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With Acquisition of Kite Pharma, Gilead Becomes a 'Major Player' in CAR-T Arena
Research Report

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Jason Kolbert, analyst with Maxim Group, assesses the billion-dollar transaction that would bring Kite Pharma and the earning potential of its cell therapy programs under the larger biotech's umbrella.

In an Aug. 28 research report, Maxim Group took a look at Gilead Sciences Inc.'s (GILD:NASDAQ) plans to acquire Kite Pharma (KITE:NASDAQ), "an industry leader in the emerging field of cell therapy," as described by analyst Jason Kolbert. The former "is acquiring all of the outstanding shares of common stock at a price of $180 per share in cash" and "plans to finance the transaction with a combination of cash on hand, bank debt and senior unsecured notes."

About the transaction, Kolbert concluded, "The deal is not likely to be accretive near term, but it does position Gilead as a global oncology company and secures the company's future."

The $11.9 billion price "represents a 29% premium to Kite's closing price on Friday, Aug. 25, and a 50% premium to the company's 30-day volume-weighted average stock price," Kolbert indicated.

The analyst assessed that "Kite's acquisition price is reasonable" when "discounting back future sales," which he estimated to be "$1.4B by 2025." He added, "If we assume a similar level of European Union sales and factor in China and Japan, we could see global revenues in the $5B range in the out-years."

Maxim noted it has confidence in Kite's earning potential. "While it will take time for the sales to build, and manufacturing hurdles exist, we think the revenues will materialize," Kolbert said.

As for the commercialization timeline, approval is anticipated near term in the United States and Europe for Kite's most advanced immunotherapy candidate, the CAR-T therapy axicabtagene ciloleucel (axi-cel). "It is expected to be the first to market as a treatment for refractory aggressive non-Hodgkin lymphoma (NHL)," wrote the analyst.

The U.S. Food and Drug Administration has "set a target action date of Nov. 29, 2017 under the Prescription Drug User Fee Act," and "approval in Europe is expected in 2018," added Kolbert.

Regarding Kite's pipeline, it "has additional candidates in clinical trials in both hematologic cancers and solid tumors," wrote Kolbert.

With the acquisition, Gilead will "become a player in the chimeric antigen receptor T cell (CAR-T) space," Kolbert predicted, as Kite "has developed engineered cell therapies that express either a CAR or an engineered T cell receptor, depending on the type of cancer."

Maxim's report also included notes from a recent Gilead press release, which indicated that for its new CAR-T platform and pipeline, the company plans to finish manufacturing preparations, launch axi-cel in the U.S. and build infrastructure for the drug in Europe. It further indicated the company aims to continue with Kite's various programs "to broaden axi-cel utilization in earlier lines of therapy in aggressive NHL and other B-cell malignancies," Kolbert reported. Gilead plans to progress "additional CAR Ts to treat multiple myeloma and acute myeloid leukemia" and "T cell receptors for potential use in solid tumors."

Currently, Maxim has a Hold rating on Gilead and Kite. Gilead's stock is trading at about $75.30 per share and Kite's at $179.19 per share.

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