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Gilead puts $375M into Arcus in latest push to broaden cancer business

Gilead has formed a 10-year collaboration with Arcus Biosciences to jointly develop and sell cancer immunotherapies, the latest effort in a long-running push by the Foster City, California-based biotech to establish a profitable oncology business.Per deal terms, Gilead will pay Arcus $175 million in cash and buy $200 million worth of Arcus shares at $33.54 apiece, giving it between an 11% and 12% stake in the smaller company. In return, Gilead gets access to Arcus’ “current and future” drug pipeline, with includes rights to zimberelimab, a drug that works similarly to Merck & Co.’s Keytruda, as well as an option to license other drugs.The deal broadens Gilead’s research and development of drugs for solid tumors. It’s also a bet by Gilead that Arcus can help it develop treatment combinations that boost the benefits of first generation immunotherapies, which have changed the standard of care for many cancers but still only work well for a fraction of patients.

Tuesday’s deal marks another significant step by Gilead to bolster its cancer drug business, which has yet to take off despite multiple investments.

A decade-long stretch of cancer dealmaking has ultimately led to two approved products for Gilead. One, the blood cancer drug Zydelig, was acquired through its 2011 buyout of Calistoga Pharmaceuticals. Gilead got the other, the cell therapy Yescarta, when it paid $12 billion for Kite Pharma in 2018.

The two therapies generated $559 million out of Gilead’s $22.1 billion in sales in 2019. Most of the company’s sales, some $16.4 billion, are still derived from its flagship HIV medicines.

Yet Gilead executives, including CEO Daniel O’Day, have been vocal about continuing their push into oncology, focusing in particular on the fast-moving and competitive field of cancer immunotherapy. In March, the drugmaker bought Forty-Seven for $4.9 billion, largely for the immunotherapy magrolimab, which is being tested against a variety of blood cancers.

Now Gilead is paying $375 million in cash and stock to start a wide-ranging alliance with Arcus that gives it access to four immuno-oncology drugs in human trials and another six cancer medicines in preclinical tests.

Arcus’s portfolio includes both small molecule drugs and antibodies. The company, also based in California, is exploring cancer targets that are either well-established — zimberelimab, for instance, targets the same PD-1 protein as marketed medicines Opdivo and Keytruda — or picking up steam, like a protein called TIGIT that Arcus’ AB154 is designed to block.

Those drugs “are likely to prove complementary” to the ones Gilead acquired in the Forty-Seven and Kite deals, wrote SVB Leerink analyst Geoffrey Porges in a Wednesday note to clients. They also could help Gilead treat solid tumors — common cancers of the lung, prostate and colon — not just the blood cancers that have thus far been its focus.

“Instantly, Gilead has gained credibility and critical mass in oncology, in our opinion,” Porges wrote.

By acquiring a suite of potential medicines, Gilead’s aim appears to be expanding the reach of cancer immunotherapy, which can provide stunningly long-lasting results for some, but doesn’t work at all for others.

Drugmakers across the industry have turned to treatment combinations to achieve that goal, and anti-TIGIT drugs, like AB154, have drawn attention as potential partner therapies.

Roche recently disclosed early results from its own TIGIT inhibitor, called tiragolumab, ahead of the American Society of Clinical Oncology’s annual meeting, which is happening this week. The data show tiragolumab may boost the effects of the first-generation immunotherapy Tecentriq in lung cancer patients, and “validated TIGIT as a viable target,” according to Cantor Fitzgerald analyst Alethia Young.

Gilead can opt in to all of Arcus’ other clinical-stage drugs, among them AB154, for between $200 million and $275 million each. It would pay less, $150 million per program, to buy into Arcus drugs in earlier stages. The two companies would split U.S. rights, with Gilead getting full rights elsewhere. Gilead will also pay Arcus up to $400 million to fund its research work. In total, the drugmaker could shell out $1.23 billion in future payments, though that cash is tied to a variety of milestones.

The deal is similar, in many ways, to the broad partnership Gilead started with Galapagos last year. That pact was also a 10-year deal in which Gilead bought a minority stake and options to acquire several drugs, while leaving the Belgian drugmaker to continue its research independently.

There is one key difference, however. The Galapagos deal bars Gilead from acquiring more than 29.9% of shares — and the company, overall — over the full length of the deal. With Arcus, Gilead can’t buy more than 35% of total voting shares of the biotech for five years, half of the deal’s term. The company “presumably also has a call option to double down and fully acquire Arcus if the profit-sharing obligation becomes too large,” Porges wrote.

Bloomberg reported Gilead’s interest in acquiring a significant stake in Arcus in April, which caused Arcus shares to nearly double, eclipsing $30 apiece. The company went public at $15 a share in 2018, and shares closed at $33.54 on Tuesday. They fell 10%, to $30.10 apiece, on the news.