Kite, my entire notes, thoughts, and conclusions

Kite, my entire notes, thoughts, and conclusions

I have been appalled that in recent days, people who have apparently read little or nothing about the company, and demonstrably have almost no knowledge about it, have chimed in with doomsday prophecies based on lumping this company in with some past experience that they have had, and trying very hard to scare investors. It’s almost like Cramer. When I say almost no knowledge about it, how’s this:

even if approved (likely <10%)

This is for a treatment that has been granted Orphan Drug Designation status in the US and in Europe, Breakthrough Medication Status in the US, and Priority Medicine Status in Europe, and has already been approved for FDA submission fast track, without being compared against placebo or alternate treatment. Did the person who wrote that they have a less than ten percent chance of approval do any research at all about this treatment?

Or the ridiculous statistic 1 year survival after ICU admission for those >85 years of age is 3%? What does that have to do with Kite except to try to scare people? There was probably no one in the study over 85, and probably no one over 85 would ever be considered a candidate for this treatment.

I felt I should give you my entire file on this company, for those who are interested. And when you get through reading this I’d strongly recommend reading the company’s Mar 2017 Investor Presentation http://files.shareholder.com/downloads/AMDA-2V2XOY/365563245…

CAUTION: THIS IS A PRETTY LONG READ!

Kite Pharma ------- KITE

Jan 2017 – Post from Bulwinkl
Business: Kite has a cancer therapy supercharging a person’s own immune system to fight off cancer. It’s formally known as CAR-T (or Chimeric Antigen Receptor T-cell therapy). KITE’s drug, KTE-C19, has a success rate of 52 - 91% with no deaths. Juno is in the same field, but had to pull its lead drug because it caused brain swelling and deaths in 4 patients. KTE-C19 has not had those problems (so far), and its drugs are the only option for people with aggressive non-Hodgkin Lymphoma.

Binary Event Sometime during the 1st quarter 2017, the FDA will approve the application, or ask for more data. If they do not get approval, my guess is that the stock would drop by ~50%. If they do get the approval, I think the stock will go up 250 - 500%.

Valuation SWAG Kite’s current market cap is $2.5B. As a comparison, Celgene’ Revlimid, J&J’s Imbruvica, and Amgen’s Blincyto run $300,000, $320,000, and $450,000 per patient respectively. Kite estimates 7,400 patients annually so the total value of the therapy using $350,000 as an estimate is $2.6B. If we assume 50% margin and a 25 PE ratio, KITE would eventually be valued at about $32B. Assuming we could capture 50% of the market capitalization this year, we would be looking at a 540% increase during the year. (Saul: Way over-optimistic)

Strategy If I were to purchase this stock, I would have a maximum of 1% of my portfolio in it. My guesstimate for chances of failure is 40%.

One of the better biotech analysts, Eric Schmidt rates KITE a buy, and TMFBiologyFool and TMFEBCapital seem to like it too.

Several things make me think that there is a 60% chance of success.

1.There is no approved therapy that works on the patients tested. This is important because there are no drugs to compare efficacy/safety to. This is a naturally lower hurdle.

2. Extremely good efficacy results. The group tested was unresponsive to the first line treatments, BUT in the Kite trial 76% had a positive response and 43% went into complete remission. The FDA tends to give a treatment like this more safety attitude because many patients would be dead without this, so if there were some fatalities the risk would likely be worth it.

3. They believe their data is strong enough to seek accelerated approval from the FDA. That doesn’t typically happen with questionable data. But the FDA has to be comfortable with all of it so I’m allowing a little extra time if there is a hiccup. Because there is a process involved with the therapy, there could be a number of things that the FDA could do to restrict things, so read up.

Nov 2016 – Excellent news and evaluation article:

Kite Pharma to keep anticipated CAR-T launch ‘controlled’ and targeted at certain hospitals. It is planning a “controlled” launch that will likely rely on using medical experts to educate hospitals and cancer centers about the new technology.

Kite recently pushed back the timeline for its plans to file an application with the FDA for KTE-C19, its novel CAR-T cell therapy for diffuse large B-cell lymphoma… It had originally planned to file before the end of 2016, but have delayed filing until the beginning of 2017.

CAR-T therapies are a form of personalized medicine. The treatment requires that a patient’s cells are withdrawn, infused with an antigen, and then re-injected back into the patient. This is not your grandfather’s launch. It’s not like launching a small molecule or monoclonal antibody into the market.
Kite and competing developers of CAR-T therapies, including Juno and Novartis, will have to create a market, and that will begin with enlisting hospitals and cancer centers that are already familiar with the treatment in what will be a “controlled but not limited launch.”

Communicating the value of this unique therapy will require new marketing tactics, according to experts. “Anytime you’re getting ready to do something new and transformational you want the experience in the beginning to be positive. There’s going to be a learning curve and you want it to be a positive learning curve.”

