[Ip-health] Background on Kite Pharma IPR from the 2016 10-K report

James Love james.love at keionline.org
Thu Oct 19 05:51:41 PDT 2017


There is a lot of information in the various Kite Pharma 10-K reports.
This is the section on "Intellectual Property" including Notes 6 and 13
from the Financial reports.

Kite spent a fair amount of money acquiring rights to IPR from third
parties.

Jamie
​

https://www.sec.gov/Archives/edgar/data/1510580/000151058017000003/kite20161231-10k.htm

FORM 10-K
KITE PHARMA, INC.

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016


Intellectual Property

Intellectual property is of vital importance in our field and in
biotechnology generally. We seek to protect and enhance proprietary
technology, inventions, and improvements that are commercially important to
the development of our business by seeking, maintaining, and defending
patent rights, whether developed internally or licensed from third parties.
We will also seek to rely on regulatory protection afforded through orphan
drug designations, data exclusivity, market exclusivity and patent term
extensions where available.

To achieve this objective, a strategic focus for us has been to identify
and license key patents that provide protection and serve as an optimal
platform to enhance our intellectual property and technology base. Well
before the field of adoptive T cell immunotherapy raised commercial
interest and started its transition to an industrial environment, we
initiated a process of identifying patents with broad coverage in the area
of CARs. Between 2009 and 2013, we identified, and ultimately licensed,
issued patents with broad claims directed to the CAR concept. These patents
were originally filed by investigators at the Weizmann Institute of
Science, the National Institutes of Health, or NIH, University of
California San Francisco, or UCSF, and Cell Genesys. This process was
finalized in December 2013.

This effort was paralleled by the creation and execution in August 2012 of
our first CRADA. This agreement provides the framework under which we may
license product-related intellectual property from the NIH to support our
pipeline development and commercialization activities, as well as enhance
and extend the life-time of our patent portfolio.

Our intellectual property estate strategy is designed to provide multiple
layers of protection, including: (1) patent rights with broad claims
directed to core CAR constructs used in our products; (2) patent rights
covering methods of treatment for therapeutic indications; (3) patent
rights covering specific products; and (4) patent rights covering
innovative manufacturing processes, preconditioning methods, new constructs
and methods for genetically engineering T cells.

We believe our current layered patent estate, together with our efforts to
develop and patent next generation technologies, provides us with
substantial intellectual property protection. We have conducted extensive
freedom to operate, or FTO, analyses of the current patent landscape with
respect to our lead product candidate, and based on these analyses we
believe that there are no valid claims in any third party patents, which
would prevent our ability to commercialize KTE-C19. However, in an inter
partes review, or IPR, proceeding, the U.S. Patent and Trademark Office, or
USPTO, Patent Trial and Appeal Board declined to revoke a patent relating
to certain CAR compositions of matter that we believe is invalid. This
patent is owned by Memorial Sloan Kettering Cancer and Sloan Kettering
Institute for Cancer Research, or MSK, and licensed by Juno Therapeutics,
Inc., or Juno. Juno and MSK filed a patent infringement lawsuit against us
on December 19, 2016 in the U.S. District Court of Appeals for the District
of Delaware with respect to the MSK patent. We filed a Notice of Appeal to
the IPR decision on February 16, 2017 and, on February 23, 2017, we filed a
motion to dismiss the Juno and MSK lawsuit. While we believe that we have a
meritorious basis for asserting that the MSK patent is invalid, patent
litigation is full of uncertainties, and we cannot provide any assurances
that we will prevail in these proceedings. For additional information on
the lawsuit, see "Risk Factors-Third-party claims of intellectual property
infringement may prevent or delay our product discovery and development
efforts" and Note 11 to our financial statements appearing elsewhere in
this Annual Report.

