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Pharmavitae Analytics

  • Oncology focus – Reduce reliance on infectious diseases and sharpen focus in oncology with foundation in cell therapy
  • Market expansion – Expanding lead product, axi-cel, into new indications and earlier lines of therapy

 

Analyst Comment

 

Gilead’s $11.9bn takeover of Kite Pharmaceuticals positions it as a market leader in the highly touted CAR-T therapy market.

 

Pharmavitae Analytics expects Gilead’s purchase of Kite to generate long-term growth for Gilead as it looks to leverage Kite’s extensive pipeline of next-generation CAR-T and T-cell receptor therapies. The deal grants Gilead access to Kite’s most advanced CAR-T therapy, axi-cel, which is expected to launch this year pending FDA approval in November. PharmaVitae Analytics views the deal as falling short in tackling the company’s declining sales in the HIV and HCV areas out to 2026, which leaves likely capital deployment on the horizon.

 

 

Click to navigate to Strategic Transactions deal record

 

Overview

On 28 August, Gilead announced a tender offer to acquire Kite Pharmaceuticals for $11.9bn at $180.00 per share (Gilead, 2017a). The transaction will establish Gilead as a market leader in chimeric antigen receptor T-cell (CAR-T) therapy, a rapidly emerging drug class capable of eliciting unprecedented response rates.

 

 

  • Axi-cel – The deal grants Gilead access to Kite’s most advanced CAR-T therapy candidate, axi-cel (axicabtagene ciloleucel), which is under priority review by the US Food and Drug Administration (FDA) for the treatment of refractory aggressive non-Hodgkin’s lymphoma (NHL), including diffuse large B-cell lymphoma (DLBCL), transformed follicular lymphoma (TFL), and primary mediastinal B-cell lymphoma (PMBCL). Axi-cel’s FDA approval decision is expected by the end of November 2017.
  • Market opportunity – The initial market opportunity for axi-cel encompasses just 14,400 patients in Europe and the US, suggesting that its price will be high. Current estimates range between $450,000 and $649,000 per patient. However, Gilead plans to increase the market opportunity of axi-cel through regional and indication expansion, ultimately driving long-term growth.
  • M&A – This is the first major M&A deal Gilead has completed since its $11bn acquisition of Pharmasset in 2011, which bolstered Gilead’s revenues through sales of the blockbuster hepatitis C virus (HCV) treatments Sovaldi (sofosbuvir) and Harvoni ([sofosbuvir + ledipasvir]). However, recent declining sales of these drugs have pressured Gilead into making a deal to fill the gap in lost revenues, as shown in the figure below, concluding months of speculation about the company’s future strategic business development plans.

 

 

 

Figure 1Gilead’s forecasted prescription pharmaceutical sales ($m) and growth rate (%) without Kite acquisition, 2013–26

 
gilead 1  

 

 

Source: PharmaVitae Analytics; Datamonitor Healthcare

 

Deal Price

Gilead’s offer represents an acquisition premium of 29% based on Kite’s closing stock price on 25 August, with the deal expected to be accretive within three years.

  • High asset prices – It is likely that this high price stems from a general industry effect that has led to higher asset prices because of demand from larger firms to bolster weak pipelines. Gilead itself has been under pressure to plug the hole left by declining HCV therapy sales, and sees diversification into CAR-T therapy as a bright solution.
  • Price inclusion – The actual price of Kite hinges primarily on the successful expansion of axi-cel into a larger pool of patients and the progress of other pipeline assets driving long-term growth. Gilead’s assumptions would have also included cutting manufacturing costs, competitor dynamics such as the progress of Novartis’s recently approval drug, Kymriah, and potential strategic development and licensing outside of the scope of the Kite deal.

 

Objectives

1. Oncology diversification to drive future growth

Gilead is aiming to diversify into a new therapy space, and will leverage its demonstrated ability to transform treatment outcomes in areas of unmet need.

  • Foundation in cell therapy – Expansion into cell therapy allows Gilead to build its expertise in oncology, and provides an opportunity for sustained long-term growth. Without in-house experience, Gilead will aim to support its acquisition with a mix of internal assets, Kite’s strong pipeline, and, importantly, future products, programs, and technologies funded through additional potential investment.
  • CAR-T technology – Axi-cel therapy harnesses a technology called CAR-T, which involves extracting white blood cells from lymphoma patients, manipulating them so that only those with the ability to attack cancer cells proliferate, and then reintroducing them to the patient’s blood system so they can effectively kill cancer cells. For patients with aggressive forms of NHL that are unresponsive to traditional cancer therapies, huge promise lies in CAR-T therapies. Clinical trials that have enrolled patients with refractory diseases, such as the ZUMA-1 trial, show that axi-cel can treat and in some cases cure patients of NHL.
  • Kite’s pipeline – Kite’s pipeline is extensive and encompasses therapies that treat a range of different tumor types. Kite’s 21 ongoing clinical trials are using axi-cel as a roadmap to accelerate pipeline development, with several trials completing Phase II this year, including ZUMA-2, ZUMA-3, and ZUMA-4. Gilead is therefore aiming to strengthen its oncology pipeline and is looking beyond axi-cel to source long-term growth.

 

2. Market expansion for CAR-T therapy axi-cel

 

The Kite acquisition will provide an immediate revenue stream once axi-cel is approved by the FDA for the treatment of relapsed/refractory DLBCL.

