How Gilead's $12 Billion Kite Pharma Deal Has Already Paid Off for Investors

Published: Sep 20, 2017

How Gilead’s $12 Billion Kite Pharma Deal Has Already Paid Off For Investors September 19, 2017
By Alex Keown, Breaking News Staff

FOSTER City, Calif. – Share prices for Gilead Sciences and Kite Pharma have maintained a steady upward momentum since the day Gilead announced it was acquiring the other company for nearly $12 billion.

Since Aug. 28, the day the deal was made public, Gilead’s shares have risen from $73.79 to a high of $85.47 earlier this month. Shares of Kite have skyrocketed, rising from $139.10 to $179.15 this morning. Most of the growth for Kite share prices was on the day the deal was announced. In the earliest days of the acquisition, investors in both companies have come out ahead.

Writing in The Motley Fool, analyst Keith Speights said that for Gilead, the deal was expected to be revenue neutral for Gilead for up to three years. By 2021, Gilead expects to see dividends from the deal. The growth in share prices now though is good for Gilead, which has, as Speights noted, seen more bad news than good in recent months. The acquisition of Kite is expected to place Gilead firmly in the immuno-oncology field. For years, Gilead has been the name for hepatitis due to the strong efficacy of its treatments, Harvoni and Sovaldi. However the treatments have been so effective that the company has seen a tremendous decline in the HCV market. The market decline negatively impacted Gilead’s share prices.

Speights noted that since the acquisition of Kite was announced, Gilead’s market cap has increased from $96 billion to $108 billion. That increase of about $12 billion has basically paid for the Kite acquisition, Speights said.

Kite is expected to serve as a foundation in Gilead’s efforts to build an industry-leading cell therapy franchise. Gilead is banking on the U.S. Food and Drug Administration to approve Kite’s CAR-T therapy, axicabtagene ciloleucel. The FDA is expected to make a decision on the therapy in November. Axicabtagene ciloleucel has been developed to treat refractory aggressive non-Hodgkin lymphoma (NHL).

For Gilead, the deal to bring Kite into the fold is a transformative decision, Speights said. At the time of the acquisition John Milligan, chief executive officer of Gilead, said the company believes cell therapy will be the cornerstone of treating cancer. If Kite receives FDA approval, Speights said Gilead will “instantly become one of the leaders in the exciting new area of using cell therapy to treat cancer.”

Gilead’s acquisition of Kite was a long-awaited move for the company. Analysts have been expecting that company to make an M&A move for some time. And Speights said the company may not be done. Once Gilead has digested Kite, it may look to other deals. Speights cited both Gilead’s chief financial officer and chief operating officer who expressed possibilities for other deals. Speights suggested though the company could wait a while to see if there will be any move on reforming the U.S. corporate tax structure. If so, he predicted 2018 could be the year Gilead pulls off some more M&A.

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