Our current patent estate includes an exclusive license to a patent
portfolio owned by Cabaret Biotech Ltd., or Cabaret, and directed to CAR
constructs developed by Dr. Zelig Eshhar, Yeda-Weizmann, NIH, UCSF and Cell
Genesys. Our CAR construct-directed patent portfolio includes 10 issued
U.S. patents, seven of which are directed to core construct composition of
matter and two of which are directed to methods of treatment for
therapeutic indications. These patents first began to expire in April 2015,
with the last of these patents, which broadly claims scFv-based CAR
constructs and is also our most significant CAR-related patent, expiring in
2027. The patent expiring in 2027 and one of the other licensed patents is
subject to an ex parte reexamination before the USPTO, which may result in
such patents being cancelled, narrowed or held unpatentable. These patents
represent all of the material patents underlying KTE-C19. We are working to
develop the next generation of CAR and TCR technologies for use in this
field, which we intend to patent on our own or to license from our
collaborators, to expand this layer of our intellectual property estate.

The identification of new technologies and initiation of the exclusive
licensing process occur under the framework of the CRADAs between us and
the NIH. Since entering into the first CRADA in August 2012, we have
secured multiple commercial license agreements with the NIH for
intellectual property relating to TCR-based product candidates targeting
certain SSX2, NY-ESO-1, HPV, MAGE and KRAS antigens, for a CAR-based
product candidate targeting EGFRvIII and for a fully-human CAR-based
product candidate targeting CD19. Our MAGE and HPV product-specific
intellectual property includes Patent Cooperation Treaty applications with
priority dates in 2011, 2012, 2013, and 2014, corresponding U.S.
non-provisional patent applications, and corresponding foreign patent
applications in Canada, Australia, Europe, China, Israel, Japan, and
certain others. The Patent Cooperation Treaty applications with 2013 and
2014 priority dates relate to our TCR-based product candidates targeting
HPV antigens, and the Patent Cooperation Treaty applications with the 2011
and 2012 priority dates relate to our TCR-based product candidates
targeting the MAGE antigen. We also have other strategic licenses for
additional intellectual property rights as described under Note 6 to our
financial statements appearing elsewhere in this Annual Report.

Our strategy is also to develop and obtain additional intellectual property
covering innovative manufacturing processes, preconditioning methods, new
constructs and methods for genetically engineering T cells. To support this
effort, we have established expertise and development capabilities focused
in the areas of preclinical research and development, manufacturing and
manufacturing process scale-up, quality control, quality assurance,
regulatory affairs and clinical trial design and implementation. We have
filed multiple patent applications, jointly with the NCI, relating to our
closed manufacturing process and improvements thereto, pre-conditioning
regimen, pre-conditioning regimen with cytokines/biomarkers, and expect to
continue to file patent applications to expand this layer of our
intellectual property estate.

The term of individual patents depends upon the legal term of the patents
in the countries in which they are obtained. In most countries in which we
file, the patent term is 20 years from the date of filing of the first
non-provisional application to which priority is claimed. In the United
States, a patent’s term may be lengthened by patent term adjustment, which
compensates a patentee for administrative delays by the USPTO in granting a
patent, or may be shortened if a patent is terminally disclaimed over an
earlier-filed patent. The term of a patent that covers an FDA-approved drug
may also be eligible for a patent term restoration of up to five years
under the Hatch-Waxman Act, which is designed to compensate for the patent
term lost during the FDA regulatory review process. The length of the
patent term restoration is calculated based on the length of time the drug
is under regulatory review. A patent term restoration under the
Hatch-Waxman Act cannot extend the remaining term of a patent beyond a
total of 14 years from the date of product approval and only one patent
applicable to an approved drug may be restored. Moreover, a patent can only
be restored once, and thus, if a single patent is applicable to multiple
products, it can only be extended based on one product. Similar provisions
are available in Europe and certain other foreign jurisdictions to extend
the term of a patent that covers an approved drug. When possible, depending
upon the length of clinical trials and other factors involved in the
submission of a BLA, we expect to apply for patent term extensions for
patents covering our product candidates and their methods of use.

Our commercial success may depend in part on our ability to obtain and
maintain patent and other proprietary protection for commercially important
technology, inventions and know-how related to our business; defend and
enforce our patents; preserve the confidentiality of our trade secrets; and
operate without infringing the valid enforceable patents and proprietary
rights of third parties. Our ability to stop third parties from making,
using, selling, offering to sell or importing our products may depend on
the extent to which we have rights under valid and enforceable patents or
trade secrets that cover these activities. With respect to both licensed
and company-owned intellectual property, we cannot be sure that patents
will be granted with respect to any of our pending patent applications or
with respect to any patent applications filed by us in the future, nor can
we be sure that any of our existing patents or any patents that may be
granted to us in the future will be commercially useful in protecting our
commercial products and methods of manufacturing the same.