PREPARING FOR LAUNCH
Kite plans to initially target institutions that are already familiar with the CAR-T administration process. The slow rollout is meant to be a form of quality control. That launch will target 72 institutions, including more than 40 clinical trial sites and 27 national cancer hospitals and cancer care network centers.

SALES AND CUSTOMER SUPPORT
Detailing, too, is expected to be markedly different for CAR-T therapies. They will use cell therapy account managers, most of whom will have medical backgrounds. Novartis, another CAR-T developer, has said that they play to approach detailing of its therapy similar to that of medical devices, where a sales representative functions like a resource to the physician, sitting in on surgeries and providing education and training.

To that end, Kite is launching KiteKonnect, a service meant to help connect patients and providers with appropriate resources. Specifically, the service is viewed as a way to help patients connect with third-party organizations, such as the ones that provide travel assistance to cancer patients, as well as help hospitals navigate reimbursement issues.

CREATING A VALUE PROPOSITION
These drugs are expected to be costly, and Kite will be charged with proving that KTE-C19 is a better deal than the current standard of care for diffuse large B-cell lymphoma: a stem cell transplant, which can run between $378,000 to $930,000, depending on whether the stem cells come from the patient or from a donor.

During an investor presentation in early October, the company drew comparisons to three other oncology drugs: Celgene’s Revlimid, Johnson & Johnson’s Imbruvica, and Amgen’s Blincyto, which annually run $300,000, $320,000, and $450,000, respectively, as a starting point for thinking about KTE-C19’s potential price.

The drug’s promising clinical data so far will also work in its favor, as well as payers’ predisposition to covering oncology drugs, and as such the company may not face an uphill climb in ensuring access.
Historically, payers are less likely to restrict access to novel oncology treatments and it’s a small number of patients that would likely receive the drug. Kite estimates that there are 7,400 patients with diffuse large B-cell lymphoma eligible for treatment with KTE-C19 in the U.S. Early discussions with payers have been encouraging and the company is leaning on its medical science liaisons to make the clinical case for KTE-C19.

The company needs to be clear up front with payers about what exactly they’re paying for. “Are you paying for a partial or complete response, and how do you compare that to ongoing treatment or progression? How manufacturers define the total value proposition for CAR-T will be crucial.”

Jan 2017 - Kite and Shanghai Fosun Pharma to develop, manufacture and commercialize axicabtagene ciloleucel in China with the option to include additional products, including two T cell receptor (TCR) product candidates from Kite.

Axicabtagene ciloleucel (KTE-C19), Kite’s lead product candidate, is an investigational chimeric antigen receptor (CAR) T-cell therapy under development for the treatment of B-cell lymphomas and leukemias.

The joint venture will be owned equally. Fosun will provide $20 million in funding to support clinical development and manufacturing activities in China, and Kite will provide technical transfer services to the joint venture. The parties will share profits from the joint venture with Kite receiving 40% and Fosun receiving 6%. Kite will also receive an upfront fee of $40 million from the joint venture, funded by Fosun, regulatory and commercial milestones totaling $35 million and mid-single digit sales royalties.

“We are committed to bring engineered T-cell therapy to patients in China who are suffering from cancer. This joint venture allows us to access a important market and meet a major objective of expanding our global reach. Fosun is an innovator and market-maker, which makes them an ideal partner to develop and commercialize axicabtagene ciloleucel in China.

The joint venture will initially focus on axicabtagene ciloleucel, Kite’s lead CAR product candidate for the treatment of B-cell lymphomas and leukemias. The joint venture will also have the option to license additional product candidates including KITE-439, a TCR therapy directed against the human papillomavirus type 16 E7 oncoprotein and KITE-718, a TCR therapy directed against MAGE A3 and MAGE A6, antigens frequently found in solid tumors including bladder, esophageal, head and neck, lung and ovarian cancers. Opt-in and milestone payments for KITE-439 and KITE-718 could total $140 million plus profit sharing and mid-single digit sales royalties.

China is the second largest pharmaceutical market in the world after the US. Cancer is the leading cause of death in China with over 4 million new cases per year. According to recent estimates, there are approximately 73,000 newly diagnosed cases of non-Hodgkin lymphoma (NHL) in China each year.

Kite announced in December that it has initiated the submission to the FDA of the Biologics License Application for KTE-C19 as a treatment for patients with refractory aggressive B-cell Non-Hodgekins Lymphoma.

About axicabtagene ciloleucel
Kite Pharma’s lead product candidate, axicabtagene ciloleucel, is an investigational therapy in which a patient’s T cells are engineered to express a chimeric antigen receptor (CAR) to target the antigen CD19, a protein expressed on the cell surface of B-cell lymphomas and leukemias, and redirect the T cells to kill cancer cells. Axicabtagene ciloleucel has been granted Breakthrough Therapy Designation status for diffuse large B-cell lymphoma (DLBCL), transformed follicular lymphoma (TFL), and primary mediastinal B-cell lymphoma (PMBCL) by the FDA, and Priority Medicines (PRIME) regulatory support for DLBCL in the EU.

