions wrapped into one with this. Here's the more loaded question: Does the fact that only Gilead made a play for Kite raise questions about the value of the small biotech's assets? Milligan said only that he wasn't sure why no one else went after Kite, but that he knows "a lot of other companies were interested in these technologies," referring to Kite's cell therapy using chimeric antigen receptor T cells (CAR-T).
The reality, of course, is that the absence of other bidders for Kite shouldn't reflect negatively on the value of its pipeline. There is a big reason why many major biopharmaceutical companies have been reluctant to make acquisitions in 2017: They're hoping for tax reform. That has nothing to do with reservations about cell therapy.
Milligan's answer to the broader question of why buying Kite was the right move for Gilead was straightforward. He said that Gilead was looking for an oncology program that "would have [an] immediate and longer-term impact." Kite was a great fit. Riva added that Kite represented "a way to jump into what we consider to be the next innovative space for cancer."
2. Will Gilead be boxed into a corner on pay-for-performance?
Novartis (NYSE: NVS) announced that it would use a pay-for-performance, or outcomes-based approach, for pricing Kymriah, the first CAR-T cell therapy to win regulatory approval. Milligan was asked how Novartis' decision could impact what Gilead does with CAR-T therapy axi-cel (assuming the Kite deal goes through and axi-cel wins approval in November.)
Based on Milligan's response to the question, it appears that Gilead could be reluctant to go with pay-for-performance pricing. He stressed that Kymriah won approval for a different indication than the diffuse large B-cell lymphoma (DLBCL) indication that Kite is targeting initially with axi-cel. Milligan noted that responses can take longer in DLBCL. Because of this, he expressed reservations about how pay-for-performance pricing could be implemented with axi-cel in the DLBCL indication, noting that he "didn't want to complicate revenue recognition too much."
3. What price is sustainable for axi-cel?
On a related topic, the Morgan Stanley analyst asked Milligan about what pricing was sustainable in the cancer market noting that Novartis is pricing Kymriah at $475,000. Milligan's answer indicates that Gilead and Kite could be readying for a similar high price tag.
He mentioned that Gilead is "watching with great interest" the pricing of immuno-oncology (I-O) combinations. Milligan stated that the cancer market for I-O drugs is now "a little like HCV," with many patients essentially being cured. He also said that axi-cel could replace "lots of other expensive chemotherapies."
On the other hand, Milligan acknowledged that Gilead would need to work with hospitals to make sure pricing works for them. He also hinted at the potential for indication-based pricing, saying there's more flexibility for pricing in diseases impacting few patients but "tremendous pressure" exists to control drug prices in broader indications.
4. Won't the high manufacturing costs limit the market opportunity for CAR-T?
CAR-T therapies are more expensive to manufacture. Will that limit the market opportunity? Milligan doesn't think so.
He said that Kite's California facility should be able to support around 4,000 patients annually. However, he added that additional facilities would need to be built -- one in the U.S. and one in Europe. The good news, though, Milligan pointed out, is that these manufacturing facilities aren't nearly as expensive to build as biologic facilities.
Milligan also said that Kite's team is already working on improving the manufacturing process. He thinks that there are opportunities to lower production costs and possibly even process times through automation and process simplification.
5. Why not go with bispecific antibodies instead of CAR-T?
With quite a few CAR-T therapies in development running into safety issues, Milligan was asked why Gilead didn't opt to buy a biotech with a bispecific antibodies program instead. Some industry observers think bispecifics could be a better alternative to CAR-T. Milligan handed the response over to Riva, who led Gilead's scientific assessment of candidates of potential acquisition targets.
Riva said he thought using bispecific antibodies was "a very good approach" -- but cell therapy is better. He thinks there is more opportunity with cell therapy in hematological malignancies and solid tumors than with bispecifics. Riva stated that the Kite Pharma acquisition gives Gilead Sciences "a platform to launch a new way to treat cancer."
These are all legitimate questions for Gilead. However, the company's executives gave pretty good answers. Kite and cell therapy appear to be a solid fit for Gilead. And the Kite acquisition should be a profitable addition over the long run.
To those who wish Gilead would have bought another company, my response is to give it time: Your wish just might come true. Gilead still has a huge cash stockpile and tremendous cash flow. I suspect more acquisitions will be on the way.
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