We may rely, in some circumstances, on trade secrets to protect our
technology. However, trade secrets can be difficult to protect. We seek to
protect our proprietary technology and processes, in part, by entering into
confidentiality agreements with our employees, consultants, scientific
advisors and contractors. We also seek to preserve the integrity and
confidentiality of our data and trade secrets by maintaining physical
security of our premises and physical and electronic security of our
information technology systems. While we have confidence in these
individuals, organizations and systems, agreements or security measures may
be breached, and we may not have adequate remedies for any breach. In
addition, our trade secrets may otherwise become known or be independently
discovered by competitors. To the extent that our consultants, contractors
or collaborators use intellectual property owned by others in their work
for us, disputes may arise as to the rights in related or resulting
know-how and inventions.
Our Licenses and Collaborations

We have entered into multiple strategic licenses and collaborations,
including with the NIH, Cabaret, Amgen, bluebird bio, Inc., CDL, AIS,
Leukemia & Lymphoma Society, Inc., Fosun Pharma and Daiichi Sankyo.


For additional information regarding our significant agreements, see Notes
6 and 13 to our financial statements appearing elsewhere in this Annual
Report.


NOTE 6—LICENSE AND COLLABORATION AGREEMENTS

2012 National Cancer Institute ("NCI") Cooperative Research and Development
Agreement

In August 2012, the Company entered into a Cooperative Research and
Development Agreement (the “CRADA”) with the U.S. Department of Health and
Human Services, as represented by the NCI for the research and development
of novel engineered peripheral blood autologous T cell therapeutics for the
treatment of multiple cancer indications.

The CRADA had a five-year term commencing August 31, 2012 and expiring on
August 30, 2017. On February 24, 2015, the Company amended the CRADA by
expanding the research plan to include (1) the research and development of
the next generation of TCR-based product candidates that are engineered to
recognize neo-antigens, which are specific to the unique genetic profile of
a patient’s own tumor, (2) the optimization of new methods to manufacture
this next generation of TCR-based product candidates and (3) the
advancement of CAR-based product candidates for the treatment of clear cell
renal cell carcinoma and TCR-based product candidates for the treatment of
certain epithelial tumors such as lung and colorectal cancer. To support
the additional research activities under the amended CRADA, beginning in
the first quarter of 2015, the Company’s quarterly payments to the NCI
increased from $250,000 to $750,000.Total expenses recognized under the
CRADA were $3.0 million, $2.7 million and $1.0 million for the years ended
December 31, 2016, December 31, 2015 and 2014, respectively.

Pursuant to the terms of the CRADA, the Company has agreed to hold the NCI
harmless and to indemnify the NCI from all liabilities, demands, damages,
expenses and losses arising out of the Company’s use for any purpose of the
data generated, materials produced or inventions discovered in whole or in
part by NCI employees under the CRADA, unless due to their negligence or
willful misconduct. The CRADA may be terminated at any time upon the mutual
written consent of the Company and NCI. The Company or NCI may unilaterally
terminate the CRADA at any time by providing written notice at least 60
days before the desired termination date.

Pursuant to the terms of the CRADA, the Company has an option to elect to
negotiate an exclusive or nonexclusive commercialization license to any
inventions discovered in the performance of the CRADA, whether solely by an
NCI employee or jointly with a Company employee for which a patent
application has been filed.

The parties jointly own any inventions and materials that are jointly
produced by employees of both parties in the course of performing
activities under the CRADA.

