Gilead Gets An Upgrade Amid 'Game-Changing' Kite Deal

It’s taking time, but three days after Gilead Sciences, Inc. GILD announced its acquisition of Kite Pharma Inc KITE, the Street seems to be deciding it’s a good thing.

Gilead’s stock traded up a modest 2.5 percent and three analysts reiterated Hold ratings throughout Monday and Tuesday’s sessions.

But the wind is picking up, and on Wednesday, the stock soared 7.25 percent. On Thursday, Argus analysts conceded an upgrade.

”While the Kite acquisition will not provide revenue in the near term, it will enable the company to diversify away from its heavy reliance on hepatitis C and HIV products,” Argus analyst David Toung wrote in a morning note. “It will also provide Gilead with credibility as a formidable player in the oncology space.”

Toung upgraded Gilead to Buy with a $100 price target representing 23-percent upside.

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What’s The Big Deal?

Kite specializes in customized treatments to reengineer patient cells to attack cancer. Not only will it expand Gilead’s emphasis on antiviral drugs, but it will also lend critical technology and a development platform for new cancer treatments and in-licensing agreements.

“Through Kite, Gilead will acquire both a portfolio of cell therapy drugs and a new oncology strategy,” Toung wrote.

But More Specifically?

Kite’s pipeline includes treatments for multiple myeloma, mantle cell lymphoma and solid tumors.

Although expensive, its lead candidate, axicabtagene ciloleucel (axi-cel), has proven in clinical trials to outperform chemotherapy in response rates and patient survival periods. Argus believes the U.S. Food and Drug Administration to approve axi-cel in late November, making it the first cell therapy treatment for refractory aggressive non-Hodgkin’s lymphoma (see Toung's track record here).

Kite has already begun the process of securing contracts between insurers and treatment centers in anticipation of approval and expects prescriptions to be written "within days" of the FDA's decision, according to Cowen analysts.

The Kite purchase is expected to close in the same quarter but is expected to have no impact on earnings until after 2018.

At the time of publication, Gilead was valued at $81.23.