Biotech World’s Big M&A Frenzy: Kite Pharma Inc (KITE), Gilead Sciences, Inc. (GILD), Juno Therapeutics Inc (JUNO)

How Has a Deal Between Kite and Gilead Likewise Sent Juno Shares Jumping?


Biotech investors were out having a ball with news that Kite Pharma Inc (NASDAQ:KITE) is handing over all its outstanding shares to Gilead Sciences, Inc. (NASDAQ:GILD) in a cash deal of $180 per share. Kite investors sent shares on a 28% upturn ahead of the exciting merger & acquisition. So how does Juno Therapeutics Inc (NASDAQ:JUNO) factor into the mix? Consider the stock-verse as a domino effect: when a giant like Gilead moves into the next generation cell therapy field, the whole CAR T cell therapy arena stands to see a lift.

Let’s explore how the dominos played out for these 3 players:

Kite Takes Stride Forward as Leading CAR-T Player

Kite shares were flying 28% yesterday after breaking news of its deal with Gilead to an excited Street. The deal is anticipated to close by fourth quarter of this year, and many welcome the alliance as a sign this biotech firm is making waves as a CAR T leader in the race.

However, while BTIG analyst Dane Leone notes the news falls right under the umbrella of his bullish perspective, he steps to the sidelines based on timing for the merger, downgrading from a Buy to a Neutral rating on shares of KITE without indicating a price target. (To watch Leone’s track record, click here)

Leone explains, “This transaction was in-line with our Buy thesis, as KITE has emerged as a leading CAR T player and is the only company that was relatively unencumbered by joint ventures and ownership agreements with larger biopharma companies. We move our rating from Buy to Neutral as we think that the proposed merger agreement with Gilead will be completed within the expected timeframe (4Q17).”

In the grander picture, “We see little regulatory overlap between the companies: Oncology broadly, and CAR T specifically, are areas where Gilead currently has little exposure. Gilead’s interest in expanding its oncology focus were marked by the hiring of Alessandro Riva (from Novartis Oncology) during January 2017 to lead the Hematology and Oncology therapeutic teams,” Leone concludes.

TipRanks analytics showcase KITE as a Buy. Out of 9 analysts polled by TipRanks in the last 3 months, 4 are bullish on Kite stock while 5 remain sidelined. With a loss potential of nearly 36%, the stock’s consensus target price stands at $114.40.

Juno Benefits from CAR T Tailwind in M&A After-Party

Juno shares likewise saw a boost from the M&A hype, with investors sending shares soaring almost 17%. Though Juno is not a direct part of the merger, Leone sees the whole CAR T sector standing to benefit- even if this biotech firm’s spot on the leaderboard is not solidified.

As such, the analyst upgrades from a Sell to a Neutral rating on JUNO without suggesting a price target.

“Gilead’s entrance into the CAR T space now marks the third large biopharma company to take a significant stake within the next generation cell therapy field. As a result of the arms-length transaction, valuations across the CAR T space will benefit due to a scarcity effect for the remaining players. We continue to be skeptical of JUNO’s current competitive positioning, but upgrade our rating to Neutral from Sell, as there is not a near term catalyst to offset the positive tailwind for the entire CAR T space,” opines Leone.

Overall, the analyst contends, “We would be surprised if Celgene felt compelled to fully acquire Juno: Celgene (CELG, Neutral) owns ~10% of JUNO’s current shares outstanding and has opt-in rights for development of the CD19 program outside of the United States and China. During March 2017, Celgene did exercise its top-up right to maintain its ownership stake, and purchased ~75k shares. That said, at this juncture with emerging overlap in Multiple Myeloma and third to market status in CD19 hematological malignancies, we struggle to find a rationale for Celgene wanting to fully own Juno.”

TipRanks analytics demonstrate JUNO as a Buy. Based on 5 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Juno stock, 1 maintains a Hold, while 1 issues a Sell. The 12-month average price target stands at $36.00.

Gilead’s Highly Anticipated Deal Strikes the Iron at Last

Gilead Sciences, Inc. (NASDAQ:GILD) was a key mover and shaker yesterday when the biotech giant revealed it would be taking over Kite Pharma for a total valuation of roughly $11.9 billion. It is a move that shines light on cellular therapy research taking centerstage. Especially with Kite’s relapsed/refractory DLBCL, the most common type of non-Hodgkin’s lymphoma candidate Axi-cel, with a date of PDUFA destiny set for November 29th, Gilead’s play for Kite is certainly a critical, strategic one.

J.P. Morgan analyst Cory Kasimov cheers that this “Long awaited M&A has finally arrived,” reiterating an Overweight rating on the stock with an $85 price target, which implies a just under 14% increase from where the shares last closed. (To watch Kasimov’s track record, click here)

“In our view, this transaction is a potentially promising start for Gilead, but it’s not a cure all for the company’s issues. KITE clearly adds some novelty and compelling long term optionality in an area of great intrigue within oncology (cellular therapy). This field is likely in its nascent stages, and KITE could serve as an effective cog in a broader business development strategy. To that end, management stated that they will continue to be active in their pursuit of potential deals/partnerships while maintaining cellular therapy as an important cornerstone. We believe additional deals are still important, as KITE is unlikely to impact GILD’s growth outlook anytime soon (transaction not expected to be accretive until year 4). Recall that exiting 2Q, the company had $37B in cash, was only 1 time levered, and generated $3.3B in FCF in 2Q; sufficient dry powder remains,” surmises Kasimov.

TipRanks analytics exhibit GILD as a Buy. Out of 14 analysts polled by TipRanks in the last 3 months, 10 are bullish on Gilead stock while 4 remain sidelined. With a return potential of 10%, the stock’s consensus target price stands at $83.36.

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