Gilead hopes acquisition JAKs up oncology pipeline

The last time Gilead Sciences experimented outside its core business of anti-infective drugs the outcome was less than spectacular: an expensive push into cardiovascular medicine that has returned little to the California group beyond the angina drug Ranexa. Thus, a new drive into oncology by buying Canada’s YM Biosciences has spurred little excitement among investors – shares barely budged from yesterday’s close of $76.34 in early trading today.

In acquiring YM for $510m in cash, Gilead picks up a janus kinase (JAK) inhibitor, a drug class drawing attention with the approval of Incyte’s Jakafi in myelofibrosis and Pfizer’s Xeljanz in rheumatoid arthritis. That YM’s CYT387 will be at least three years behind Jakafi in myeloproliferative disease should be some cause for concern, though phase II myelofibrosis data, presented at Ash, that match or exceed the Incyte agent on anaemia and spleen response should quell some of the doubts about the acquisition.

Preparing for deal

YM had given signs that it was preparing for a big deal to come down on the strength of its Ash data. Earlier this month it unburdened itself of assets related to nimotuzumab, an antibody awaiting mid-stage results in pancreatic cancer, and turned its full attention to CYT387, which was giving signs of best-in-class potential even a year ago (ASH Preview - Novel drug classes facing important tests, December 7, 2011).

The latest data for the JAK1/2 inhibitor did not disappoint at this year’s US conclave of haematologists: 48% of patients saw anaemia responses, and 37% saw shrinkage in their spleens; comparable rates for Jakafi were 14% in phase II for anaemia response, and 32-42% in spleen response in phase III, measured by MRI.

Certainly, many of YM’s shareholders will feel themselves well rewarded: the $2.95 (C$2.90) per share offer exceeds the highest price all year and represents a 76% premium on Tuesday’s close. However, shares were above C$3.50 a share as recently as June 2011, and an upward trend was blunted in February when YM sold 35m shares at US$2 each. It would not be surprising if some longer-term investors believe management could have pushed for better terms.

Gilead strikes

The deal seems a reprise of Gilead’s swoop last year on Pharmasset – not on price, as that was worth a chunky $11bn, but in terms of timing. As with Pharmasset, YM had just presented strong phase II data for an asset in a promising drug class in a growing disease area (Gilead betting the Pharmasset on hepatitis C, November 21, 2011).

The Pharmasset deal, as jaw-dropping as its size was, has done little to hurt Gilead’s share price, which since then has nearly doubled. That growth has been sufficient to convince the board to approve a two-for-one stock split early next year.

The share price since has been helped by a bubble in biotech and particularly in hepatitis C stocks, of course. That Gilead has expertise in both hepatitis C and anti-infectives certainly supports the case, and the California group has done little wrong in the year since.

However, Gilead has less experience in oncology, which might make investors a little more wary of this deal. The upside is that it risked far less in buying YM, and had plenty of data to support its decision.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @JonEPVantage on Twitter

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