Gilead's Plan? Cash In on CAR-T

Investors eagerly awaiting news of how Gilead Sciences' (NASDAQ: GILD) plans to spend its growing mountain of cash found out on Monday that the company's plans to become a leader in cancer treatment weren't lip-service. Management will spend $11.9 billion to acquire Kite Pharma (NASDAQ: KITE), a promising clinical-stage drug company developing a new approach to kill cancer called CAR-T.

What's CAR-T?

Chimeric antigen receptor T-cell therapy, or CAR-T for short, is a complex approach to beating back cancer that involves re-engineering a patient's T-cells so that they can better find and destroy cancer cells.

T-cells are a type of white blood cell that play a critical role in protecting the body from invaders, such as infection and cancer. However, in many patients T-cells struggle to differentiate healthy cells from cancerous cells, and as a result, cancer cells can evade them, grow, and multiply, leading to disease progression and too often, death.

To prevent cancer cells from escaping detection, Kite Pharma (and its peers) have created a new approach that extracts T-cells from a patient's body, re-engineers them so that they can better spot cancer cells, and then returns them to the patient so that they can find and destroy cancer.

At the forefront of CAR-T treatment

Kite Pharma isn't the only company developing CAR-T, but it is one of the leaders in this research. The Swiss biopharma Goliath Novartis is the only other drug developer to have a CAR-T that's pending approval from the FDA.

In Kite Pharma's case, it's awaiting an FDA decision on axi-cel, a CAR-T that's under priority review for use in patients with B-cell cancers.

If axi-cel is eventually approved, it will be used to treat refractory aggressive non-Hodgkin lymphoma, which includes diffuse large B-cell lymphoma (DLBCL), transformed follicular lymphoma (TFL) and primary mediastinal B-cell lymphoma (PMBCL). This patient population has limited treatment options and unfortunately, a poor prognosis.

In trials, response rates to axi-cel therapy were undeniably impressive.

The objective response rates (ORR) in heavily pre-treated diffuse large B-cell lymphoma (DLBCL) patients was 82%, including 49% who had a complete response. At the six-month mark, the ORR and complete response rates were 36% and 31%, respectively. To put these numbers in better perspective, this patient population's ORR on existing standard of care ranges between 19% to 36%, and complete response rates range between just 2% to 18%.

A big opportunity

Gilead Sciences' is already the market leading manufacturer of HIV and hepatitis C medicine, and acquiring Kite Pharma may allow it to finally deliver on its ambition to become a leader in cancer treatment.

So far, Gilead Sciences' foray into cancer has fallen flat. Zydelig won approval for use in chronic lymphocytic leukemia, or CLL, in 2014, however, safety concerns have turned it into a nice therapy with limited sales of only $35 million in Q2 2017.

If axi-cel wins an FDA go ahead, Gilead Sciences cancer revenue could catapult higher.

Despite the complexity involved in re-engineering T-cells, Kite Pharma thinks it can treat up to 4,000 patients in the first year following axi-cel's launch.

It's working hard to improve upon its process to shrink the amount of time it takes to re-engineer the T-cells and return them to patients, and if it can deliver on hopes to get vein-to-vein time below 20 days, then it could end up being able to treat even more patients per year.

Regardless, even at the 4,000 patient run-rate, axi-cel has sales potential that stretches up into the hundreds of millions of dollars per year. Cancer drugs commonly launch with six figure annual price tags, and it wouldn't surprise me if CAR-T therapies, including axi-cel, end up among the most expensive of all cancer treatments on the market.

Peak sales estimates should always be viewed skeptically, but industry watchers think axi-cel could fetch $300,000 per year, and bring in about $2 billion annually in revenue at its peak.

What's next?

There's no guarantee that axi-cel will win FDA approval in November, but the odds appear to favor it. Earlier this year, Novartis' CAR-T therapy CTL-019 was evaluated by a key FDA advisory committee in relapsing pediatric acute lymphoblastic leukemia (ALL), and after considering its pros and cons, they universally recommended its approval.

In the wake of CTL-019's review, the FDA notified Kite Pharma that it wouldn't be scheduling a similar review for axi-cel, strengthening the argument for a regulatory OK.

If axi-cel does win an FDA nod, then Gilead Sciences next job will be convincing doctors to prescribe it and insurers to pay for it. That may not be too tough given Gilead Sciences already has some experience marketing Zydelig, there's a big unmet need for new approaches in advanced non-Hodgkins' lymphoma, and axi-cel patients did remarkably well in clinical trials.

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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 a disclosure policy.