Jan 2017 – My notes on their finances, and conclusions

First let me say that I like the company, and think that they will be very successful in time, but I think we need a little reality testing on things like finances. Here goes:

Share count – About 50 million.
Share price – About $50
Market Cap - About $2.5 billion
Revenue – In 2015 they had $17 million in revenue. They had none in previous years. So far in 2016 they’ve had $17 million in the first three quarters. This must be all support grants. It puts them priced at about 150 times revenue.

Now let’s look at net income (loss) :
In 2013 they lost $6 million
In 2014 they lost $42.6 million
In 2015 they lost $101.6 million

How about 2016?
In the first three quarters they lost $43 million, $64 million, and $74 million, for a rough total of $182 million, so far. Estimates for the fourth quarter are for losses of $88 million, which would bring losses up to $270 million for the year. That’s more than $5 per share, and more than 10% of their market cap, and a lot to make up in order to break even.

If they get approved, how soon will they start making money?
Well, they are planning a “controlled” launch that will likely rely on using medical experts to educate hospitals and cancer centers about the new technology. They had originally planned to file before the end of 2016, but delayed filing to the beginning of 2017.

This is a complicated treatment, and not like giving a pill or injection. It requires that a patient’s cells be withdrawn, infused with an antigen, and then re-injected back into the patient. This is not an ordinary launch. It’s not like launching an ordinary medicine into the market.

This is the first CAR-T therapy to reach the market. It will require new marketing tactics. There’s going to be a learning curve and they will go slow to make it a positive learning curve. They plan to initially target institutions that are already familiar with the CAR-T administration process. The slow rollout is meant to be a form of quality control. That launch will target 72 institutions, including clinical trial sites, national cancer hospitals, and cancer care network centers.

This controlled and educating launch, enlisting and training medical experts, and using them to educate hospitals, will raise expenses and will balloon losses in 2017 (if they get approved) from $270 million to how much? $400 million? $500 million? I haven’t a clue. Hospitals will probably be activated only a few at a time, and each will try a new treatment out on just a few patients to start with, to avoid unpleasant surprises. Revenue will be trivial at first, and won’t come anywhere near covering those losses. The way I see it, chances of the stock price tripling in price in 2017 are infinitesimally small. Investors will be looking for hiccups in the launch and evaluating chances for a path to break-even.

think approval by the FDA is already largely baked into the price, given the manageable side-effects and the high rate of improvement. I think they will be approved, and that the company will eventually be successful, but an FDA delay is certainly possible.

I would take a tiny position, maybe 0.5%, but under no circumstances over 1.0%.

PS - In their presentation they say that from when they start they will activate 20 centers in the first three months, and it will be 12 months before they have their initial 72 centers up and running. That means that it will really be a while until they are really up and running with revenue.

I discover that I was using GAAP losses and the non-GAAP losses were a little less:

Non-GAAP net loss for the third quarter of 2016 was $54.7 million, or $1.10 per share (which excludes non-cash stock-based compensation expense of $19.3 million).

Cash burn for the third quarter was $54.0 million.

It is expected that our cash, cash equivalents, and marketable securities of $477 million as of September 30, 2016 will be sufficient to fund its current operations through the first half of 2018.

It’s encouraging that they have that much cash, but discouraging that they don’t expect it to carry them through to break-even.

Feb 2017 Seeking Alpha article by Keith Glantz

There is an aspect of Kite that traders and analysts have been ignoring, and it could work significantly in favor of those that are long Kite shares: the number of shares held short. Short interest in Kite is a whopping 9.65 million shares, which is an enormous 22.5% of the float. Days to cover stands at 10 days.

The explanation for such a high short interest number is obvious. Some traders are betting against the success of Kite and its KTE-C19 CAR T. Looking for alternative explanations for such a high short interest number falls flat.

In fact, there is an enormous bet against Kite’s stock price. But why, and is this a good bet? Certainly, one can understand the negative opinions swirling around the entire pharma sector, given the negative tweets from Trump regarding drug pricing. However, he has started to show awareness that there is a huge difference between the companies who depend on raising the prices of old established medicines, and those whose innovative R&D leads to new treatments and cures for killer diseases. Kite is on the cutting edge of innovation. The Administration will most likely take a more hands-off approach to pricing controls on innovators like Kite.

Trump even hinted at wanting drug companies to raise prices overseas to soften the blow of lower prices in the U.S. While this would be difficult for companies that have already existing contracts with European health systems, Kite will be able to negotiate from scratch in their dealings with Europe. Also, Kite is based in the US, with its only manufacturing facility in California.

