Friday, February 01, 2013

(BN) Gilead Seeks Blood Cancer Drugs to Bolster HIV Business

Gilead Sciences Inc. (GILD), the world's largest maker of HIV drugs, has spent $1.2 billion in two years to buy blood cancer drugs. It's looking for more.

Treatment for leukemia and other blood cancers is one of the fastest growing markets for cancer drugs. Gilead's recent string of four deals is intended to tap into that market and set the stage for the company's growth for years.

In the last year, 11 of 39 new drug therapies approved in the U.S. involved stopping cancers by targeting their underlying genetic structure. As of October 2012, investors were focused on at least 14 medicines in final testing for blood malignancies with the potential to move stocks, according to a report by Cowen & Co. analysts.

Gilead Chief Operating Officer John Milligan said the company is eying possible new deals in this universe.

"Oncology is entering an era where significant advances are going to be made, far above and beyond what's been made previously," Milligan said. "It's a field where there's always the possibility of acquiring other molecules and companies as their technology or pipelines mature. We're certainly keeping our eye on it."

"There is a massive amount of untapped potential in the hematological malignancy space," said Selvaraju, who is head of health-care equity research at the New York-based company.

Potential Targets

Ariad, with a market value of $3.6 billion, had a leukemia drug approved for sale in December and is in final testing on a second. Infinity, valued at $1.6 billion, is in early trials on a therapy for leukemia.

While Milligan wouldn't discuss possible acquisitions, they may include Ariad Pharmaceuticals Inc. (ARIA) and Infinity (INFI) Pharmaceuticals Inc., said Raghuram Selvaraju, at Aegis C drug, acquired for $10.8 billion last year in its purchase of Pharmasset Inc.

Analysts share that optimism. Twenty-six of 32 analysts have a "buy" rating on the stock with a price target of $44.39, according to data compiled by Bloomberg. The shares closed yesterday at $39.45 in New York.

If approved, the hepatitis C treatment may generate as much as $3.8 billion in sales by 2020, according to an estimate from Ravi Mehrotra, an analyst with Credit Suisse Group AG in New York. That would make it the biggest product for Gilead, which generated $8.4 billion in revenue in 2011.

Acquisition Strategy

The move into hepatitis C is just one part of a strategy that included acquisitions of three blood-cancer companies in the 28 months prior to its December pickup of YM BioSciences for $510 million, according to Gilead's Milligan. The little-noted acquisitions should give investors another reason to be positive about the company's growth in the future, he said.

"That's why we started to participate, acquiring assets and bringing in people," Milligan said. "For us, it's a very nascent early investment in something that will probably play out over the next decade or so."

It can't hurt, said Michael Yee, an RBC Capital Markets analyst in San Francisco.

"HIV and hepatitis C are going to lead an enormous growth phase from 2014 to 2018" for the company, he said in an e-mail. "Meanwhile, Gilead is quietly building a hematology franchise as another additional growth driver" to take the company further into the future.

The science behind blood-cancer treatments has been advancing steadily since 2001, when the leukemia treatment Gleevec, made by Novartis AG (NOVN), first proved that precisely aiming drugs at the genetic underpinnings of cancer can work.

Oncology Market

In the last year, four drugs have been approved by U.S. regulators to attack various forms of blood cancer, a section of the targeted oncology market that Gilead is suited to advance in, Aegis's Selvaraju said.

Gilead's most-advanced experimental blood-cancer product is aimed at chronic lymphocytic leukemia, or CLL, a slow-moving disease that can require treatment over years, opening up an opportunity for billions of dollars in revenue. The company acquired the medicine, called idelalisib, in its February 2011 purchase of Calistoga Pharmaceuticals Inc. for $375 million.

CLL is one of four main types of blood cancer, along with acute myeloid leukemia, acute lymphoblastic leukemia and chronic myeloid leukemia that was responsible for 23,720 deaths last year, according to the National Cancer Institute.

Pharmacyclics Therapy

Gilead's main competitor in the CLL market may be Pharmacyclics Inc. (PCYC), of Sunnyvale, California, which also has an experimental therapy in the final stage of testing needed for U.S. approval. Gilead's drug, though, is being tested in combination with other medicines, while Pharmacyclics' treatment is taken alone.

There's likely to be room for both treatments, said Gregory Wade, an analyst at Wedbush Securities Inc. in San Francisco.

"There's about 115,000 people in U.S. alone with CLL," Wade said in a telephone interview. "With common prices for these type drugs at $80,000 to $90,000 a year, it's easy to see how you get to a very big number."

Together, these drugs from Gilead and others "have the potential to completely change the landscape, where treating CLL with just targeted therapies, as opposed to the chemotherapies of the past," said John Byrd, leukemia research professor at Ohio State University Medical Center, in a telephone interview.

'Promising Future'

"The Phase 3 studies are going to tell us if the end points justify that," Byrd said. "But if I had to guess, the future looks really promising for this possibility."

Other blood cancers being pursued by Gilead as a result of its acquisitions include indolent non-Hodgkin's lymphoma, which develops in the lymphatic system from a type of white blood cell that helps the body fight infections, and myelofibrosis, a bone marrow disorder where excessive scar tissue impairs the body's ability to produce normal blood cells.

The former is being targeted in a drug from Arresto Biosciences, which Gilead acquired for $225 million in December 2010, the latter by an experimental medicine from YM BioSciences Inc. (YM), Gilead's latest purchase.

The push into blood-cancer research has helped redefine the lives of people who have these diseases, said Hildy Dillon, senior vice president of patient services at the Leukemia & Lymphoma Society

"I've been in oncology for over 30 years, and people did not survive these diseases," Dillon said. "And now, as we develop newer therapies, we are extending the life of these patients."

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