ViewPoints: Gilead flew solo in Kite chase

A new SEC filing lifts the lid on Gilead Sciences' recent acquisition of Kite Pharma, revealing no rival bids for the CAR-T specialist and suggesting that Kite's revenue expectations for lead asset axi-cel two-years post-launch are approximately twice that of current consensus forecasts.

It would appear that Gilead's interest in acquiring Kite may have been triggered by initial conversations between the two companies at the JP Morgan conference in January. It's worth noting that at the meeting in San Francisco, Gilead CEO John Milligan highlighted the recent hire of new oncology head Alessandro Riva as a key step in allowing the company to enhance its ability to identify new M&A targets and noted that any major cancer-focused acquisition would require integration of an asset the company can build around. "We have a stubborn streak when it comes to the science not just the numbers," he added (JP Morgan 2017 – What they said [part one]).

It's also worth noting that Gilead swiped Riva from his previous role of global head of oncology development at Novartis, which secured FDA approval of the world's first CAR-T therapy a few weeks ago – FDA approves Novartis' CAR-T cell therapy Kymriah for acute lymphoblastic leukaemia.

Furthermore, Milligan had described CAR-T as a "very labour-intensive kind of business," just six months prior to the JP Morgan conference in an interview with Bloomberg, noting "those programmes are projected to be quite expensive and are more akin to a bone marrow transplant, with a lot of supportive care and hospitalisation costs, and those are the sort of things that make me nervous."

A somewhat surprisingly straightforward assessment of Novartis' CAR-T product Kymriah for the treatment of acute lymphoblastic leukaemia by an FDA advisory committee in July seems to have played an important role in the bidding process for Kite, the SEC filing reveals. It notes that although Kite's lead asset axi-cel had already been submitted for approval with the FDA in a different indication (non-Hodgkin's lymphoma), the outcome of Novartis' meeting with the FDA's Oncologic Drug Advisory Committee (ODAC) "was important to further inform evaluation of Kite and CAR-T therapies."

Four days later, Gilead made an opening offer of $127 per share for Kite, representing a 50 percent premium on the biotech's stock price. Over the next five weeks negotiations continued and a second bid ($160) rejected, while Kite gained additional leverage in early August by announcing there would be no FDA AdCom for axi-cel and the company would be ready to launch, if permitted by an early approval, in September.

A final price of $180 was agreed upon on August 18 and will be the subject of much debate for years to come, given the complexities, but clear commercial opportunity, promised by CAR-T. Gilead has done a much-anticipated deal (ViewPoints: Gilead makes its long-awaited splash in oncology), but the lack of rival bidders may be cause for consternation among biotech investors. Valuation of other CAR-T players has benefited from a halo effect in subsequent weeks, spurring talk of a knock on effect – Spotlight On: Buysider thinks Kite deal may presage battle for bluebird bio.

Interested parties may be pleased to learn that Kite's internal revenue projections for axi-cel in 2020 – at between $1.4 billion and $1.8 billion – are approximately twice the level of current consensus projections, note analysts at Morgan Stanley. That said, the SEC filing also reveals (for the first time from an internal source) Kite's cost of goods sold (COGS) estimates, which are initially expected to stand at around 35 percent of revenues in 2018, falling to 29 percent by 2020. Analysts are currently (and presumably erroneously) more optimistic, projecting a COGS ratio for Kite of 24 percent and 16 percent in 2018 and 2020, respectively.

And will Kite's numbers need to be revised further in light of Novartis' pricing strategy for Kymriah? – only time will tell.

ViewPoints: With no pricing war on the horizon in CAR-T, the sky's the limit for Gilead and Novartis

ViewPoints: Novartis sets the stage for CAR-T commercialisation, but your price may vary

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