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Gilead Boosts Cancer Pipeline in $510M YM BioSciences Deal

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By Marie Powers
Staff Writer

One day after disclosing a 2-for-1 stock split, Gilead Sciences Inc. surprised the biotech world with a deal to acquire Canadian firm YM BioSciences Inc. in a transaction Gilead valued at $510 million.

YM shareholders will receive $2.95 per common share in cash, and holders of warrants and stock options will receive a cash payment equal to the difference between $2.95 and the warrant or stock exercise price.

When the deal was disclosed before Wednesday's opening bell, YM's shares (NYSE:YMI) leaped more than 75 percent. The stock closed the day at $2.88, gaining $1.25, or 77 percent. Volume topped 121 million shares – more than 150 times the stock's daily average.

Gilead's shares (NASDAQ:GILD) fell 11 cents, closing at $76.23.

Although the YM price tag pales next to the $11 billion Gilead paid for Pharmasset Inc. in a deal consummated about the same time last year, the buyout represents another strategic move to strengthen the Foster City, Calif.-based biotech's pipeline – this time in cancer. (See BioWorld Today, Nov. 22, 2011.)

YM's lead drug candidate, CYT387, is an oral Janus kinase (JAK)/JAK2 inhibitor formulated for once-daily dosing. At the 2011 meeting of the American Society of Hematology (ASH), YM reported positive results from a Phase I/II trial of CYT387 in 166 patients with myelofibrosis, a progressive, chronic bone marrow disorder. The trial produced transfusion independence in more than half of the participants for at least 12 weeks, with significant improvements in splenomegaly and constitutional symptoms.

The trial not only demonstrated improvement in spleen enlargement and constitutional symptoms of the disease but also a significant effect on anemia, which was unexpected before CYT387 was tested in humans. (See BioWorld Today, Dec. 14, 2011.)

YM, of Mississauga, Ontario, updated those findings at this year's ASH conference, which concluded this week in Atlanta, reporting a 68 percent durable 12-week transfusion independence response rate with a maximal duration of response approaching three years and ongoing. The percentage of patients requiring transfusions decreased from 44 percent at baseline to fewer than 10 percent at week 40. CYT387 was well tolerated in myelofibrosis patients for dosing periods of up to three years and ongoing.

Gilead Becomes Third Owner of CYT387

YM acquired CYT387 three years ago through the acquisition of Australian firm Cytopia Ltd. in a deal valued at C$10 million (US$10.1 million). (See BioWorld Today, Oct. 7, 2009.)

Gilead spokesman Nathan Kaiser declined to comment on how long the company had been watching CYT387 but said the YM acquisition represents an opportunity "to add a complementary clinical program in the area of hematology to our growing oncology portfolio. JAK1/2 inhibitors in combination with other targeted therapies fit in well with Gilead's general interest and capabilities in rational combination therapy."

Although YM initially was targeting development of CYT387 in myelofibrosis, the compound has potential in myelodysplastic syndromes and leukemia, and evidence suggests it could be effective in solid tumors.

On the strength of the Phase I/II data, YM planned to begin pivotal trials in mid-2012, raising $70 million earlier this year. (See BioWorld Today, Feb. 27, 2012.)

Pending completion of the acquisition, Gilead will assume that responsibility, with plans to initiate a Phase III of CYT387 in myelofibrosis in the second half of 2013. Kaiser declined to provide specifics on the timing of potential regulatory submissions. "Our first priority upon completion of this acquisition will be to get the Phase III study up and running," he said, adding that trial design is already under discussion.

Although Gilead is better known for its products and pipeline in HIV and hepatitis, its lead compound in oncology, idelalisib (formerly GS-1101), is a first-in-class specific inhibitor of the phosphoinositide-3 kinase delta isoform. Five Phase III studies of the compound are under way in chronic lymphocytic leukemia and indolent non-Hodgkin's lymphoma. (See BioWorld Today, May 3, 2012.)

Gilead also is conducting Phase II trials of simtuzumab (formerly GS-6624), a monoclonal antibody targeting the human lysyl oxidase-like 2 protein, in myelofibrosis, colorectal cancer, pancreatic cancer and certain fibrotic diseases. Gilead picked up that asset two years ago this month in its $225 million buyout of privately held Arresto Biosciences Inc., an early stage biotech based in Palo Alto, Calif. (See BioWorld Today, Dec. 21, 2010.)

"We will be able to leverage our clinical development experience with simtuzumab in myelofibrosis," Kaiser told BioWorld Today. With idelalisib in late-stage trials, "there could be synergies as we start to build out a commercial infrastructure to support our oncology franchise," he added.

Earlier this month, YM sold a second cancer candidate, EGFR inhibitor nimotuzumab, to InnoKeys PTE Ltd., of Singapore, for $2 million up front plus undisclosed additional consideration. The compound had failed to advance through Phase II trials in brain metastases from non-small-cell lung cancer (NSCLC) and palliative treatment of NSCLC due to slow rates of patient accrual.

Kaiser referred questions about the timing of that transaction to YM, which declined comment.

YM Buy May Validate Opportunity in JAK Inhibitors

The Gilead buyout received unanimous approval from YM's board and is expected to close in the first quarter of 2013, contingent on shareholder approval. Approval by Gilead shareholders is not required.

As of Sept. 30, YM reported C$125.5 million in cash and equivalents, while Gilead, which plans to fund the acquisition with cash on hand, reported $2.65 billion in cash and equivalents.

The buyout agreement contains nonsolicitation provisions but permits YM, under unspecified circumstances, to terminate the deal and accept an unsolicited superior offer. Brian Abrahams, senior analyst at Wells Fargo Securities LLC, deemed that scenario unlikely.

"While the ~$3 valuation is less than the ~$4-5 fair value we had assumed for YMI, based on the YMI board's approval, we believe there is a relatively low probability another party enters with a higher bid," Abrahams wrote in a research note.

CYT387 has patent protection until 2028, added ISI Group analyst Mark Schoenebaum. He said consensus models project some $300 million in the drug's sales in myelofibrosis in 2020. In addition to oncology, Gilead will have the opportunity to study other indications for CYT387, such as inflammation, Schoenebaum added.

The deal represented a mixed blessing for Incyte Corp., of Wilmington, Del., whose JAK inhibitor Jakafi was approved by the FDA last year. (See BioWorld Today, Nov. 17, 2011.)

On Wednesday, the company's shares (NASDAQ:INCY) slid more than 6 percent, closing at $16.67.

"We believe pressure on [Incyte] shares is due to the increased competitive threat from a seasoned drug marketing company in Gilead," Piper Jaffray & Co. analyst M. Ian Somaiya wrote in a research note.

However, the YM buy may help to validate the opportunity for JAK inhibitors, several analysts observed, and Gilead will have to contend with a product gaining traction in the market. (See BioWorld Today, Aug. 3, 2012.)

"We believe it will be increasingly more difficult to enroll randomized Phase III trials vs. best supportive care or placebo with Jakafi on the market in the U.S./EU," Guggenheim Securities analyst Bret Holley wrote in a research note. "We believe this difficulty will increase as Jakafi has now shown a survival benefit in both the COMFORT-I/II registrational trials."