As filgotinib filing nears, Gilead should nab Celgene's Otezla, analysts say. Here's why

As JAK inhibitor filgotinib moves closer to an FDA filing, Gilead Sciences could use Otezla's commercial infrastructure in inflammation and immunology, RBC analysts argue. (Gilead)

A list of buyers could line up for Celgene’s Otezla, which Bristol-Myers Squibb is selling to advance the $74 billion merger, but a team of analysts says one candidate makes the most sense: Gilead Sciences.

Gilead’s oral JAK inhibitor filgotinib is moving closer to an FDA filing in rheumatoid arthritis (RA), and the company just doubled down on inflammation with an expanded $5.1 billion partnership with collaborator Galapagos. Buying Otezla “would represent a bolt-on strategy to accelerate Gilead’s entrance into the [inflammation and immunology] space,” RBC Capital analysts Brian Abrahams and Gregory Renza said in an investor note Thursday.

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Not only does Gilead have the money to bag Otezla, but folding in the product's commercial infrastructure would be a logical move ahead of its expected filgotinib launch, the analysts said.

Currently, the Street figures Otezla’s sales will peak at around $2.5 billion, up from $1.6 billion in 2018. By RBC’s calculations, the drug’s operating margins stand at around 62% to 67%. That translates into a value of about $8 billion, they said, and Gilead could afford the buy as long as competitive bidding doesn’t boost the price above $9.6 billion.

Plus, as of the first quarter, Gilead had $30.1 billion in cash—meaning the deal is well within its reach.

Thing is, Gilead needs to build out operations around filgotinib, including sales and marketing in indications like RA, psoriatic arthritis and lupus. To do that, it would spend about 65% of what Celgene's been laying out on Otezla-related SG&A, the analysts figure—so why not just step into Otezla’s well-established position, the RBC analysts argued.

RELATED: Gilead inks $5B upfront deal to gain broad access to Galapagos' pipeline 

Filgotinib’s regulatory path just recently became clearer. It had met the efficacy bar in late-stage testing, but pharma watchers worried its side-effects data could stall an FDA filing. But Gilead said July 1 that it had met with the FDA about potential testicular side effects and decided to file for approval soon, before related toxicity studies wrap up.

Then Monday, it expanded the Galapagos deal to another 10-year partnership, gaining rights to all of Galapagos’ current and future programs for $3.95 billion upfront—a move seen as a further commitment to immunology under new CEO Daniel O’Day.

Gilead needs a new direction as its hepatitis C drugs continue to decline, its much-hyped CAR-T drug scrambles for traction and its next-gen liver drug fails to deliver. In the first quarter, CAR-T drug Yescarta only racked up $96 million, and its hepatitis C franchise fell further to $790 million in sales from $1 billion for the same period in 2018. IIts lead nonalcoholic steatohepatitis candidate, selonsertib, recently flunked two phase 3 trials one after the other.

RELATED: Gilead CEO O'Day continues top-level revamp with two more exec exits

O’Day, who just took the reins this year, wasted little time in setting a new course. For instance, the company decided to make Kite Pharma an independent business, and just last week named Eli Lilly's Christi Shaw as the unit's CEO.

“[W]hile we still like the high science and long-term opportunity as delivery infrastructure improves and cell therapies move into earlier lines, we believe some ‘distance’ should both improve the platform’s agility as well as investor perceptions,” the RBC team said back in May.

O'Day is also replacing some top-level executives in an overhaul that just keeps growing. The company’s longtime chief financial officer, Robin Washington, is retiring next year, and its R&D chief John McHutchison, chief patient officer and human resources leader are all leaving.