Cabaret License Agreement

On December 12, 2013, the Company entered into an exclusive, worldwide
license agreement, including the right to grant sublicenses, with Cabaret
Biotech Ltd. (“Cabaret”) and Dr. Zelig Eshhar relating to certain
intellectual property and know-how (the “Licensed IP”) owned or controlled
by Cabaret (the “Cabaret License”) for use in the treatment of oncology and
such other fields as may be agreed to by the parties. Should Cabaret
propose to enter into an agreement with a third party relating to the use
of the Licensed IP outside of oncology (“Additional Indications”), then
Cabaret shall notify the Company in writing and the Company shall have a
60-day right of first negotiation to acquire a license to the Licensed IP
in such Additional Indications.

Pursuant to the Cabaret License, the Company shall be required to make cash
milestone payments upon successful completion of certain clinical and
regulatory milestones in the United States and certain major European
countries relating to each product covered by the Cabaret License (each, a
“Cabaret Licensed Product”). The aggregate potential milestone payments are
$3.9 million for each of the first two Cabaret Licensed Products, of which
$3.0 million is due only after marketing approval in the United States and
at least one major European country. Thereafter, for each subsequent
Cabaret Licensed Product such aggregate milestone payments shall be reduced
to $2.7 million. The Company has also agreed to pay Cabaret royalties on
net sales of Cabaret Licensed Products at rates in the mid-single digits.
To the extent the Company enters into a sublicensing agreement relating to
a Cabaret Licensed Product, the Company is required to pay Cabaret a
percentage of all non-royalty income received as well as payment on
Cabaret’s behalf of any applicable taxes due, which percentage will
decrease based upon the stage of development of the Cabaret Licensed
Product at the time of sublicensing.

The Company has agreed to defend, indemnify and hold Dr. Eshhar, Cabaret,
its affiliates, directors, officers, employees and agents, and if
applicable certain other parties, harmless from all losses, liabilities,
damages and expenses (including attorneys’ fees and costs) incurred as a
result of any claim, demand, action or proceeding to the extent resulting
from (a) any breach of the Cabaret License by the Company or its
sublicensees, (b) the gross negligence or willful misconduct of the Company
or its sublicensees in the performance of its obligations under this
Cabaret License, or (c) the manufacture, development, use or sale of
Cabaret Licensed Products by the Company or its sublicensees, except in
each case to the extent arising from the gross negligence or willful
misconduct of Cabaret or Dr. Eshhar or the breach of this Agreement by Dr.
Eshhar or Cabaret.

The Cabaret License expires on a product-by-product and country-by-country
basis on the date on which the Company, its affiliates and sublicensees
permanently cease to research, develop, sell and commercialize the Cabaret
Licensed Products in such country. Either party may terminate the Cabaret
License in the event of a material breach of the agreement that remains
uncured following the date that is 60 days from the date that the breaching
party is provided with written notice by the non-breaching party.
Additionally, the Company may terminate the Cabaret License at its sole
discretion at any time upon 30 days written notice to Cabaret and Dr.
Eshhar.

Due to the receipt of the $60.0 million upfront license payment from Amgen
in connection with the Amgen Agreement, in April 2015 the Company paid
$13.8 million to Cabaret as a sublicense fee, which includes $1.8 million
of applicable taxes paid on Cabaret’s behalf as required under the Cabaret
License. As of December 31, 2016, a $3.5 million deferred asset was
recorded under the other current assets caption on the consolidated balance
sheets, and a $3.7 million non-current deferred asset was recorded under
the other assets caption of the consolidated balance sheets. Both of these
amounts will be recognized as sublicense fee expense within general and
administrative expense on a straight line basis over the same period as the
recognition of the upfront license payment from the Amgen agreement. For
the year ended December 31, 2016 and 2015, the Company recorded $3.5
million and $3.2 million in sublicense fee expense related to the Cabaret
license, respectively.

The expenses recognized in connection with the Cabaret License were $4.0
million, $3.7 million and $25,000 for the years ended December 31, 2016,
2015 and 2014, respectively.

December 2014 National Institutes of Health ("NIH") License Agreement

Pursuant to a patent license agreement with the NIH, dated December 31,
2014, the Company holds an exclusive, worldwide license to certain
intellectual property related to TCR-based product candidates that target
HPV antigens E6 and E7 of the HPV subtype 16.

