Of Kite and Blue and Juno

I will preface this with the last immunological cancer drug that went to market as individualized medicine went bankrupt because the $90k per treatment and the inability to scale up production were never overcome.

This said, as Saul said, KITE and the other CAR-T companies have a product that is much more effective. Not perfect though.

As an example, this entire drug class could be disrupted in the next 5 years. I direct you to Cellectis, a CAR-T company, just went public, out of France. Not getting a huge IPO, went out with $100 million, think they may have only got $56 million or something like that, I didn’t bother to look at the details.

They have produced the first patient treated with their drug, who is basically cured, although duration of cure is of not known yet, but their CAR-T does not involve the enormously expensive process of the companies we have been looking at. They used what is described as “off the shelf” materials with a more sophisticated DNA process, obtaining the biological aspects from healthy volunteers (and not the individualized patient).

They have produced 1 patient so far, in phase 1, but so did KITE and BLUE and JUNO. We shall have to watch this. It is one indication, but if this indication holds up, and others are brought forward, it would be disruptive to all of these companies and wipe out (if all came to fruition) the entire technology as too cumbersome when it can be done so much simpler.

TBD. For now, not a big deal, but the biotech market is utterly brutal, and the investors more knowledgeable about the industry than any other segment of investing I have ever invested in. Thus, if Cellectis and its ilk can really do what they aim to do (and that is no where assured), the prices of the current leaders in CAR-T will be impacted because their CAP will be dramatically reduced.

But that is not to be worried about now, just watched.

In regard to Juno…sorry Fool, but you should have recommended KITE, not Juno. Not because Juno’s drug turned out to be literally a killer drug, but the way management behaved, and who management is. Much of management at the company comes from the heretofore described and now bankrupted Dendreon. That is enough to make me want to steer clear. Second, the way they handled this issue was utterly callous and self-serving. Juno is not dead by any means. They have a pipeline that can in a reasonable period of time still prove valuable, and Celgene invested more than $1 billion in them (holy moly! right! Yes, but as we have seen big biotechs are often wrong in their partnership selections - e.g. Exelixis only drug, was abandoned by its partner - worked out good for Exelixis), but that does speak to the probability of Juno’s remaining pipeline drugs as legitimate.

As to BLUE, now this a company not spoken of here, but seems like a special company to me. Their cancer drug, that has a 1 year or more lead on the competition (including KITE for the indication) is partnered with Celgene. This drug has a counterpart in China, that in even larger early clinical studies, worked exactly as the U.S. trial have for BLUE. Indicating, from two sources, that this drug is the real thing, it has killed no one to date (little more than 50 patients treated + those in the current approval trial). Absent some Juno like events, and Blue has so far produced the safest of the CAR-T drugs, and it has the Chinese counterpart (not associated with them) as back up, this is an approvable drug that will change the treatment landscape.

Problem for BLUE here. I have seen this problem before as well. They can share 50/50 in the expense and the profits for this drug worldwide, except, as KITE is finding, it is tremendously expensive to make this drug at any scale. Will there even be any profits?

Look, we are all use here to our companies (like SHOP) building out for the long-term, and suffering losses. But here, BLUE and Celgene will need to spend millions if not a billion (I don’t know, hopefully just in the millions) to build out infrastructure to produce this drug at scale. In that process who knows how expenses will be calculated, depreciated, etc., it could be years before there are actually any PROFITS. With no profits, BLUE gets no money, as there deal specifies PROFITS. I assume Blue negotiated this with this in mind (as it is not an uncommon term in these partnerships) but it really takes hold in the circumstances of this drug class).

As such the stock will rocket as this drug moves to clinical, but it may have issues when they actually go to sell this drug.

BLUE already has the follow up to this drug, and improvement, in clinical as well.

BLUE has two other drugs that are valuable. The first fights an awful disease affecting kids, but is worth maybe $200 million at peak sales when approved. It may prevent any further, or minimize any further need to do a secondary. So good there, but won’t move the needle. This drug is likely to be approved in the next 2 years or so. It is not perfect safety wise, but with these kids…they will take it.

The other drug attacks two different blood indications, the largest of which is sickle cell anemia. And it works! Like with the cancer aspects, it works in a manner that may be an actual cure for many of these people who otherwise have poor prospects. And this indication is multi-billion per year. Perhaps as large as their current market cap alone. As with all studies in this drug class, the studies have been small, but amazing. If the drug holds up like it has so far, this will be a multi-billion blockbuster.

It does have a competitor, Global Blood Therapeutics, who has an interesting drug that is not a cure, but a long-term treatment that unlike the 6 figures or more (some have suggested 7 figures) for the treatment by BLUE, will cost maybe $60-$70 per day, and is a one time per day pill. If this treatment works well (and I have not been able to ascertain the degree of benefit as most of the talk on this drug involves clinical issues that demonstrate its efficacy rather than real world symptom discussion) it will be a breakthrough drug for this indication, and make it more difficult to get reimbursement for the much more expensive (but possible actual cure) for this indication.

Either way though, it should not impact BLUE that much, because like with KITE, there are only so many patients that they can currently service each year and this indication has tens of thousands of patients in need. So kind of like Tesla, they will be able to sell all they can produce as the market is so large to begin with.

The good thing for BLUE with this latter indication is that the CAP should be very long as there are presently no other alternatives in the clinic that I am can find, and most everyone likes to focus on oncology. Plus, unlike with the Celgene deal, they will own the worldwide rights. But again, the cost of building out the infrastructure to produce this at scale…

KITE. Honestly, I have not looked that close at KITE yet. I don’t really have to. KITE has an approvable drug. KITE has a great drug. Kite’s drug is likely to be approved. Kite’s market cap reflects that.

Many of the issues that I discussed with Blue impact KITE. I calculated at $300k per treatment, that KITE’s present (or anticipated) capacity for production will at peak limit them to $1.5 billion in revenues. And as we know, factories cannot produce at 100% capacity. It just does not work that way. KITE will need to grow their production facility (and they are on record specifying their current facility can be more than doubled). So there is enough TAM to justify KITE post-approval.

And KITE has many more indications to attack with this drug. I did not look into these indications or where they are on the clinic, but keep in mind that although an approved drug can be used for any indication once approved, insurance will almost never cover the drug for a new indication until FDA approval (although clinical journal publication can be used to help get reimbursement). At $300k, I bet KITE can get sufficient insurance coverage to move its production capacity. At $600k…less optimistic. Yes, other orphan type drugs at even more than $1 million per treatment have obtained coverage in the past, but we are talking much higher volume here. So TBD.

But take away is the TAM is there for KITE to succeed. Success by Cellectis (just something to watch) could change the entire prospects and perception of this market, so don’t think there are not long-term risks once approved. KITE has gotta be able to maximize their production capacity.

That is a sufficient low down for me to decide on if I wish to invest or not. My inclination is to lean towards BLUE because of its blood program, and because its myeloma program seems lower risk (even though it has the “profit” problem that I earlier described (potentially), and perhaps combine that investment with KITE.

Or, as Duma suggests, maybe I should just buy some VEEV again and not have to think so much.

Off to cycle.



Tinker, I join the others in thanking you for your roll-up of the major CAR-T competitors, including Cellectis (CLLS). Cellectis has been public in its native France since 2007, and did its NASDAQ IPO (ADR shares) in 2015. The recent (July) IPO was a partial spin-off of its plant research subsidiary Calyxt (CLXT).

My understanding is that it started off in business to market its gene-editing technology, TALEN. This initial business phase was largely disrupted by competition with the newer and more economical CRISPR gene-editing. But, it still uses TALEN for its in-house gene editing of its own CAR-T products.