Gilead (GILD) has nailed HIV and HCV. It has long striven to build a powerful cancer franchise. Its adventurings in the thicket of cancer therapeutics during the early years of this decade have been painful to watch. Gilead’s 2017 Kite Pharma acquisition marked a break from its earlier efforts; it has its attractions, but is challenging to scale, as I will discuss. Gilead’s flurry of even more recent oncology deals shows a hearty appetite but a questionable palate.
The thesis of this article is that despite Gilead’s longstanding record of successes in so many endeavors, it has fallen well short of the mark in terms of building a commercially attractive cancer portfolio. This has not been for lack of effort, as I will show.
This article does not discuss Gilead’s 9/13/20 Immunomedics (IMMU) deal, which has strong coverage in several recent Seeking Alpha articles. It should, however, serve as a cautionary reference for investors before becoming too enthused about Gilead’s latest (in a very long string) cancer therapy acquisition endeavor.
Success in cancer therapeutics has not come easily to Gilead despite its long and arduous efforts
Gilead has a long, gnarly and undistinguished record in pursuit of cancer therapeutics. As best as I can tell, it began with its June 2010 acquisition of CGI Pharmaceuticals, followed by its December 2010 acquisition of Arresto Biosciences and its 2011 acquisition of Calistoga Pharmaceuticals.
Arresto’s contribution to Gilead’s cancer pipeline, simtuzumab (GS-6624), in treatment of pancreatic cancer failed its phase 2 trial in 2014. CGI, which brought Syk kinase inhibitors entospletinib, continued until Gilead terminated its phase 1/2 trial in Precursor cell lymphoblastic leukaemia-lymphoma in 2019.
Calistoga brought Cal-101 (idelalisib, GS-1101) to Gilead’s pipeline. Cal-101 is a PI3K inhibitor subtype thought to have improved safety and effectiveness over other PI3K inhibitors. In July 2014, the FDA approved it under the trade name Zydelig; ultimately, Gilead was able to expand its label to treat three types of blood cancer. As noted below, it ran aground in its efforts to add even more.
Next up on the acquisition front came the ill-fated 2013 purchase (p. 56) of YM Biosciences, Inc. (YM). In this deal, Gilead acquired JAK inhibitor momelotinib, an orally administered, once-daily candidate in treatment of myelofibrosis. In 2014, the company acquired ex-Asia rights to Bruton’s tyrosine kinase (BTK) inhibitor, ONO-4059 (later GS-4059), from Ono Pharmaceutical (OPHLF).
Gilead would no doubt like to be able to rewrite its cancer therapeutic history for 2016. In March 2016, the FDA gave notice to healthcare professionals that certain Zydelig clinical trials were experiencing serious adverse events, including some deaths. Gilead immediately discontinued the trials.
At the time its trials were stopped, Zydelig’s approved indications were generating ~$45 million a quarter in product sales (slide 48). Zydelig’s FDA roadblock generated an interesting analyst question during Gilead’s Q1 2016 earnings call. A JPMorgan analyst asked if Zydelig’s issues impacted Gilead’s determination to be a leader in oncology. Gilead’s then CEO Milligan responded:
… That’s of course a big question. So if you think about where we are in our oncology portfolio, we have been focused heavily on a number of activities around these kinase inhibitors and how that actually behind Zydelig a number of opportunities are moving in the clinic, including our SYK inhibitor, our BTK inhibitor…
… We think of oncology as one leg of a future company that could be important to us along with our investments in NASH and inflammatory diseases. We do see some good opportunities out there and we see some good opportunities internally. So the Zydelig setback hasn’t changed our appetite for trying to do more transformative things in oncology. It was never going to be a franchise product like Viread or sofosbuvir but was a good beginning for us, and I really haven’t changed my thought process around it as a result of the setback because of the toxicities we’ve seen. Norbert, do you want to add anything to that?
