jueves, 7 de septiembre de 2017

Kite-Gilead: Ganadores y...perdedores.


GILEAD compra Kite Farma

  • -Gilead shareholders have suffered as the company has sat idle for years as the core HCV business and share price have deteriorated. 
  • -The announcement of Gilead's acquisition of Kite has sparked excitement as the long awaited cure for what has ailed shareholders. 
  • -As a long term follower of the CAR-T space and early investor in Kite, I lay out who I believe the will be the long term winners and losers. 


Since Gilead's acquisition of Kite was announced(...), long suffering Gilead shareholders are exuberant over the deal. While I understand the excitement, I think much of it is misguided. I've followed the CAR-T space long before it caught the attention of investors and I have been an investor in KITE since its IPO.

This article will outline who I think will be the long term winners and losers in this deal.  

The Winners: 

KITE Shareholders: 

In my opinion, Kite is selling at the right time. At $11.9 Billion shareholders are getting a huge a premium and are off-loading a lot of the risk onto Gilead. Shareholderes get to walk away with $180 a share in cash and leave Gilead with all the risks. 
These risks include: 

Establishing and maintaining pricing for Aci-Cel 

  • Aci-Cel won't be cheap with estimates ranging from $150,000 up to $800,000. Demand will be there for this live saving therapy but how high they can push the pricing with payers remains a key risk to success or failure of the deal. 

Manufacturing a complex autologous based drug at commercial scale 

  • This is a new technology that requires "reprogramming" of patients T-Cells. Kite has shown they can do this for 100 patients a year in clinical trials, but it remains to be seen if they can execute at commercial scale of 1,000 or 10,000 patient per year level . I would note this is not easy as competitor Novartis has struggled to manufacture it's competing drug in clinical trials. Further, it remains to be seen how much it will actually cost to manufacture at commercial scale. 

Contending with new competitors and second-third generation technologies 

  • Axi-Cell is a first generation technology that will face competition from a range of new technologies including humanized antibodies, new co-stimulatory domains, new gene editing technologies, PD-1 combo therapies, multi-targeted CARS, and off the shelf therapies. If and when they come will be a key to long term success. 

Establishing the technology works beyond the CD19 

  •  The key to long term success will be to replicate the success of Axi-Cel in CD19 and B-Cell Lymphomas against other targets and Solid Tumors. So far the results have been mixed at best. The only other success to date has been Bluebird's (BLUE) Anti-BCMA in Multiple Myeloma and the data is very early. KITE and others have talked about the potential of other solid tumor targets like NY-ESO, HPV-16 & 17, EGFR vIII, ROR and many others but progress has been slow and with results no where near that seen with CD19. I'm not the only skeptic as early pioneer in the field Novartis not long ago also chose to reduce there efforts beyond CD19. 

Kite CEO Arie Belldegrun also has a pretty good track record on selling at the right time. He previously sold Agensys to Astellas for $387 Million in 2007. Ultimately, this lead to nothing with Astellas eventually throwing in the towel in 2017. He also sold Cougar Biotech to JNJ for $970 Million in 2009. This did lead to a viable product for prostate cancer (Zytiga) but it's success was short lived and ultimately taken over by Xtandi from Medivation as the drug of choice. 
Kite CEO Arie Belldegrun has as much knowledge about Kite and it's prospects as anyone. He also owns a significant stake in Kite with over 6 million shares. To date he has not been a seller and I believe that people should take note of the fact that he is selling now. 

CAR-T and TCR Competitors: 

One of the keys to Kite's success was the ability to establish an A-Team that includes some of the best and brightest in the field. This braintrust and institutional knowledge is what drove the success of Kite. A lot of this was likely driven by the long term relationship between CEO Arie Belldegrun and the National Cancer Institute (who developed much of the core KITE technology behind Axi-Cel). There have already been cracks in this relationship as researchers at the NCI have been collaborating with Bluebird on their promising BCMA product. 
I believe that in the mid-to-long term it will be difficult for Gilead to retain the key people and relationships that drove the success of Kite. These people and relationships will likely move elsewhere over time and ultimately benefit key competitors like Juno, Bluebird bio and others.

Novartis Makes History with FDA Approval of CAR T-cell Therapy. 

The Losers: 

Gilead Shareholders: 

I believe that Gilead will likely suffer from the winners curse. Yes they got the asset they wanted but likely paid too much to get it. The acquisition of Kite will likely be the highest ever paid for a biotech company without a marketed product. The second highest price paid was Gilead's $11 Billion acquisition of Pharmasset. Gilead bulls will rightly point out that the Pharmasset brought in the HCV assets that transformed Gilead.


Quo vadis...Gilead? / De Sovaldi business

The Pharmasset deal turned out to be a steal but I'm doubtful that Gilead can catch "lightening in a bottle" a second time around. Gilead's core competency is and has been in the anti-viral space. Gilead's knowledge as a leader in HIV and anti-virals gave them a huge advantage is understanding the true potential of Pharmasset's anti-virals for HCV. In contrast, Gilead's track record in oncology has been poor at best. Does Gilead really know something about Kite's potential that companies with long established leaders in oncology like Roche, Celegene and Novartis don't? 
They certainly might, but based on their track record I'm doubtful. The that fact that a company with a dismal track record in oncology like Gilead out bid the established leaders in oncology should be a cause for concern that they likely paid too much.

Gilead Sciences: Inflection Point Achieved?

Cancer Patients: 

Kite's success is unprecedented having grown from a handful of employees to the likely approval of a paradigm changing therapy in just over 5 years. I'm doubtful that Gilead (or any other company to be fair) will be able to maintain that level of innovation and progress. Unfortunately, this is deal is likely to slow future innovation for patients that is badly needed. 


For the time being both Kite and Gilead shareholders are happy with Gilead's latest deal. I may be in the minority, but I think that it the long term shareholders will look back and realize Kite got the better end of the deal. 

I am/we are long KITE. 
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (Ver)

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