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Gilead Makes Another Bet on Cancer, Incyte Shares Fall

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The $510 million takeover of YM BioSciences is a relatively low-risk deal for the big biotech company. Incyte investors think Gilead can take market from Jakafi.

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MINYANVILLE ORIGINAL In the biotech world, a half-billion-dollar deal is still a lot of money. For Gilead Sciences (NASDAQ:GILD), a $58 billion market-cap company, the takeover of YM BioSciences (NYSEAMEX:YMI) is a relatively low-risk bet on an experimental cancer drug.

Gilead agreed to buy Canadian-based YM BioSciences for about $510 million in cash, or $2.95 a share. The price represents a more than an 80% premium for the stock. Gilead points out that YM BioSciences, a money-losing company, had cash of more than $125 million as of September 30, which effectively lowers the cost of the transaction. The deal is expected to close in the first quarter.

With the acquisition, Gilead gets CYT387, a so-called JAK inhibitor, believed to hold promise as a treatment for cancer or inflammatory diseases. Gilead says it plans to advance the drug as a treatment for the blood cancer myelofibrosis into a late-stage pivotal human trial in the second half of 2013.

Gilead investors' reaction was a collective shrug. Shares of Gilead, which have almost doubled in the past 12 months, rose less than 1% to $76.46 midday Wednesday. YM BioSciences rose 77% to $2.88, just shy of the offering price.

The news appears to worry investors of Incyte (NASDAQ:INCY), which won US approval to sell Jakafi for myelofibrosis last year. Like YM BioSciences' lead drug, Jakafi is another JAK inhibitor. While Incyte beat YM BioSciences to market with its first drug approval, some doctors view CYT387 as a potentially better drug for blood cancers, according to an analyst note earlier this year from Leerink Swann.

Shares of Incyte fell more than 6% to $16.70. The stock is up about 17% over the past 12 months.

Without mentioning Jakafi, Gilead's chief scientist Norbert Bischofberger alluded to one of the side effects of the drug in the company's release announcing the YM BioSciences acquisition.

"We believe CYT387 could provide important clinical benefit for patients with myelofibrosis, including potential improvements with regard to anemia and decreased dependence on blood transfusions," he said in a statement.

Anemia is one of the possible side effects of Jakafi. Bischofberger also said Gilead will explore the drug as a potential treatment for related diseases.

Some analysts viewed the takeover as a positive development for Gilead, as the company needs to diversify beyond its stable of leading HIV drugs. A sizable chunk of Gilead's value right now is based on hope for the company's R&D program aimed at better hepatitis C treatments. Gilead made a much bigger bet on hepatitis earlier this year, paying $11 billion for drug developer Pharmasset. Gilead paid a 90% premium to Pharmasset's stock value in that deal. So far, Gilead's hepatitis C research has been solid, leading many investors to believe that the takeover will pay off in the long run.

Cancer research, on the other hand, is a fledgling area for Gilead. Last year, the company bought closely held Calistoga Pharmaceuticals for $375 million to acquire a blood cancer drug.

"The acquisition gives Gilead another intriguing asset in the hematologic cancer space," Stifel Nicolaus analyst Joel Sendek says in a note Wednesday. "We endorse Gilead's strategy of building its presence in oncology and further diversifying its development pipeline beyond" hepatitis C and HIV treatments.

Twitter: @brettchase

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