EVP, CSO Norbert W. Bischofberger chimed in with his usual enthusiasm. He avowed Gilead’s oncology appetite was undiminished, and if anything, it was increased. He listed a couple of late-stage programs and several cancer related programs undergoing dose-ranging studies.
The next 2016 downer came in late 2016. Gilead reported disappointing data from two phase 3 momelotinib trials. It decided to scrap its further development plans for the drug.
If ever one needs proof of how difficult it is to pull off profitable cancer therapeutic acquisitions, consider that Gilead paid $510 million for YM and its only drug, momelotinib. Two years after the disappointing trial results, in 2018 it handed momelotinib off to Sierra Oncology (SRRA) for $3 million cash plus biobucks.
At this point, Gilead’s cancer programs were in a bit of a stall. Zydelig was its sole cancer therapy with significant, albeit dwindling, revenues. For 2017, Zydelig’s revenues (p. 46) were $149 million, down 11% from 2016.
Gilead’s Kite Pharma acquisition is notching therapeutic successes; its commercial appeal not so much.
In 2017, the Gilead stars were lining up for a big acquisition in the field of cancer therapies. The first half of the year passed with no movement. In late August 2017, Gilead signed on to its largest and most significant cancer related deal to that point; the company agreed to pay ~$12 billion for Kite Pharma, a leader in a complex emerging cell therapy regimen.
As a shareholder and admirer of both companies, I was optimistic on the prospects for the deal; it came as a bit of a surprise given CEO Milligan’s previous reservations about gene therapies in treatment of cancer.
Indeed, cell therapy as practiced by Kite is a highly sophisticated and complex undertaking involving autologous harvesting of a patient’s stem cells. The slides below from Gilead’s Kite acquisition slide deck describe its two flavors: CAR and TCR.
The logistics of the process are daunting to an extreme. The Kite acquisition slide below describes its operation in treatment of diffuse large B-cell lymphoma (DLBCL):
On 10/2017, Gilead announced that Kite’s axi-cel in treatment of DLBCL received FDA approval under the trade name YESCARTA. YESCARTA’s label has fearsome blackbox warnings.
Even aside from YESCARTA’s cost, its administration is not something one would undertake lightly. First, it requires harvesting of the patient’s peripheral blood mononuclear cells, which are obtained via a standard leukapheresis procedure. These cells then undergo processing, after which they are re-infused in the patient. These costs of treatment add substantially to the overall cost of this type of gene therapy.
The whole process requires administration by experienced professionals. YESCARTA’s label calls for the following monitoring:
In sum, YESCARTA’s launch involved preparation like no other. Just the process of lining up certified facilities takes time and effort. Before the end of 2017, Gilead announced another acquisition, Cell Design Labs. The rationale for this deal was tied into the Kite Pharma technology as follows:
Cell Design Labs is a pre-clinical stage company with significant expertise in custom cell engineering. The company is developing two propriety technology platforms: synNotch™, a synthetic gene expression system that responds to external cues which, among other applications, can be deployed to engineer chimeric antigen receptor T (CAR T) cells that require dual antigen recognition for activation, and Throttle™, an “on switch” that modulates CAR T activity using small molecules. The addition of these technologies to existing Kite research and development programs could lead to the treatment of a broader range of hematological malignancies and solid tumors, and potentially offer improved selectivity and safety of future treatments. Additionally, Cell Design Labs is developing several pre-clinical product candidates, including therapies for prostate cancer and hepatocellular carcinoma that use the synNotch technology. The company’s lead pre-clinical candidate targets multiple myeloma.
During the last several years, Gilead has amplified its oncology opportunities with a variety of business development deals.