More likely, the large short interest in Kite is a straight bet against good 6-month follow-up data to their encouraging 3-month data on their ZUMA-1 study of KTE-C19, or a bet against FDA approval sometime in 2017. The ZUMA-1 study showed that 39% of patients were in complete remission at the 3-month mark, with subgroups within that population having even better outcomes. When the 3-month data was released, some traders latched onto news that 3 patients in the study died, and incorrectly interpreted this as approval-killing news. Panicked selling ensued, helped along with end-of-year tax selling and a more uncertain outlook for the industry as a whole.

What was overlooked in the panic was the very respectable complete remission rates, and life-prolonging effects of this treatment on patients whose prognosis without KTE-C19 was bupkis. The stock is now back close to where it was before the 3 month data was released. And day traders, whose bias has been to try to work the stock down, are now being met by large institutional purchasers.

The same selloff is unlikely to repeat itself when the 6 month data is released. Even if the CR rate drops some (as expected in trials such as this), as long as the side effect profile remains manageable and many more people’s lives are prolonged, the prognosis for approval remains intact.

If the FDA does not approve KTE-C19, the shorts will be handsomely rewarded, as the stock may drop to around $25 or so from $52 today. Evidence of this magnitude of decline can be seen studying Juno, which dropped from $40 to $20 when they abandonned their main candidate. I assume that a non-approval of Kite’s KTE-C19 would lead to a similar selloff. This is a worst-case scenario, but I’m giving the shorts the benefit of the doubt.

But there is a strong argument that betting against Kite is a poor bet. I think the odds favor approval, given the strong relationships the CEO, Arie Belldegrun, has with government agencies and personnel; his know-how to navigate the approval process; the smart build-out of delivery infrastructure (which the FDA weighs in its approval deliberations); the encouraging life-prolonging data so far revealed; and the pole position KITE maintains in the CAR-T space.

Even if you give no more than a 50-50 chance of approval, there is a strong argument that betting short is still a bad bet. The valuation of KITE is very low. Is there anyone that doubts a large pharma company that wants to improve its oncology offerings would pay at least $5 billion in a buyout for an innovative oncology company that is first to market with a game-changing medicine with annual sales that could peak at $1 Billion to $2 Billion, according to The New York Times, and whose pipeline promises other applications for KTE-C19, and other novel cancer treatments?

If there is a buyout at $5 Billion, the stock price could be $100, a nearly $50 move from here. If the FDA doesn’t approve KTE-C19, the stock will drop, and could get cut in half, a $25 move down. Even if you assign a 50-50 probability of each outcome (which is extremely generous to the shorts), which side do you want to be on?

While prognosticating the outcome of a regulatory approval is very difficult, there is enough evidence so far to make betting on a higher stock price for Kite a sound bet. Disclosure: I am long KITE.

Feb 2017 - Wells Fargo initiates coverage on Kite Pharma and Juno with Outperform ratings.

Feb 2017 – Dec quarter results
In a separate announcement today, we issued positive topline results from the primary analysis of the ZUMA-1 study of axicabtagene in patients with aggressive non-Hodgkin lymphoma (NHL). Kite continues to expect completion of its rolling submission of a Biologics License Application (BLA) to the FDA for axicabtagene (KTE-C19) for the treatment of aggressive NHL by the end of the first quarter, with potential approval and commercial launch in 2017.

"The accomplishments, leadership additions to the company, and performance of Kite during 2016 put us in a position of strength as we prepare to potentially deliver the first CAR-T therapy for aggressive NHL to patients later this year. Beyond axicabtagene, we have taken important steps to expand our global footprint and pipeline of cell therapy candidates. Through our recently announced strategic collaborations with Fosun Pharma and Daiichi Sankyo, our plans for submission and potential launch in Europe, and ongoing clinical studies of axicabtagene, we look ahead to an increasingly strong future.”

Financial Results
• Revenues were $4.9 million for the quarter and $22.2 million for the full year.
• R&D expenses were $59 million for the quarter, which includes $9 million of non-cash stock-based compensation expense. For the full year of 2016, research and development expenses were $198 million, which includes $35 million of non-cash stock-based compensation expense.
• G&A expenses were $32 million for the quarter, which includes $11 million of non-cash stock-based compensation expense. For the full year, they were $97 million, which includes $39 million of non-cash stock-based compensation expense.
• Net loss was $85 million, or $1.70 per share, for the fourth quarter of 2016. For the full year of 2016, net loss was $267.1 million, or $5.46 per share.
• Non-GAAP net loss for the fourth quarter of 2016 was $65.2 million, or $1.31 per share, excluding non-cash stock-based compensation expense of $19.7 million. For the full year of 2016, non-GAAP net loss was $193.5 million, or $3.95 per share, excluding non-cash stock-based compensation expense of $73.6 million.
• As of December 31, 2016, Kite had $414.4 million in cash, cash equivalents, and marketable securities. In January 2017, Kite received a $50 million upfront payment from Daiichi Sankyo related to the recently announced strategic collaboration in Japan.
2017 Financial Guidance
• Kite expects full year 2017 net cash burn to be between $325 million and $340 million, which includes approximately $30 million in capital expenditures but excludes cash inflows or cash outflows from business development activities, if any, and excludes planned upfront payments totaling $90 million from recently announced strategic collaborations in Asia.
• As previously announced, Kite expects to have sufficient cash resources to fund its current operations, including planned clinical development programs, through the first half of 2018. This projection excludes cash inflows or cash outflows from future business development activity, if any.

