Gilead Sciences Inc has agreed to buy Kite Pharma Inc for nearly $12 billion as part of its efforts to develop drugs in the emerging class of cancer immunotherapy. Essentially, Gilead will pay $180 per share—all cash—which represents a 29.4 percent premium over Kite’s closing price last week. And even before the opening bell of the new week, Kite’s shares were already trading up, at $178.15.
The main reason for the buy, of course, is the new CAR-T therapy Kite is developing. This is a chimeric antigen receptor T-cell therapy that uses the body’s own immune system to recognize malignant cells and attack them. Gilead has already been growing at a quick pace, lately, thanks to its [expensive] remarkable hepatitis C drugs, but not many patients are eligible—and those who are cannot necessarily afford it—and growing competition has cut down their market share.
Thanks to those factors, Gilead Sciences has seen second-quarter sales of its hepatitis C drugs (Epclusa, Harvoni, Sovaldi) drop from $4 billion to $2.9 billion since just last year.
Regardless of the concerns, shareholders have been sated by this buy, at a price that represents a market value of about $8 billion.
“A lot of people were too cautious about how big it was going to be out of the gate,” comments HC Wainwright & Co analyst Corey Davis, who had originally estimated the highest price target for Kite’s shares in this sale. “It’s a completely fair price. They probably didn’t haggle a lot and Gilead offered them what was appropriate.”
Gilead already has a market value of $96.36 billion, with a celebrated reputation as one of the world’s biggest maker of HIV drugs. In 2011, though, the company agreed to acquire Pharmasset—who makes hepatitis C drugs—for $11 billion. Then, last year, Gilead made good on the investment, generating more than $30 billion with nearly half coming from hepatitis C treatment.
All this in mind, Allianz Global Investors portfolio manager John Schroer would put money on Kite upping its share price in the months to come. He notes, “We still like the shares heading into the end of the year,” after all, his firm currently holds about 118,000 shares. He goes on to say, “The revenue opportunity is very attractive,” when you take into account this multi-billion dollar opportunity.