Deal size: $11.9 billion
Date announced: August 28, 2017
There are many ways to make a misstep when it comes to M&A. Sometimes, not making a move can be as detrimental as making a bad move. And there are those who argue that Gilead did both when it agreed to pick up Kite for $11.9 billion in 2017.
First, there’s the buy itself. In an October note to clients, Leerink Partners analyst Geoffrey Porges listed the deal among the worst of the last decade, noting that transactions in that group had “resulted in zero value.”
It’s now just slightly over two years into Gilead’s Kite ownership, and in the most recent quarter, Yescarta—Kite’s only approved product—pulled in just $118 million in worldwide sales. That’s a far cry from the up to $2 billion in peak sales analysts predicted for the drug at the time of approval.
On the other hand, it’s ahead of the $79 million archrival Kymriah from Novartis posted over the same period, even with its month-plus head start on the market. And despite early reimbursement challenges, Gilead still sees plenty of potential to turn things around—particularly with a slate of veteran oncology-focused executives now running the show, including Daniel O’Day, Christi Shaw and Johanna Mercier.
"Gilead believes that cell therapy—a potentially life-saving treatment for many patients with cancer who previously had few or no options—has the potential to become the cornerstone of treating many cancers, and we expect Kite will be an important driver of future growth for the company," Gilead said in an emailed statement, adding that "Cell therapy is a pioneering platform, and with that comes expected challenges."
But even those who believe it’s too early in the CAR-T rollouts to truly judge Kite’s merit as an acquisition target—especially considering Gilead inherited pipeline assets along with Yescarta—might have joined many in wondering why it took Gilead so long to pull the trigger on an acquisition in the first place.
Flush with cash after unprecedented success with its hepatitis C drugs Sovaldi and Harvoni, Gilead watched years go by without making a big deal—and all the while, industry watchers were on the edge of their seats waiting for a buyout.
"The biggest question on everyone's mind for Gilead is who you're going to buy, who you're going to buy, who you're going to buy, who you're going to buy, who you're going to buy," Evercore/ISI analyst Mark Schoenebaum remarked on Gilead’s second-quarter earnings conference call in July 2015.
But a big transaction didn’t come, and less than a year later, hep C revenues were crashing down—with no new sales to soften the blow.
In light of all that, was Kite the right buy at the right time, the right buy at the wrong time, or just the wrong buy altogether? Only time will tell—but for now, we’re going to join SVB Leerink’s Porges in calling this one a misfire.