2016 Highlights
Axicabtagene Ciloleucel/KTE-C19 Progress
• Presented positive interim results from the ZUMA-1 Phase 2 study of axicabtagene ciloleucel in aggressive NHL in a late-breaker oral presentation at the 2016 American Society of Hematology (ASH) annual meeting.
• Reported a Phase 1 update from the ZUMA-3 and ZUMA-4 trials of KTE-C19 in adult and pediatric relapsed/refractory acute lymphoblastic leukemia at the 2016 ASH annual meeting.
• Initiated ZUMA-6, a Phase 1b/2 study of axicabtagene ciloleucel in combination with the checkpoint inhibitor atezolizumab in patients with chemorefractory diffuse large B-cell lymphoma (DLBCL) in collaboration with Genentech.
• Presented results from SCHOLAR-1, the first patient-level pooled analysis of outcomes in chemorefractory DLBCL, providing an important historical benchmark for studies of the disease.

Regulatory Milestones
Initiated BLA rolling submission to the FDA for axicabtagene ciloleucel in December 2016.
Received Orphan Drug Designation from the FDA for KTE-C19 in the treatment of five additional B-cell malignancies, granting Kite the designation for the major indications in hematologic malignancies in the US. KTE-C19 also has Orphan Drug Designation in the EU for these indications.
Received Priority Medicines (PRIME) status from the European Medicines Agency for KTE-C19 in the treatment of chemorefractory DLBCL.

Axicabtagene Ciloleucel Commercial & Manufacturing Readiness
Achieved 99% success rate in the manufacturing of clinical product patient dose from a single apheresis for the multi-center ZUMA-1 clinical trial.
Marked the official opening of Kite’s commercial manufacturing plant, a state-of-the-art facility in El Segundo, California estimated to have the capacity to produce more than 4,000 patient therapies per year.
Initiated development of Kite Konnect™, a cloud-based solution for commercial-scale ordering, logistics, monitoring and delivery of T-cell therapies, designed to enable a positive prescriber and patient experience.

Pipeline Expansion and Developments
• Submitted an investigational new drug (IND) application for KITE-718, a TCR product candidate that targets MAGE-A3/A6 antigens expressed on solid tumors.
• Initiated plans to file an IND application in 2017 for KITE-585, a CAR product candidate targeting B cell maturation antigen (BCMA) for multiple myeloma.
• Initiated plans to file IND applications in 2018 for KITE-796, a CAR product candidate targeting CLL-1 in acute myeloid leukemia (AML), and for KITE-439, a TCR product candidate targeting human papillomavirus (HPV)-16 E7 for cervical cancer, head and neck cancer, and other solid tumors.

Strategic Collaborations
• Entered into a new Cooperative Research and Development Agreement (CRADA) for the development of a fully human anti-CD19 CAR product candidate to treat B-cell malignancies with the National Cancer Institute (NCI) .
• Licensed intellectual property related to a fully human anti-CD19 CAR to treat B-cell malignancies from the National Institutes of Health (NIH)
• Expanded the TCR portfolio by licensing intellectual property from the NIH related to multiple TCR product candidates for the treatment of solid tumors expressing mutated KRAS antigens.
• Entered into a new CRADA for the development of TCR product candidates directed against HPV-16 E6 and E7 for the treatment of HPV-associated cancers with the NCI.
Licensed a technology platform from the University of California, on behalf of the University of California, Los Angeles, for the scalable production of T cells using pluripotent stem cell lines capable of indefinite self-renewal and designed to overcome limitations of current allogeneic approaches.
• Partnered with Leiden University Medical Center to develop TCR product candidates targeting solid tumors associated with HPV-16 infection.

Mar 2017 – Seeking Alpha Article - 6-month data allay the worst fears for Kite
With six-month data from the Zuma-1 study, KTE-C19 today moved a step closer to becoming the world’s first CAR-T project. Whether it does so depends on the FDA, but Kite now has a dataset that looks strong enough to be filed, and which shows “durability”.

It was durability that was the main unknown at three months’ follow-up, so the fact that at six months there is no significant fall-off in remission is a major finding. That said, given the safety fears swirling around all CAR-T projects, perhaps the most important point is that no further suspicious deaths were seen at six months.

