Coverage: Gilead to buy Kite Pharma for $11 billion

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.

Jim Puzzanghera of the Los Angeles Times had the news:

Foster City-based Gilead said Monday that it would maintain and even expand Kite Pharma’s Los Angeles area operations, which include a 100,000-square-foot manufacturing facility in El Segundo.

Dr. Arie Belldegrun, Kite Pharma’s founder and chief executive, will help during the merger transition, a Gilead spokeswoman said, but she offered no details on leadership plans beyond that.

The purchase of Kite, which is on the verge of gaining approval for an innovative treatment, expands the cancer-fighting portfolio of Gilead.

“The acquisition of Kite establishes Gilead as a leader in cellular therapy and provides a foundation from which to drive continued innovation for people with advanced cancers,” Gilead Chief Executive John F. Milligan said in a statement.

Tara Lachapelle of Bloomberg Gadfly reports that the price is not as high as it seems:

At first glance, it would seem like an outlandish price to pay for a company that has generated only $32 million of revenue in the past 12 months and posted a $359 million net loss. That means Gilead is technically paying a revenue multiple of 372!

But Gilead is looking ahead to much larger figures. Kite is one of those drug developers working in the CAR-T space, the treatments that use a patient’s own immune system to fight tumors. The company said recently that one of its new therapies awaiting FDA approval could be ready for launch as soon as September.

After years of its own attractive growth, Gilead’s core hepatitis-C franchise has gone into decline as it sits on a big pile of cash. It’s under-leveraged, under-delivering and in need of a deal, hence Gilead’s stock rising modestly in early trading Monday.

Gilead’s finally using some of its cash to restock its drug pipeline amid its own disappointing growth prospects.

Matthew Harper of Forbes reports that both Gilead and Kite Pharma will have cancer drugs hitting the market at the same time:

The deal recasts both Gilead, a company focused on viruses and tumors, and the field of cell therapy for cancer, which now will be guided not by start-ups but by larger, established pharmaceutical firms. (Kite’s closest competitor: Novartis.) It also sets the stage for a dramatic few months during which both the Kite product and the Novartis one are expected to reach the U.S. market at an extraordinary price. The treatments are expected to cost hundreds of thousands of dollars per patient, and to conform to the unavoidable narrative of pharmaceutical innovation: medical breakthroughs at sky-high prices.

Gilead’s chief executive, John Milligan, said in an interview that the eventual price of the Kite treatment will be justified by several factors. It will cost a lot to make. “The individual per patient cost to manufacture has got to be the highest in the industry,” Milligan says. It is a one-time treatment, not a drug given for years. It potentially cures patients. And it is initially being given for a rare disease. “It is certainly our hope that as we are able to drive down manufacturing costs, and as or if these indications broaden to larger patient populations, that we would be able to drive down the prices over time through manufacturing efficiency,” Milligan says.

Critics will note, however, that the original technology for Kite’s product, Axi-Cel, was developed at the National Institutes of Health on the taxpayer dime.  It’s a narrative with which Gilead is familiar. In 2011, it bought another company, Pharmasset, for $11 billion. At the time, many investors gagged at the price. But the main drug from that deal became Sovaldi, a medicine that, in combination with others, can cure the liver virus hepatitis C. Gilead priced Sovaldi at $1,000 a pill, garnering criticism from patient advocates and Congress, but also generating $12 billion in their first year. University of Pittsburgh health policy wonk Walid Gellad boiled the coming criticism down to two words in a tweet: Sovaldi squared.