Gilead’s Q2 2020 earnings slide deck included an interesting slide copied below:
The slide’s title, “Immuno-Oncology Accelerating Efforts to Build IO Portfolio and Expertise”, says it all. With the eight referenced deals, the company has taken advantage of its prolific cash generation to reach into a wide range of oncology assets. I list brief highlights from the deals in chronological order below:
- Tango Therapeutics – 10/31/18 collaboration with an upfront payment of $50 million with milestones of ~$1.7 billion. The program gives Gilead option on up to five targets from Tango’s genomic-based discovery platform. Expanded to cover 15 targets on 8/17/20 for $125 million upfront plus $20 million equity investment;
- Agenus (AGEN) – 12/20/18 immuno-oncology [I-O] partnership with $120 million upfront cash payment and a $30 million equity investment giving Gilead access to up to five I-O programs.
- Nurix – 6/19/19 collaboration with $45 million upfront and $2.3 billion in milestones. Gilead acquires an option to license drug candidates directed to up to five targets resulting from Nurix’s technology platform; the platform is focused on the manipulation of the ubiquitin system and its component E3 ligases, the key enzymes responsible for controlling protein levels in human cells. The deal excludes Nurix’s lead protein degradation program.
- Carna Biosciences (OTCPK:CBIXF) – 6/25/19 collaboration with an upfront payment of $20 million and an additional $450 million in potential milestone payments. Gilead licenses worldwide rights to develop and commercialize inhibitors against an undisclosed I-O target.
- Forty Seven Inc. (FTSV) – 3/02/20 was an outright purchase for ~$4.9 billion. Forty Seven has a large pipeline (slide 6) of early clinical-stage programs. Its lead therapy, magrolimab, is in clinical trials for a variety of hematological cancers and other indications; it has a notably benign safety (slide 21) profile.
- Arcus Biosciences (RCUS) – 5/27/20 collaboration with $175 million upfront plus $200 million investment. This 10-year partnership gives Gilead a broad range of rights to access Arcus’ broad early-stage pipeline (slide 7) and development programs.
- Pionyr – 6/23/20 equity investment of $275 million for 49.9% of Pionyr with $315 million option for the remainder. Pionyr shareholders have potential for an additional $1.47 billion in option exercise fees and future milestone payments. The company is developing first-in-class cancer immunotherapies with potential to treat patients who currently do not benefit from checkpoint inhibitor therapies and to treat solid tumors in combination with established anti-PD(L)-1 agents.
- Tizona – 7/21/20 equity investment of $300 million for 49.9% of Tizona with an option to acquire the remainder for up to an additional $1.25 billion. Tizona’s TTX-080 is a potential first-in-class medicine that targets HLA-G, a novel and emerging immune checkpoint expressed across multiple tumor types. Tizona will spin off its TTX-030 partnered with AbbVie (ABBV), which is not included in Gilead’s deal.
In addition to these eight deals, Gilead and Kite each announced still another deal in early September. On 9/01/20, Gilead announced that it was acquiring Jounce Therapeutics’ (JNCE) JTX-1811 program. JTX-1811 is a monoclonal antibody that binds to CCR8, targeting TITR cells for depletion by enhanced antibody-dependent cellular cytotoxicity mechanism.
JTX-1811 is an investigational therapy; it has not been approved anywhere; it is on track for filing an IND in Q1 2021. The deal calls for an $85 million upfront payment and a $35 million equity investment at a premium in Jounce upon closing, plus $685 million in milestones.
Kite’s 9/03/20 deal is in the form of a two-year research collaboration and license with HiFiBiO Therapeutics adding to Kite’s arsenal attacking AML. Under the deal, whose financial terms were not announced, HiFiBiO will screen novel targets in AML patient samples, as well as potentially identifying anti-AML antibodies to be harnessed for use in cell therapies for patients.
Kite may prove expendable at some point in the not-too-distant future.
Gilead’s Q2 2020 financial performance slide below shows that YESCARTA has a way to go in terms of financial performance:
With H1 2020 revenues of $296 million compared to overall company revenues of $10,534 million, YESCARTA is a <3% contributor. On 7/24/20, the FDA approved Kite’s TECARTUS in treatment of adult patients with relapsed or refractory mantle cell lymphoma (MCL).
