Gilead Cancer Drug M&A: Muddying The Waters

(Bloomberg Gadfly) -- Gilead Sciences Inc. has gone from being cautious about cancer drugs to being willing to try just about anything.

About a year ago, Gilead CEO John Milligan told Bloomberg News he was leery of venturing into cell therapies, a new class of drugs that modify a patient's cells to hunt down cancers. But Chief Scientific Officer Norbert Bischofberger told Leerink analysts, in a note published Monday, that this approach was one of three areas Gilead was "narrowing in on" as it looks to become a leader in cancer-drug development.

Sales of Gilead's flagship hepatitis drugs are in decline, its pipeline is shaky aside from HIV drugs, and it hasn't had a major deal in years, even as it has amassed more than $30 billion in cash. Gilead needs to get over its deal paralysis. But cell therapy looks like a poor fit. And the company's waffling interest doesn't bode well for those hoping it is finally deal-ready.   

Milligan said he was inclined to avoid cell therapy because it's labor-intensive and expensive, including hospitalization costs to treat patients for serious side effects. 

None of that has changed. In fact, safety concerns have grown substantially after a series of patient deaths saw one of the leading firms in the space, Juno Therapeutics Inc., give up on its latest-stage treatment. 

Safety is only one reason to question the early commercial viability of cell therapies.  They will likely cost more than the most expensive cancer medicines currently on the market and will initially be available only for a limited population of very sick patients. Payers will want to keep it that way.

In looking for acquisition targets in this space, Gilead could seek earlier stage firms addressing safety issues, or those working to extend the drugs beyond blood cancers, the area where the first of these drugs are being studied and may be FDA-approved this year. Other firms are looking to create cell therapies that can be made from any blood donor and stored, rather than being created to-order from one cancer patient's cells. 

But all of these approaches are highly uncertain, and Gilead doesn't have the expertise or infrastructure to make developing or selling this sort of treatment easy. This, plus the long time horizon and speculative nature of such a deal, would make this a move with a lot of risk for questionable potential reward. 

The rest of Bischofberger's commentary offered little in the way of clarity or hope for near-term action.

He mentioned immune-oncology (IO) drugs as another possible area of focus. But Gilead is hopelessly behind in the first wave of these treatments. That means it would focus on the next wave of therapies, expected to be used in combination with backbone drugs such as Merck & Co. Inc.'s Keytruda.

But many other firms are in that race. Taking a lead there would likely be almost as time-consuming a quest as a foray into cell therapy -- unless Gilead is a big believer in Incyte Corp.'s epacadostat and is willing to shell out most or all of its cash pile on a single bet. A deal at a 20 percent premium to Incyte's current stock price would cost Gilead more than $30 billion. 

Bischofberger also mentioned targeted therapies, bringing the list of cancer-drug approaches Gilead is mulling to nearly all of them. The only thing he ruled out are older-style chemotherapies, which few companies are considering anyway.

There's nothing wrong with making long-term bets with the aim of becoming a market leader in one of these cancer areas or in inflammation, which Bischofberger also mentioned. It may be a smarter strategy than doing a very large deal for a company with marketed drugs.

The issue is that -- aside from its collection of pipeline treatments for the liver disease NASH -- Gilead has been on the sidelines while other companies snapped up assets large and small, leaving fewer and more expensive options for the company.  

Even if Gilead has resigned itself to a sales decline and wants to avoid a megadeal, the company should be articulating a real plan to put its billions to use and build a formidable pipeline. But it seems more likely investors will have to continue settling for buybacks and indecision. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

To contact the author of this story: Max Nisen in New York at mnisen@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.