There’s nothing like a $12 billion acquisition to shake the sand off the backs of biotech investors and analysts spending their last week lounging the beaches of the Hamptons and Nantucket. On Monday, Gilead Sciences (GILD) announced a blockbuster acquisition of Kite Pharma (KITE), and all of a sudden, summer ended before Labor Day. Back to work, people. Here are four questions to ponder on the long drive (or ferry ride) home.
Is Gilead smart to buy Kite?
Yes, if you believe (as Gilead and Kite both do) that cellular therapy for cancer is a transformational technology that is only just getting started.
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It would be interesting to see what kind of ROI Gilead is expecting. A reverse calculation would be interesting.
There are about 72,000 US patients that need the drug for non-Hodgkin’s lymphoma. If the drug were priced at $300,000 per year (general tradition of neglected disease drugs), Gilead would have revenue of about $21.6 billion per year. Simple math tells us that if the product is commercial this instant Gilead would make $9.6 billion before tax the first year assuming it will accrue expenses in a separate ghost account. With the acquisition paid for beginning second year Gilead would pocket about $20 billion revenue. After paying the ghost $9.6 billion of the first year company would make $10 billion the second year and thereafter $20 billion till competition comes in.
Above are assumptions and many might not agree. Purpose of this analysis is just to see how the money flows and how poor patient pays to extend his/her life by 5-10 years.
Rich get richer at the expense of suffering patient and their families. Corporate and investor greed. I am sure there are expenses but there is price gouging also.
Cheers.