Pursuant to the terms of this license, the Company paid the NIH a cash
payment in the aggregate amount of $350,000 in February 2015. The Company
is required to make performance-based payments upon successful completion
of clinical and regulatory benchmarks relating to the licensed products.
The aggregate potential benchmark payments for each licensed product are
$6.0 million, of which aggregate payments of $5.0 million are due only
after marketing approval in the United States or in Europe, Japan, China or
India. The first benchmark payment of $50,000 will be due upon the
commencement of the Company’s first sponsored Phase 1 clinical trial.

In addition, the Company is required to pay the NIH one-time benchmark
payments following aggregate net sales of up to $1.0 billion of licensed
products. The aggregate potential amount of these benchmark payments is
$7.0 million. The Company must also pay the NIH royalties on net sales of
products covered by this license at rates in the mid-single digits. To the
extent the Company enters into a sublicensing agreement relating to a
licensed product, the Company is required to pay the NIH a percentage of
all consideration received from a sublicensee, which percentage will
decrease based on the stage of development of the licensed product at the
time of the sublicense. Any such sublicense payment is subject to a certain
cap.

The license will expire upon expiration of the last patent contained in the
licensed patent rights, unless terminated earlier. None of the applications
included in the NIH licensed patent rights have issued yet. Any patents
issuing from these applications will have a base expiration date no earlier
than 2034. The NIH may terminate or modify the license in the event of a
material breach, including if the Company does not meet certain milestones
by certain dates, or upon certain insolvency events that remain uncured
following the date that is 90 days following written notice of such breach
or insolvency event. The Company may terminate the license, or any portion
thereof, at its sole discretion at any time upon 60 days written notice to
the NIH. In addition, the NIH has the right to require the Company to
sublicense the rights to the product candidates covered by the license upon
certain conditions, including if the Company is not reasonably satisfying
required health and safety needs or if the Company is not satisfying
requirements for public use as specified by federal regulations.

October 2015 NIH License Agreement

Pursuant to a patent license agreement with the NIH, dated October 1, 2015,
the Company holds an exclusive, worldwide license to certain intellectual
property related to TCR-based product candidates directed against MAGE A3
and A3/A6 antigens for the treatment of tumors expressing MAGE. Pursuant to
the terms of this license, the Company paid the NIH a cash payment in the
aggregate amount of $1.2 million in November 2015.

The Company is also required to make performance-based payments upon
successful completion of clinical and regulatory benchmarks relating to the
licensed products. The aggregate potential benchmark payments for each
licensed product are $8.4 million, of which aggregate payments of $6.0
million are due only after marketing approval in the United States or in
Europe, Japan, China or India. Also, a benchmark payment of $150,000 will
be due upon the commencement of the Company’s first sponsored Phase 1
clinical trial for each licensed product in each indication.

In addition, the Company is required to pay the NIH one-time benchmark
payments following aggregate net sales of up to $1.0 billion of licensed
products. The aggregate potential amount of these benchmark payments is
$12.0 million. The Company must also pay the NIH royalties on net sales of
products covered by this license at rates in the mid-single digits. To the
extent the Company enters into a sublicensing agreement relating to a
licensed product, the Company is required to pay the NIH a percentage of
all consideration received from a sublicensee, which percentage will
decrease based on the stage of development of the licensed product at the
time of the sublicense. Any such sublicense payment is subject to a certain
cap.

The license will expire upon expiration of the last patent contained in the
licensed patent rights, unless terminated earlier. None of the applications
included in the NIH licensed patent rights have issued yet. Any patents
issuing from these applications will have a base expiration date no earlier
than 2032. The NIH may terminate or modify the license in the event of a
material breach, including if the Company does not meet certain milestones
by certain dates, or upon certain insolvency events that remain uncured
following the date that is 90 days following written notice of such breach
or insolvency event. The Company may terminate the license, or any portion
thereof, at its sole discretion at any time upon 60 days written notice to
the NIH. In addition, the NIH has the right to require the Company to
sublicense the rights to the product candidates covered by the license upon
certain conditions, including if the Company is not reasonably satisfying
required health and safety needs or if the Company is not satisfying
requirements for public use as specified by federal regulations.