Previously Kite spelled out three deaths that were not due to disease progression, two of which were deemed a result of meds. This is still the case, and today Kite was able to boast that serious cytokine release syndrome dropped from 18% at three months to 13% at six, with neurological events falling from 34% to 28%. This is likely thanks to doctors becoming more used to handling the side effects of CAR-T therapy, and implementing recently discussed mitigation strategies.

There were no cases of cerebral oedema, Kite said, clearly referring to Juno’s competing medication, whose pivotal study is on hold owing to deaths from this adverse event. Kite intends to complete its rolling US filing in March, and says the full Zuma-1 data will be presented at an April meeting.

Complex design - Analysis of Zuma-1, a trial in various types of lymphoma, is not helped by its complex design.

With durability holding up at six months the question of whether ORR of just under 40%, and a complete remission (CR) rate of just over 30%, are good enough will be down to the regulator.
In Kite’s favour is that, while some patients relapse, others might take a while to go into remission: one of four partially responding patients at six months improved to a complete remission three months later, Kite said.

Four CR patients did not have a six-month tumor assessment and are thus classified as non-responders, but clearly might be counted as CRs later, improving the data. The AACR presentation might also include 10 patients who have received a second treatment with KTE-C19.

While the safety and efficacy results look sufficient for filing, cost is a separate consideration. Kite said it had already had talks with payers.

Of course, the FDA could raise additional questions about data analysis or about the still relatively unreliable method of manufacturing CAR-T cells. And Kite must separately contend with ongoing legal action by Juno concerning a claim that Kite infringes a Juno patent; an inter-parties review on this has already favoured Juno.

That said, Kite investors today breathed a sigh of relief, and its stock opened up 16%. Now it is over to the FDA.

Mar 2017 – Offering of 5.5 million shares at $75.
Kite today announced the pricing of a public offering of 4,750,000 shares at a price to the public of $75 per share. It is expected to close on or about March 7. In addition, the underwriters purchased an additional 712,500 shares.

Mar 2017 – Seeking Alpha Article by Value and Risk
Kite flying high for now, but huge risks remain

KITE is flying very high in hopes of a market launch of its CAR-T therapy in 2017 or of becoming acquired.

Study results seem very promising, but hopes for CAR-T have been crushed in the past.
While its lead candidate certainly is extremely interesting, the stock remains highly speculative.
Kite is one of the hottest names in biotech right now, and more specifically, in the field of cancer immunotherapies. In simple words, KITE is trying to help the patient’s immune system to recognize and kill tumor cells. The very core idea is different from other cancer treatments like surgery, radiation or chemotherapy.

Lately, there has been much enthusiasm about KITE and its CAR-T therapy, after results of the clinical trial were released on Feb 28th. The stock is up more than 50% since then. The CEO did not even attempt to slow down the enthusiasm and called the CAR-T program one of the biggest breakthroughs in cancer therapy since the start of combination chemotherapy more than 60 years ago." If so, shouldn’t every investor jump on the bandwagon as soon as they can?

This article attempts to look at the risks that could hurt KITE’s plans to launch the treatment in 2017.
So, what’s all the fuss about?

First of all, what exactly does CAR-T therapy actually mean? The CAR is for Chimeric Antigen Receptor, and the T is for T cells.

KITE is trying to harness the power of the patient’s own immune system. Its lead candidate, on which basically all hope in Kite is pinned, is called axicabtagene ciloleucel. To describe what the treatment does, let me rely on KITE’s own words:

… patient’s T cells are engineered to express a chimeric antigen receptor (CAR) to target, a protein expressed on the cell surface of B-cell lymphomas and leukemias (the antigen CD19), and redirect the T cells to kill cancer cells.

The T cells of the patient are modified to target cancer cells by “adding” a CAR to the T cells, which then binds to a protein that is specific to cells of B-cell lymphomas and leukemias.
While the trial was conducted with 101 patients who suffered from different types of aggressive non-Hodgkin lymphoma (diffuse large B-cell lymphoma, primary mediastinal B-cell lymphoma, and transformed follicular lymphoma), KITE is conducting similar trials for a number of other indications, which include chronic lymphocytic leukemia, mantle cell lymphoma, and acute myeloid leukemia.

So basically, the enthusiasm around the recent data is not only grounded in a new way to fight specifically aggressive non-Hodgkin lymphoma, but also in the hope to fight a whole number of different types of cancer with this immunotherapy approach - an approach, which created high hopes and much disappointment last year, when competitor JUNO had to stop its trial after patient deaths.

