FTSV Forty Seven Inc

By Joseph Walker 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 3, 2020).

Gilead Sciences Inc. will pay $4.9 billion to buy Forty Seven Inc., a five-year-old biotech company with a promising blood-cancer medicine that could be on the market within two years.

Gilead said Monday it has agreed to pay $95.50 a share in cash for Forty Seven, a nearly 65% premium to Friday's closing price of $58 for the Menlo Park, Calif., company.

The deal is the first major outright acquisition under Gilead Chief Executive Daniel O'Day, who took over the company a little over a year ago with a mandate to jump-start sales growth and turn around the company's sagging stock price. The transaction will deepen Gilead's pipeline of cancer drugs.

Gilead, based in Foster City, Calif., is grappling with a sharp decline in revenue from its hepatitis C drug franchise and the threat of generic competition to its HIV drugs.

Mr. O'Day said Monday that he will make more deals similar to the size and scope of Forty Seven, despite calls by some analysts to buy a larger, established company that would immediately boost sales and profit.

"At the end of the day, there's no immediate quick fix in this industry, " Mr. O'Day said in an interview. "Myself and the board are firmly committed to the long-term strategy of the company."

Yet some analysts expressed disappointment that Gilead didn't do a deal with a more immediate impact on the company's bottom line.

Evan Seigerman, a Credit Suisse analyst, in a note to clients, said: "The company should have undertaken a more transformative approach to M&A in acquiring an asset or company that would have impacted revenue and earnings growth over the next couple of years."

Gilead had sales of $22.45 billion in 2019. This year, sales are projected to decline 0.2% to $22.4 billion, according to analysts polled by FactSet.

Mr. O'Day has made acquisitions and partnerships a key plank in his turnaround strategy for the company, which he has dubbed "Gilead's next chapter" and includes the ambitious goal of launching 10 new drugs over the next decade.

Last year, Gilead paid $3.95 billion to form a drug-development partnership with European-biotech Galapagos NV in addition to purchasing a 22% stake in the company for $1 billion. The deal gave Gilead rights to develop and market six experimental drugs already in clinical trials, including a potential rheumatoid arthritis treatment called filgotinib.

Filgotinib is now under review by the U.S. Food and Drug Administration and could be approved this year; analysts project the drug to reach sales of $1.23 billion in 2025, according to FactSet.

In buying Forty Seven, Gilead hopes to extend its toehold in the lucrative and competitive cancer-drug market.

Gilead's most successful cancer drug, Yescarta, uses genetically engineered immune cells to treat lymphoma and had sales of $456 million last year. Gilead acquired Yescarta in its $11.9 billion acquisition of Kite Pharma in 2017.

Oncology drugs are attractive for pharmaceutical companies because they can command high prices and receive relatively fast regulatory approvals. U.S. spending on cancer drugs more than doubled to $56.7 billion in 2018 from $27.3 billion in 2013, according to health-care data provider IQVIA. Development of the drugs has been aided by scientific advances that enabled a more precise targeting of genetic mutations that drive tumors.

Forty Seven has one drug, called magrolimab, being tested in humans. The molecule has shown promising early-stage results in treating the blood cancers myelodysplastic syndrome and acute myeloid leukemia in combination with chemotherapy. The drug is part of a class of medicines known as immunotherapies that harness the immune system to kill tumor cells.

Tumors sometimes use a protein called CD47 that blocks the immune system from killing the cancerous cells by sending what researchers call "don't eat me" signals. Magrolimab is designed to block the CD47 protein, allowing the immune system to destroy the cancerous cells.

If ongoing studies continue to be positive, Gilead aims to win an accelerated approval from the FDA in the latter part of 2022, Chief Medical Officer Merdad Parsey told analysts on a conference call to discuss the deal.

"That was one of the key things that [we were] interested in," Dr. Parsey said. "The ability to get to market relatively quickly."

About 14,000 people annually in the U.S. are diagnosed with MDS, according to the company.

Gilead shares rose 8.7% to $75.40 in Monday trading. The stock is up about 16% so far this year, driven largely by the potential of the company's experimental drug remdesivir to treat the Covid-19 virus.

Shares of Forty Seven surged 62% to $93.91.

--Colin Kellaher contributed to this article.

Write to Joseph Walker at joseph.walker@wsj.com

(END) Dow Jones Newswires

March 03, 2020 02:47 ET (07:47 GMT)

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