Gilead to Pay $11.9B for Cancer Treatment Developer Kite

Gilead Sciences will pay $11.9 billion in cash to buy Israeli-founded Kite Pharma and plant a stake in an emerging area of cancer treatments that train a patient’s immune cells to attack tumors.

Kite’s portfolio of potential treatments includes one for the blood cancer lymphoma that could receive U.S. regulatory approval later this year.

The Santa Monica, California-based company specializes in developing treatments that are custom-made to target a patient’s cancer. Called CAR-T, this type of therapy involves removing immune cells from a patients’ blood, reprogramming them to create an army of cells that can zero in on and destroy cancer cells and injecting them back into the patient.

Gilead has developed top-selling treatments for the liver-destroying hepatitis C virus and other diseases, but leaders of the biotechnology company told analysts Monday that its push into oncology has been largely nascent so far. They said that the Kite deal helps establish Gilead as a leader in so-called cellular therapy and provides an opportunity to diversify revenue.

“[Kite’s] work has opened a clear path towards the potential cure for lymphoma patients who’ve run out of options and are desperately in need of treatment,” Gilead President and CEO John Milligan said.

Investors have been pushing Gilead management for a couple of years to diversify by making a big deal, because its once-surging revenue from hepatitis C drugs such as Sovaldi and Harvoni has been declining amid increased competition and pressure from insurers for lower prices.

“It got those drugs when it acquired Pharmasset,” for $11.1 billion in early 2012, noted Erik Gordon, a professor and pharmaceuticals analyst at University of Michigan’s Ross School of Business.

With the Kite deal, he added, “Gilead is paying a large premium on top of Kite’s stock price, which already has run up this year. ”

The companies expect approval for Kite’s potential treatment of refractory aggressive non-Hodgkin lymphoma around November in the United States and next year in Europe.

Others developing CAR-T therapies include Novartis Corp. Earlier this summer, a Food and Drug Administration advisory panel voted 10-0 in favor of the leukemia treatment developed by the University of Pennsylvania and Novartis. That pushed the treatment for a common childhood blood cancer closer to becoming the first gene therapy available in the United States, with approval possible as early as September.

The announcement of the acquisition was not preceded by weeks of media speculation and leaks. Prof. Arie Belldegrun, chairman, president and CEO of Kite, told Globes: “We handled it like in the IDF 669 unit. Nobody knew anything. Nobody heard anything. We held meetings in places where nobody would see us. And before we announced it, only five employees knew about it.”

Prof. Zelig Ashar from the Weizman Institute of Science, who developed the technology which is central to Monday’s acquisition, said recently in an interview with the Israel Project that the technology enables the cells of the patient’s immune system to recognize the cancer and reject it.

“It is a simple and efficient development,” Ashar, who is on Kite’s scientific advisory board, said.

The chief Israeli investor is the Pontifax fund, which put $3.8 million in Kite Pharma at an early stage, but which then distributed Kite shares worth $120 million to its investors. They include: Menorah Mivtachim Holdings, Phoenix Holdings, Altshuler Shaham, Meitav Dash Investments, Harel Insurance Investments and Financial Services Ltd.

Foster City, California-based Gilead Sciences Inc. said that it will pay $180 for each share of Kite Pharma Inc., marking a 29 percent premium to the company’s closing price on Friday. The deal has been approved by both companies’ boards and is expected to close in the fourth quarter.

Shares of Kite jumped 28 percent to $178.53 in early afternoon trading on Monday. Gilead’s stock rose 2.2 percent to $75.41.