 

  • Positive clinical trial data – Interest in the treatment has been propelled by strong clinical results. Data from the ZUMA-1 trial, a Phase III trial which enrolled 101 candidates, have been exceptional; the objective response rate (ORR) to the drug was 82% compared to an ORR for existing therapies of just 26% (Kite, 2017a). Response to the treatment in this trial was seen in patients with multiple types of aggressive NHL, including TFL, DLBCL, and PMBCL.
  • Expansion strategy – Gilead aims to expand axi-cel into tougher indications, with ongoing Phase II trials for indolent NHL, as well as Phase I trials for second-line DLBCL. Success in these trials will secure growth from the deal and affirm axi-cel as a market-leading franchise for the treatment of NHL.
  • Market access – Kite and Gilead have a multifaceted approach to ensuring the market has access to axi-cel. The first step is educating the market, and so Kite has developed the “Discover CAR-T” campaign, which allows doctors and industry professionals to research and request information about CAR-T (Kite, 2017b). The next step is ensuring the therapy is delivered to the patients. In the first year of axi-cel’s release, Kite plans to target 70–90 top-end academic centers and hospitals, with the treatment expected to reach 90% of DLBCL patients in the US (Kite, 2017c).

 

 

 

Figure 2Cumulative percentage of total DLBCL patients in the US covered by transplant centers

 

gilead2

 

 

Source: Kite, 2017c

 

  • European commercial release – Further to the anticipated FDA approval later this year, Gilead also expects European Medicines Agency (EMA) approval of axi-cel in 2018 after being granted PRIME status. Axi-cel is likely to be the first CAR-T therapy to market in Europe, allowing Gilead to take advantage of an earlier launch. Infrastructure in Europe is currently being built up to ensure that the commercial release of axi-cel can adequately deal with demand.

 

Risks and Uncertainties

 

There are numerous risks associated with the deal that will become clearer with time on the market.

 

 

  • Cost – The price of Novartis’s CAR-T therapy, Kymriah, which the company announced would be around $475,000 per treatment course, will set a benchmark for future pricing dynamics. The manufacture of a personalized CAR-T therapy is capital-intensive, involving an expensive supply chain which Gilead has estimated to cost $200,000 per treatment. The UK’s National Institute for Health and Clinical Excellence suggests that CAR-T therapy could be worth up to $649,000 per patient due to the number of life years saved (Hettle et al., 2017). Gilead will need to price the drug in mind of the strain on payers and patients that it may cause.
  • Technology – There are numerous questions about safety and efficacy that still remain unanswered. The durability of treatment, whether toxicities can be managed appropriately, and whether indication expansions are viable are all issues that need to be elucidated.
  • Competition – Further uncertainty comes from competition within the CAR-T market and developing market shares in the long term. Novartis’s Kymriah has had extremely positive clinical trials, showing an ORR of 83% in a patient population with refractory disease. Kymriah targets pediatric and young adult B-cell acute lymphocytic leukemia, although Novartis is looking to expand its indications, and thus will compete with Gilead in the future.

 

Comparisons to Pharmasset Deal

 

Gilead acquired Pharmasset in 2011 for a total of $11bn at an 89% premium.

 

  • Single-treatment markets – Parallels between the deals can be made beyond the price, primarily that both sought to acquire medicines that have the potential to be curative or that send patients into remission. Axi-cel, like Sovaldi and Harvoni, is a next-generation treatment that has the potential to overhaul the way the disease is treated. Gilead therefore has experience in the economics of single-treatment markets, and is expected to maximize its returns quickly, as it did with HCV.
  • Long-term growth – Axi-cel’s annual revenues are not estimated to offset the $19bn in sales that Harvoni and Sovaldi generated in 2015 (Gilead, 2017b). However, a cornerstone of this deal is to create multiple revenue streams and drive long-term growth through shrewd R&D investments to bring new cellular therapies to market and by expanding axi-cel’s patient pool.

 

Bibliography

Gilead (2017a) Gilead Sciences to Acquire Kite Pharma for $11.9 Billion. Available from: http://www.gilead.com/news/press-releases/2017/8/gilead-sciences-to-acquire-kite-pharma-for-119-billion [Accessed 28 August 2017].

Gilead (2017b) Gilead Fourth Quarter 2016 Earnings Release. Available from: http://investors.gilead.com/phoenix.zhtml?c=69964&p=irol-earnings [Accessed 28 August 2017].

Hettle R, Corbett M, Hinde S, Hodgson R, Jones-Diette J, et al. (2017) The assessment and appraisal of regenerative medicines and cell therapy products: an exploration of methods for review, economic evaluation and appraisal. Available from: https://www.ncbi.nlm.nih.gov/pubmed/28244858 [Accessed 28 August 2017].

Kite (2017a) ZUMA-1 Trial Release. Available from: http://ir.kitepharma.com/releasedetail.cfm?releaseid=1014817 [Accessed 29 August 2017].

Kite (2017b) Kite Pharma Fourth Quarter and Full Year Financial Results. Available from: http://ir.kitepharma.com/releasedetail.cfm?ReleaseID=1014853 [Accessed 29 August 2017].

Kite (2017c) Investor presentation. Available from: http://ir.kitepharma.com/events.cfm[Accessed 28 August 2017].

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