Gilead Sciences (NASDAQ: GILD) recently acquired clinical-stage CAR-T drugmaker Kite Pharma, for $11.9 billion and on Wednesday, the FDA helped validate the company's purchase price by approving Yescarta more than one month ahead of schedule.
The approval makes Yescarta only the second drug from an entirely new class of cancer killers to get the regulatory nod and Yescarta's $373,000 price tag suggests it could meaningfully offset Gilead Sciences' declining hepatitis C drug revenue next year.
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Cell therapy arrives
Yescarta is a chimeric antigen receptor T-cell therapy (CAR-T) that helps the immune system find cancer by reengineering T-cells so that they can spot and bind to proteins expressed on the surface of cancer cells.
Unlike Novartis' (NYSE: NVS) Kymriah -- the first CAR-T to win approval -- Yescarta addresses advanced diffuse large B-cell lymphoma (DLBCL), the most common type of non-Hodgkin lymphoma (NHL) in adults. Kymriah is approved for use in pediatric patients with acute lymphoblastic leukemia, or ALL, a rare blood cancer.
Yescarta and Kymriah do work similarly, though. Each involves removing a patient's T-cells and shipping them to a facility where they're engineered to spot and bind to CD19, a protein commonly expressed by B-cell cancers. Once the companies have finished altering the T-cells, they're infused back into the patient.
There are about 72,000 new cases of NHL diagnosed in the U.S. every year, and DLBCL represents roughly one-third of those cases. Initially, Yescarta's green light is for use in advanced patients who have tried and failed other treatments, so the addressable market for it is about 7,000 patients out of the gate.
Kite Pharma previously claimed its investments in manufacturing practices and processes would allow them to treat about 4,000 patients in the first year following Yescarta's approval. Given there are limited treatment options available to advanced DLBCL patients and 82% of patients responded to Yescarta during its clinical trials, I wouldn't be surprised if they hit or exceed that target in 2018.
If so, then Yescarta could add $1 billion-plus to Gilead Sciences top line pretty quickly. Gilead Sciences' has priced Yescarta at $373,000 per patient and while discounts will reduce prices significantly from this "list" price, it seems reasonable to assume Gilead Sciences will pocket a few hundred thousand dollars for every patient they treat.
An important win
Yescarta's speedy approval puts Gilead Sciences in a good position to offset at least some of the risk of declining sales for its blockbuster hepatitis C franchise.
Gilead Sciences revolutionized hepatitis C treatment with drugs that deliver 90% plus cure rates in about 12-weeks and as a result, annualized quarterly sales of its hepatitis C drugs peaked at nearly $20 billion in 2015.
Today, the hepatitis market has become crowded by competitors and that's forced prices lower. High cure rates have also shrunken the addressable market for these drugs and as a result, Gilead Sciences hepatitis C revenue fell to $2.9 billion in Q2 from $4 billion in Q2, 2016.
Gilead Sciences' hepatitis C sales may continue dropping in the coming year now that the FDA's approved AbbVie Inc.'s (NYSE: ABBV) Mavyret, a pan-genotype hepatitis C drug that delivers high cure rates in 8-weeks for many patients.
How much lower Gilead Sciences' sales could fall is debatable, but it's hard to imagine that more competition in a smaller market won't pressure the company's revenue.
Given this backdrop, investors can better understand why Gilead Sciences' acquisition of Yescarta, and its subsequent approval, is so important. A rapid ramp in Yescarta sales could absorb a good chunk of any additional decline in the company's hepatitis C sales and finally, put Gilead Sciences in a position to begin growing again.
Gilead Sciences will need to work quickly to establish a beachhead in DLBCL before competitors challenge it. Novartis and Juno Therapeutics (NASDAQ: JUNO) are only two of many companies developing CAR-T therapy for use in DLBCL and future approvals of their therapies in this indication could dilute the market and crimp Yescarta sales.
Novartis' Kymriah is putting up similar efficacy and safety to Yescarta in DLBCL patients so far and a pivotal study that could get it approved in DLBCL will wrap up soon. Juno Therapeutics JCAR017 is also in a pivotal study in the indication and data from its study is expected next year.
The fast-pace of CAR-T development and a willing FDA suggests Gilead Sciences won't have this market to itself for long. Therefore, investors should balance the risk of additional DLBCL therapies against the potential to expand CAR-T's use earlier into patient treatment. Overall, I think the market's big enough to support multiple players, but investors will want to keep tabs on competitors' progress and model for a potential price war if Novartis' and Juno's drugs get the OK.
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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 the following options: short October 2017 $86 calls on Gilead Sciences. The Motley Fool recommends Juno Therapeutics. The Motley Fool has a disclosure policy.