Amgen Research Collaboration and License Agreement

On December 31, 2014, the Company entered into the Amgen Agreement,
pursuant to which the Company and Amgen expect to develop and commercialize
CAR-based product candidates directed against a number of Amgen cancer
targets. Under the terms of the Amgen Agreement, the Company and Amgen will
jointly create preclinical development plans through IND filing with the
FDA for the research and development of CAR-based product candidates that
target certain antigens expressed on the cell surface of various cancers.
The Company and Amgen expect to progress multiple Amgen programs, each
consisting of the development of one or more CAR-based product candidates
directed against a certain Amgen selected cancer target. The Company and
Amgen also expect to progress multiple Company programs, each consisting of
the development of one or more CAR-based product candidates directed
against a certain Company selected cancer target. Under certain
circumstances, the collaboration may be expanded to include the research
and development of other product candidates.

The Company received an upfront payment of $60.0 million from Amgen in
February 2015 as partial consideration for the rights granted to Amgen by
the Company for access to the Company platform technology and the Company
undertaking preclinical development under certain programs. Amgen will fund
the research and development costs for all programs with certain
limitations through any IND filing. The Company will reimburse Amgen for
the research and development costs for any Company program that progresses
to an IND filing, to the extent that Amgen had previously paid the Company
for any such research and development costs. Each party will then be
responsible for clinical development and commercialization of their
respective therapeutic candidates, including all related expenses.

The Company will be responsible for the manufacturing and processing of
Amgen program product candidates for a certain period following the
completion of any Phase 2 clinical trials under a separately negotiated
supply agreement, should Amgen choose not to transition manufacturing to
itself or to a mutually agreed upon designee of Amgen. The Company will be
eligible to receive up $100.0 million milestone payment upon receipt of the
first marketing approval for the first Amgen product from each Amgen
program to achieve approval and up to $425.0 million in commercial
milestone payments for each Amgen program, based on the Amgen program
products meeting certain net sales benchmarks in a calendar year, plus
tiered high single to low double digit royalties for sales and the license
of the Company’s intellectual property for CAR-based product candidates.
Amgen will be eligible to receive a $100 million milestone payment upon
receipt of the first marketing approval for the first Company product from
each Company program to achieve approval and up to $425.0 million in
commercial milestone payments for each Company program, based on the
Company program products meeting certain net sales benchmarks in a calendar
year, plus tiered single digit sales royalties. The Company does not expect
any milestones to be achieved or paid until 2021 at the earliest, as all of
the collaboration product candidates are currently in the pre-clinical
stage.

In addition, Amgen has a one-time option to convert a Company program to an
Amgen program for a fee of $35.0 million at any time on or prior to the
60th day after the later of (a) delivery of a final report with data for
use in an IND and (b) filing of the IND for a Company product candidate
from a Company program and delivery of such IND to Amgen. This option shall
exclude the first and second Company programs for which the Company has
filed an IND on the Company program product candidate. In addition to the
milestones described above that would be applicable to the converted
Company program, the Company shall be eligible to receive additional
milestones of $50.0 million upon the initiation of the first Phase 3
clinical trial for the first product from the converted
Company program and $50.0 million upon receipt of marketing approval for a
second indication from the converted Company program.

The term of the Amgen Agreement will continue on a target-by-target basis
until the later of (1) the date on which the product candidates directed
against the target are no longer covered by certain intellectual property
rights, (2) the loss of certain regulatory exclusivity and (3) a defined
term from the first commercial sale of the first product candidate directed
against the target. Either party may terminate the agreement on a
target-by-target basis with respect to its own programs with prior written
notice. Either party may also terminate the agreement with written notice
upon material breach by the other party, if such breach has not been cured
within a defined period of receiving such notice.

During the years ended December 31, 2016 and 2015, the Company recognized
$20.0 million and $17.1 million of revenue under the Amgen Agreement,
respectively. As of December 31, 2016, the Company had deferred revenue
relating to the Amgen Agreement of $34.8 million, of which $3.7 million
relates to Kite programs that would be paid back to Amgen in the event that
the Kite programs progress to an IND filing.

