Analysts Weigh In On Gilead-Kite Pharma Deal

The big news for the week in the biotech space is the huge $12 billion buyout of Kite Pharma Inc KITE by Gilead Sciences, Inc. GILD.

Gilead, Kite and other biotech investors are eager to know Wall Street’s take on the big deal and what it means for the market.

Related Link: Juno Therapeutics Jumps 17% After Gilead's Purchase Of Kite Pharma

Here’s a rundown of what several Wall Street analysts had to say about the deal.

Voices From The Street

Deutsche Bank analyst Andrew Peters says the deal is a sign of a new direction for Gilead. “On this morning's conference call outlining the rationale for the deal, management strongly emphasized their strategy to use the acquisition as a (sizable) first step in building out a capability in oncology, and that with Kite, they are now a leader in a rapidly emerging field,” Peters wrote. Contrary to most M&A deals, Peters says management isn’t emphasizing the cost-saving, synergistic potential of the deal, but rather the potential it creates for growth driving research and development down the line.

Wells Fargo analyst Jim Birchenough says investors shouldn’t be fooled by Gilead’s relatively low market valuation. “While GILD PE multiple appears depressed relative to near term growth, we believe it is justified based on expected slowing of HCV product revenues and lack of visibility on growth beyond HCV,” he wrote Monday. “Overall, we believe that potential for initial facility loss on CAR-T reimbursement has been underestimated, as has been difficulty in expanding beyond initial centers with lower diagnosis-related group (DRG) exposure.”

Cowen analyst Phil Nadeau said the deal instantly gives Gilead a new innovative product launch on the horizon in Axi-Cel. In addition, Gilead’s entrance into the CAR-T arena will give the company multiple growth avenues and pipeline opportunities. “We are confident both in the potential of Axi-Cel to become a standard therapy in the treatment of aggressive non-Hodgkin's Lymphoma, as well as Kite's leadership position in the CAR-T field,” he wrote.

BTIG analyst Dane Leone said there seems to be little obvious risk of regulatory or logistical hang-ups preventing the deal. Kite was an obvious choice in the CAR-T space because of its lack of meaningful joint ventures and ownership ties. “Implicit in the forecast for the KITE deal to be neutral to earnings by Year 3 and accretive thereafter, it would be assumed that Gilead will be able to extract a solid margin over the significant manufacturing costs currently,” Leone wrote.

Ratings And Targets

Analysts have different takes on Gilead stock following news of the deal. Here's a look at the ratings and price targets of the analysts mentioned above.

• Deutsche Bank has a Buy rating and $81 price target.
• Wells Fargo has a Market Perform rating and $73 price target.
• Cowen has an Outperform rating and $90 price target.