Gilead to Buy Kite Pharma for Roughly $11 Billion -- 2nd Update

Gilead Sciences Inc. has agreed to pay about $11 billion for Kite Pharma Inc. and its promising new technology for harnessing the body's immune system to fight cancer, according to people familiar with the matter.

Gilead will pay $180 a share, the people said, representing a 29% premium over Kite's closing price Friday. The all-cash deal, to be announced Monday, would give Gilead a foothold in a new type of personalized treatment that doctors say could save patients with the most dire cases of cancer and analysts estimate would ring up billions of dollars in sales.

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 would be one of Gilead's biggest, rivaling 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. Kite, of Santa Monica, Calif., is a leader among several companies that aim to use genetic engineering to weaponize a patient's own immune T cells and then deploy them to attack lymphoma and other blood cancers.

Kite's main drug, known as axi-cel, is up for approval in the U.S. and Europe. Analysts predict it would have world-wide sales of $1.7 billion in 2022, according to EvaluatePharma, which ranks the drug among the industry's top 10 compounds in terms of sales potential. Such expectations have already pushed the company's shares sharply higher this year.

Axi-cel is likely to face swift, steep competition. Novartis AG, one of the leading cancer-drug makers, beat Kite to be the first company to ask the Food and Drug Administration to approve a bioengineered T-cell drug. Several other companies are developing the drugs too.

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 proved to be an albatross. Gilead faced public criticism and a Senate investigation for listing Sovaldi at $1,000 a day, 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.

After years of surging volume, pharmaceutical deal making has been slow this year, with very few megamergers aside from Johnson & Johnson's r oughly $30 billion deal to buy Actelion Ltd. Drug companies have been digesting earlier acquisitions and have also been hampered by uncertainty surrounding tax reform because many of them have large amounts of cash overseas.

The deal is expected to close in the fourth quarter, around the same time as the deadline for U.S. approval of Kite's main drug, according to the people familiar with the matter.

--Dana Mattioli contributed to this article.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com

Gilead Sciences Inc. has agreed to pay about $11 billion for Kite Pharma Inc. and its promising new technology for harnessing the body's immune system to fight cancer.

Gilead will pay $180 a share, representing a 29% premium over Kite's closing price Friday. The all-cash deal would give Gilead a foothold in a new type of personalized treatment that doctors say could save patients with the most dire cases of cancer and analysts estimate would ring up billions of dollars in sales.

Shares in Kite rose nearly 29% to $179 in premarket trading. The Wall Street Journal reported earlier Monday about Gilead's deal to buy Kite.

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

Dr. Milligan said Gilead is accustomed to operating in competitive drug markets. He 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.

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

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

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.

Dr. Milligan said Gilead 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 drugs 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 also teaches and practices medicine.

Dr. Milligan said Gilead realized the deal comprised not only axi-cel but the technology for developing other cell-therapy cancer drugs. "We see it as a nice, sustainable oncology platform for decades to come," he said.

The deal is expected to close in the fourth quarter, around the same time as the deadline for U.S. approval of Kite's main drug.

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

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.

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 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 drugs 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.

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 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'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 28, 2017 19:41 ET (23:41 GMT)