In KITE’s trial, three patients died and two of those deaths were felt to be related to the treatment. As this was known since summer 2016, and no additional deaths occurred between then and now, the focus of investors and analysts for now, naturally, went to the “no additional deaths” part of the news. Also response rates were very impressive in the primary analysis. 82% percent of the patients showed a partial or complete response after only one infusion:

The study met the primary endpoint of objective response rate (ORR), (complete response + partial response) after a single infusion of 82% (p < 0.0001). Saul’s Note: a p < 0.0001 is enormously statistically significant. It means there was NO chance that this was a random result. It means the medication WORKS. This issue’s that remain are side effects, costs, patents and practicalities!
In fact, 36% percent of the patients had a complete response after 6 months and a single infusion, which was communicated with much enthusiasm by KITE:

“These results with axicabtagene ciloleucel are exceptional and suggest that more than a third of patients with refractory aggressive NHL could potentially be cured after a single infusion of axicabtagene ciloleucel.”

This now gives hope to patients for whom every other treatment failed. The prospect of treating (or even curing) the disease with a single infusion truly sounds astonishing. Please note that I am not a medical professional and there are certainly much, much better places to learn more about how the treatment works in detail but the numbers so far sound quite promising. But of course, an investor never should get too excited about a company. So let’s continue to what might still be in the way for KITE

Competition and other barriers
For quite some time, Juno has been viewed as a main competitor in the race to bring CAR-T to the market. However JUNO’s trial was put on hold after patient deaths last year after also showing promising results. What remains true is that KITE certainly is not alone in the CAR-T field. While they might be quicker to the market than JUNO, competition might enter the market sooner than KITE hopes.
Also, JUNO’s recent setback shows how quickly one can go “from hero to zero” in this field. Novartis is also in the CAR-T field. While they might have been a little bit late to the game, they potentially have vast resources at their disposal to compete with the two much smaller biotech companies. Competition therefore remains fierce and Kite can’t rely on being the sole provider of CAR-T treatments.

Another risk on KITE’s way to the market lies within a patent dispute with JUNO. More specifically, the patent in question protects CAR products containing a CD28 sequence, something which also has been employed by KITE. For now, KITE of course remains rather optimistic in public:

“However, Kite continues to believe the patent to be invalid and plans to appeal the USPTO decision. This patent does not have any counterpart patents outside of the United States. The decision will have no impact on the timing of the rolling submission or review of the Biologics License Application for Kite’s lead product candidate, axicabtagene ciloleucel”

So, while KITE still regards the patent in question as invalid and the patent only protects the CD28 sequence in the U.S., a significant legal risk remains. In fact, JUNO is now suing KITE, which might make life even more difficult in the future:

Also, not everybody in pharma/biotech sector is really enthusiastic about the kind of CAR-T therapies which KITE is offering. The CEO of Gilead), for example, was rather skeptical about the new approach.
“It’s a very labor-intensive kind of business …It is projected to be quite expensive and is more akin to a bone marrow transplant, with a lot of supportive care and hospitalization costs, and those are the sorts of things that make me nervous.”

Basically he’s saying that the treatment potentially isn’t very economic because of the high costs. While it is true that this kind of individualized therapy “sounds” more expensive for the provider than conventional therapies, nobody really knows what the price will be when launched.

So far, KITE cannot stress enough that the responses in the trial occurred after one single infusion of the engineered T cells. While cancer most likely never will be cured quickly, CAR-T could be somewhat of a game-changer when it comes to the duration of the treatment. But it will take more time, and more data, to really assess that. After all, the recent study showed great results and a study with 101 certainly is not negligible, but axicabtagene ciloleucel wouldn’t be the first “next big thing” that failed after initially promising results.

At this point everything about the pricing of the new therapy is wildly speculative. Kite feels that a true breakthrough should come with a fair price to the provider. It’s not the same as a new drug that is just “a little bit better” than the existing ones. But for now, we can only work with uncertain assumptions.

Launch - Naturally, KITE can’t wait to bring it to the market. The therapy is developed under breakthrough status of the FDA and therefore might be marketable sooner than some expect.
“Axicabtagene ciloleucel has been granted Breakthrough Therapy Designation status by the FDA, and Priority Medicines (PRIME) status in the EU.”

So, let’s assume all goes well and the treatment hits the market in 2017, as KITE hopes. It would certainly create a major hype and the stock price would most likely rise even further. KITE has already opened a large plant near LAX Airport. Kite feels the facility should enable it to treat 4,000 to 5,000 patients per year. The patients would not have to travel to California for treatment.

KITE is partnering with Vitruvian for a software solution will connect KITE with hospitals that offer the treatment (treatment centers), physicians, and patients. The goal is to streamline the logistics that come with the process of providing patients with the engineered T cells. KITE estimates that the “vein to vein” time would be about 16 days. This includes apheresis, manufacturing, the transportation processes and infusion.

I stated above that pricing at this point remains wildly speculative. Therefore, I cannot stress enough that the next couple of sentences come with a wide margin of uncertainty. If we look at how aggressive NHL is treated now, KITE’s therapy would probably be priced in the six-figures, which might cause some resistance at the beginning because marketing a “one infusion treatment” with a price greater than $100,000 might raise a few eyebrows at first.

