Gilead Bets $11 Billion On New Cancer Therapy -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 29, 2017).

Gilead Sciences Inc. on Monday agreed to pay about $11 billion for Kite Pharma Inc., an ambitious bet on a new type of cancer therapy that is on the brink of becoming commercially available in the U.S.

Doctors say Kite's main treatment, which is up for regulatory approval in the U.S. and Europe, could drastically improve treatment of patients with some of the most advanced cases of cancer. EvaluatePharma expects Kite's therapy to generate sales of $1.7 billion world-wide in 2022.

"This technology is really going to be transformative to the field," Gilead CEO John Milligan said in an interview.

The new breed of treatments, known as CAR-T -- or chimeric antigen receptor T-cell -- therapy, work by extracting a cancer patient's T-cells, a type of immune cell. The T-cells are then genetically modified outside the body to make them more effective at hunting down and killing tumors, and then re-injected into the patient.

Several other companies also are developing CAR-T treatments -- including Switzerland's Novartis AG, which already won a key regulatory nod in the U.S. earlier this year, and is expected very soon to get the first official green light to start offering the treatment.

Gilead, of Foster City, Calif., had been looking for an acquisition to diversify its portfolio beyond its leading position in infectious-disease treatments and provide a new revenue stream as sales of the company's hepatitis C drugs decline.

The deal for Kite, of Santa Monica, Calif., would be one of Gilead's biggest, on a par with the company's $11 billion purchase of liver-disease drugmaker Pharmasset in 2012. Through that acquisition, Gilead gained hepatitis C therapies that are among the world's top-selling drugs.

Now Gilead is betting that Kite can provide a similar payoff. Dr. Milligan said Kite's technology could be used beyond its initial focus on an advanced form of lymphoma to other blood cancers including multiple myeloma and perhaps in combination with other immunotherapies.

While promising, CAR-T treatments won't be like other drugs that win FDA approval, and then quickly wind up on pharmacy shelves and hospitals. The rollout of this new breed will be complicated by unresolved questions.

Manufacturing and delivery are more complex than for a typical drug. In the U.S., only a few dozen specialized hospitals are currently qualified to provide CAR-T treatments, which require retrieving, processing and then returning immune cells to the patient, as well as monitoring side effects. Novartis said it expects between 30 and 35 centers to be certified to offer the treatment by the end of the year.

Some of the therapies that various companies were working on have produced serious, even deadly, side effects during development. Dr. Milligan said doctors have learned how to cut the risk of side effects, and Gilead and Kite would work on developing improved treatments.

Expense could also present a hurdle: A study by England's National Institute for Health and Care Excellence, an official body that analyzes the cost-effectiveness of medical treatment, said CAR-T procedures could command a price of up to GBP528,600 (about $681,000).

The cost is similar to the total costs of some other cancer therapies taken over the course of several years, according to Stephan Grupp, who was part of the team that first developed Novartis's treatment at the University of Pennsylvania. But CAR-T therapy is conducted only once, creating a comparatively steep one-time payment.

Novartis hasn't yet disclosed the price it plans to charge for its treatment, called CTL019, which has been shown to dramatically raise the chances of survival for children and young people with leukemia who don't respond to standard treatment, or who suffer a relapse.

So far, CAR-T therapies have been tested only on certain types of blood cancer. Kite Pharma's leading CAR-T treatment, known as axi-cel, is aimed at patients with aggressive non-Hodgkin lymphoma, for whom standard therapy has failed.

Kite and Novartis are both investigating several more CAR-T therapies for various forms of blood cancer. Novartis is also conducting early-stage CAR-T trials for certain types of brain and lung tumors.

Dr. Milligan, Gilead's CEO, said the company had been eyeing Kite for months and decided to make a move after Kite asked the FDA to approve axi-cel and Gilead watched the performance of treatments from Novartis and others.

Deal talks began in earnest during a dinner in June at the home of Kite CEO Arie Belldegrun overlooking the University of California, Los Angeles, campus where he teaches and practices medicine, Dr. Milligan said.

"We are excited that Gilead, one of the most innovative companies in the industry, recognized this value and shares our passion for developing cutting-edge and potentially curative therapies for patients," Mr. Belldegrun said in a statement.

Gilead made its name selling treatments for HIV/AIDS. The biotech company surged in value after launching the hepatitis C treatments developed at Pharmasset. The drugs, Sovaldi and Harvoni, helped Gilead double its sales in 2014. It now has a market value of roughly $100 billion.

Last year Gilead had $30 billion in sales, including $9.1 billion from Harvoni and $4 billion from Sovaldi.

Yet the anti-viral drugs' commercial success has also come with some problems. Gilead faced public criticism and a Senate investigation for listing Sovaldi at $1,000 a day -- or $84,000 for a 12-week treatment -- even though the therapy cured most patients at a cost of less than a liver transplant.

The hepatitis C drugs' sales were squeezed in recent years when Merck & Co. launched a rival treatment, forcing Gilead to offer steep discounts to health plans. And partly because of the drugs' success curing the disease, fewer patients needed treatment.

The company's second-quarter hepatitis C drug sales fell to $2.9 billion world-wide, down from $4 billion during the period a year earlier.

Gilead has faced pressure from investors and analysts to find new revenue sources. Management responded by touting its next generation of HIV/AIDS treatments as well as drugs in development to treat a liver disease known as NASH, for nonalcoholic steatohepatitis.

But Wall Street said Gilead needed to do another deal. Gilead fanned speculation by hiring Alessandro Riva from Novartis to run its hematology and oncology division, as well as its former adviser, investment banker Andrew Dickinson, from Lazard Ltd.

Gilead's all-cash deal for Kite is expected to close in the fourth quarter, around the same time as the deadline for U.S. approval of Kite's main therapy.

Dr. Milligan said Dr. Belldegrun would help with the transition to new ownership and that Gilead would retain "nearly all" Kite's employees.

--Dana Mattioli contributed to this article.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

August 29, 2017 02:47 ET (06:47 GMT)