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Gilead's Second CAR-T Treatment Suffers the Same Issues as Yescarta

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Things are moving forward in the CAR-T space with Gilead Sciences (NASDAQ:GILD) filing for FDA approval of its second CAR-T cell therapy, KTE-X19. While this is good news for cancer patients, who could gain access to a new life-saving therapy, it may not reward Gilead shareholders much in the long run. That's because it is becoming increasingly evident that first generation CAR-T treatments like Yescarta and KTE-X19 may never generate the sales to justify their valuations.

Gilead acquired Yescarta in late 2017 when it bought Kite Pharma for $11.9 billion. Since the beginning of 2018, total sales have been about $600 million, or about 5% of the price of the takeover so far. Eventually the investment should be recouped, but long term profitability may be difficult to achieve here.

There are three main reasons for this: price, manufacturing and safety. Yescarta retails for $373,000, but it is the way that patients are reimbursed that is generating problems for sales. Addressed in Gilead's last annual report, the Centers for Medicare and Medicaid Services (CMS) typically reimburse half the cost, which in some cases is insufficient to reimburse hospitals for the cost of caring for Yescarta patients. The situation is making some hospitals unwilling to offer the therapy and some doctors reluctant to recommend it, since in many cases it is a money-loser for the administering hospital. The current payment structure will be in place until September 2020 according to Gilead, so this is likely to remain a major issue going forward for KTE-X19 as well.

Manufacturing is another deterrent to sales that KTE-X19 will also encounter. For autologous treatments like these, manufacturing takes weeks and the process is dependent on third party apheresis centers that produce the T-cell material. Not that the manufacturing process is faulty, but the logistical difficulties in relying on and certifying third parties and the cost in getting it done eats into the profits that Gilead sees from sales.

Safety is probably the biggest factor in suppressing demand for CAR-T treatments like Yescarta, and not necessarily because patients are unwilling to risk trying it. After all, most of these patients are desperate and often have no other choice. The problem is that the safety issues behind CAR-T severely restrict its market by relegating it to a last-line treatment. Only once patients have no other choice can they even consider trying Yescarta. The FDA Risk Evaluation and Mitigation Strategy (REMS) requirements further restrict the venues that offer Yescarta and make it even harder to access.

Any one of these factors could be overcome, but the trifecta will continue to hurt sales. These issues will also plague KTE-X19. This isn't stopping analysts from projecting blockbuster numbers for these drugs, up to $2.8B by 2022 according to the highest estimates, but what these optimistic projections may be failing to take into account is that the next generation of CAR-T may overcome these limitations, further displacing Yescarta and its potential future market peers like KTE-X19.

Recall that the very first cell-based cancer immunotherapy, Dendreon's Provenge for prostate cancer, ended up failing in the market and being rolled into Valeant, which itself ended up failing as well. Both Yescarta and KTE-X19 have much better efficacy data than Provenge ever did, but what will happen to sales when a CAR-T treatment hits the market that can overcome cost, manufacturing and safety issues?

This isn't a far-off prospect. CAR-T candidate UCART 19 from Cellectis (NASDAQ:CLLS) may do just that. UCART is a different kind of CAR-T treatment that is off-the-shelf and requires no individualized manufacturing process. Instead of expanding a patient's cells, these off-the-shelf CAR-T cells are genetically modified to only express the antigens on the cancer target, erasing all the others so they aren't registered as foreign cells by the immune system. Second, UCART has an off switch built in, in case of severe cytokine release syndrome. If symptoms become life-threatening, doctors can administer a kill switch to shut off the cells. These enhancements address cost, manufacturing and safety all at once.

True, it could be years before something like UCART is approved, but the advantages are clear and eventually either UCART or something like it should reach markets and start to take market share away from Yescarta and other first generation CAR-T treatments that are more expensive and difficult to manufacture. Until then, CAR-T sales will continue to trend higher, but probably not fast enough to reach consistent blockbuster levels before better options become available.

Disclosure: No positions

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This article first appeared on GuruFocus.