This will depend on how good KITE is at selling the CAR-T treatment as a major breakthrough that truly is different from anything else. If we would assume an initial low six figure price that would most likely bring us to revenue in the hundreds of millions, but not billions, with 4,000 to 5,000 patients per year.

But KITE is thinking even bigger. The facility near LAX airport is scalable due to its modular design. Also, partnerships for commercialization of the treatment are already initiated with Fosun Pharmaceutical in China and Daiichi Sankyo in Japan, big potential markets, which would not even be affected by the patent issue.

Therefore, if everything goes well (and that is a big “if!”), revenue could go up to multiple billions, depending on how quickly Kite can to expand capacities. The current market cap of around 4.6 billion would most likely go up to double-digit billions (if nobody acquired it before).

Again, this whole section has been extremely speculative. The point is that even though the stock has risen greatly over the past days and weeks, there still is enormous upside potential for KITE.

Risks and Conclusions
While enthusiasm is high right now, more clinical data is still needed. At this point, it is still not safe to assume that the CAR-T treatment will get to the market soon (or even at all). Pricing is still very uncertain. The process most likely will be quite expensive for the provider of the treatment. Personally, however, I consider this only a minor risk, because a true breakthrough in cancer treatment most likely would not fail because people wouldn’t pay for it. Also, the above-mentioned patent issue remains unresolved. This creates another risk, which should be considered before buying the stock.

Personally, I am long KITE. I am well aware of the risks that surround the company, but clinical data looks very promising and I regard the whole concept of the CAR-T technology basically as already proven. In my opinion, it is more a matter of WHEN (not IF) the technology hits the market and WHO becomes the market leader. KITE is well positioned for a potential launch even in 2017. Of course, nobody knows how future clinical data will look. But given the recent results, KITE for now might just be one step ahead of its competitors.

At the end of the day, KITE - like many biotech companies - still provides the potential investor with both a substantial upside potential, but also a large amount of risk. If it is correct, its new product might just be a blessing for shareholders - but much more importantly, for patients too.
Please note, that I am new to Seeking Alpha and this is my first contribution. Therefore, any feedback is highly appreciated.

Mar 2017 – National Cancer Institute study in treatment-resistant non-Hodgkins lymphoma builds on successful ZUMA-1 study of axicabtagene ciloleucel by showing durability of response.
National Cancer Institute led study assessing a single dose of anti-CD19 CAR T-cell therapy in 22 patients with refractory or relapsed non-Hodgkin lymphoma (NHL). The data were just published in the Journal of Clinical Oncology.

Objective response (OR) rate was 73% (n=16/22) and the Complete response (CR) rate was 55% (n=12/22).

In patients with aggressive B-cell NHL, OR and CR were 68% and 47%, respectively.
Duration of responses ranged from more than seven months to more than 24 months, with 11 of 12 (92%) complete responders still ongoing.

Reversible grade 3 (severe) or grade 4 (life-threatening) neurotoxicity was observed in 55% (n=12/22) of treated patients.

The results build on the successful Phase 3 ZUMA-1 trial of axicabtagene ciloleucel that showed 36% CR and extended survival.

Saul’s final observation: With the results of the National Cancer Institute study, I believe it would be inconceivable that the FDA will not approve this medication for the treatment of these otherwise hopeless cases. Just to allow for something out of the blue, let’s say a 95% chance of approval. The question then becomes the economics, patent issues and practicalities.

As stated previously, I considered this play-money speculation when I started this investment. With the huge rise in price, and some additional tiny investments, it has grown into a 2% position. I realize it can swing widely and if it drops in half, so be it. It seems obvious to me that it is in the public interest that this succeeds and my guess is that it certainly will.

Saul

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Saul,
Thank you for a comprehensive, detailed, in-depth collection of information regarding KITE; as well as your analysis and conclusions. I deeply appreciate the posting of your due diligence, that alone is learning experience.

I replied on a previous thread (post 25995 I’m pretty sure) so I won’t re-post here.

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From Reuters after Friday’s close:

** Kite Pharma, Canadian National Railway, Consol Energy & USG among stocks that saw largest dips in short interest as a percentage of float, per S3

I guess even the shorts gave up the pessimistic view after those two studies reported. And what impresses me is that there weren’t new shorts putting on new short positions even after the run-up to $84.

Saul

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Saul most of the posts I saw were directed at the results of one drug study not necessarily at KITE the company. Unless I was young and otherwise healthy I doubt if I would take it.

Drug research is a crapshoot, each increase or decrease in “sureness” is instantly public knowledge. It is hard to find an edge. When you do get a big winner it is more likely luck than skill. I say that despite the fact that a biotech stock (DNDN) was my biggest monthly winner ever.

I have long suspected that at some point in the future our “somewhat selective poisons” approach to cancer will be seen as barbaric, most therapy will be immune based and dependent on the genetic makeup of that particular tumor in that particular person.

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