The excerpt below from Gilead’s Q2 2020 – “Upcoming Milestones” slide shows the potential for two more cell therapy approvals next year, with possibly another to follow in 2022. At that point, Kite’s cell therapy contributions should start to gain heft.
This is encouraging; however, Kite’s process is quite intrusive and involved. The company’s founder, Arie Belldegrun, has moved on to greener pastures. His Allogene Therapeutics (ALLO) champions allogenic cell therapy as opposed to autologous therapy as employed by Kite. Allogene includes the following graphic on its website ditzing on its old standby:
Interestingly, CEO O’Day announced during his first earnings call (Q1 2019) with Gilead that the company would set Kite up as an independent, wholly owned subsidiary. He stated the following as his rationale:
… providing KITE with this degree of autonomy will foster agility, innovation and entrepreneurialism. Cell therapy is a critical piece of the puzzle with regards to the long-term future of oncology and a critical element of Gilead’s long-term strategy helping us to build on a legacy of transformational medicines. Between now and the end of the year, I will also have a series of meetings with the leadership team and the Board to shape our long-term strategy and vision for the future of Gilead.
No doubt, the foregoing makes perfect sense. It also makes a separation of the two companies a bit easier. Keep in mind that O’Day joined Gilead shortly after the company decided to take Kite-related impairment charges of $820 million, which was followed the next year with an $800 million charge (p. 61). Surely, a new CEO trying to make his mark notices such things.
Gilead’s oncology development efforts have been frustrating to the extreme. It is not surprising to me the members of a brain trust that struggled to produce a financially attractive cancer franchise – CEO Milligan, EVP Meyers, President Kevin Young, EVP and CSO Bischofberger, and EVP Oncology Therapeutics and Cell Therapy Alessandro Riva – are all gone.
Take a look – current CEO O’Day (03/2019), CCO Mercier (05/2019), CMO Parsey (10/2019) and Kite CEO Shaw (07/2019) are all newbies to Gilead. At this point in its corporate development, oncology offers Gilead its best chance to grow at the grand scale required to power its future growth.
In response to a Q2 2020 question from Bank of America analyst Meacham as to what it would take to provide sustainable long-term growth, CEO O’Day was quick to emphasize oncology. He sees the goal as to:
… continue to do smart, targeted deals that allow us to bring transformational medicine innovation into our house at different stages of development.
He calls out the Forty Seven deal which brought magrolimab in-house for its favorable life cycle potential. So, it is that Gilead is on the scent of breaking through its long search for scale in the oncology arena.
When O’Day talks of Gilead’s cancer ambitions, he is careful to add that they extend beyond Kite. I cite his following response to a strategic question on where Gilead looked for growth during the company’s latest Q2 2020 earnings call. O’Day spoke of the need to:
… grow[…] our overall immuno-oncology business, both Kite and outside of Kite. And I think that’s what you see as we think about now outside of virology, moving into inflammation, moving more deeply into oncology, particularly outside of Kite. [emphasis added]
During this call, Kite CEO Shaw gave the following summation:
… we’re not keeping our eyes closed, or head in the sand, as we look at possible disruptors with allogeneic iPSC technology, NK cells and that’s what you see a lot of the business development deals that we did, some of them Kite alone with cell therapy, and some of them with Gilead where we can both partake in the potential positive outcomes that could come from that.
So as we look at different ways off-the-shelf that were the first movers in that arena, both internally and as we look at some of our partners externally.
Where does this leave Gilead in its long, expensive hunt for a reliable growth driver in the field of cancer therapeutics? I am a shareholder and an optimist. So far, I would not even award the company more than a gentleman’s “C” for its efforts.
Disclosure: I am/we are long GILD. 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.
Additional disclosure: I may buy or sell shares in Gilead over the next 72 hours.