LLS Research, Development and Commercialization Agreement

On June 30, 2015, the Company and LLS entered into a research, development
and commercialization agreement to enhance the development of the Company’s
lead product candidate, KTE-C19. Under the agreement, LLS agreed to
contribute up to $2.5 million through its Therapy Acceleration Program to
help fund the Company’s Phase 1-2 clinical trial of KTE-C19.

LLS paid the Company $1.5 million during 2015, and an additional $0.8
million during 2016. Certain regulatory and commercial milestone payments
will be made to LLS, based on the development progress of KTE-C19, or upon
certain other events, including the out-licensing to a third party of the
rights to develop or commercialize KTE-C19, or if the Company combines with
or is sold to another company.

The Company considers its agreement with LLS to be a revenue arrangement
with multiple deliverables. The Company determined that the substantive
deliverables are limited to the clinical development of KTE-C19, Research
Advisory Committee (“RAC”) participation, and participating in LLS
activities, which together represented a single unit of accounting. The
Company deemed that the participation on the RAC is tied to the development
of KTE-C19 and occurs concurrently with the research and development
services. Participation on the RAC does not have a separate and stand-alone
value, as it is essential to the development of KTE-C19 and the Company has
sole responsibility for the research and development activities.
Participation in activities for LLS are not considered to have a
significant value to LLS as the participation is limited to two times per
calendar year and the expected value is immaterial. The Company recorded
$2.1 million, $0.2 million, and $0 in revenue under the LLS agreement
related to the research and development activities and achievement of
clinical milestones for the years ended December 31, 2016, 2015, and 2014,
respectively.

Alpine Immune Sciences, Inc. ("AIS") License and Research Agreement

On October 26, 2015, the Company and AIS entered into an exclusive,
worldwide license and research agreement to research, develop, and
commercialize engineered autologous T cell therapies incorporating two
programs from AIS’ transmembrane immunomodulatory protein (“TIP™”)
technology.

Under the terms of the Agreement, AIS will conduct initial research to
deliver two program TIPs with certain pre-defined characteristics. The
Company will then conduct further research on the program TIPs with the
goal of demonstrating proof-of-concept. If successful, the Company would
further engineer the program TIPs into certain CAR and TCR product
candidates that would potentially enhance anti-tumor response.

Pursuant to the Agreement, the Company paid AIS a $5.0 million upfront
payment. The Company also paid $0.5 million in additional payments to
support AIS’ research. The Company recorded $4.4 million to research and
development expense which includes $0.5 million as a accrued liability that
was recognized as research and development expense for certain research and
development activities which were performed during the year ended December
31, 2016. AIS will be eligible to receive up to $530.0 million in total
milestone payments based on the successful completion of research, clinical
and regulatory milestones relating to both program TIPs. At the Company’s
option, a portion of the milestones may be paid in shares of the Company’s
common stock. AIS will also be eligible to receive a low single digit
royalty for sales on a licensed product-by-licensed product and
country-by-country basis, until the later of (i) the date on which the
licensed product is no longer covered by certain intellectual property
rights, and (ii) a defined term from the first commercial sale of the
licensed product.

The Company may terminate the agreement with prior written notice after a
defined research term. Either party may also terminate the agreement upon
certain insolvency events of the other party, or with written notice upon
material breach by the other party, if such breach has not been cured
within a defined period of receiving such notice.

Cell Design Labs, Inc. ("Cell Design Labs") Research Collaboration and
License Agreement

On June 1, 2016, the Company entered into a Research Collaboration and
License Agreement with Cell Design Labs for the development of next
generation CAR-based product candidates that incorporate Cell Design Labs'
molecular “on/off switch” technology.

Under the terms of the agreement, Cell Design Labs is responsible for
developing the “on/off switches” for the Company’s CAR T cell pipeline. The
Company has exclusive worldwide rights to develop and commercialize
CAR-based product candidates containing Cell Design Labs’ “on/off switches”
directed to certain targets that are associated with acute myeloid
leukemia. The Company also has the exclusive option for a pre-defined
period to develop and commercialize CAR-based product candidates containing
“on/off switches” directed to certain targets that are associated with
B-cell malignancies. See Note 10 for further discussion.




NOTE 13—SUBSEQUENT EVENTS

Research Collaboration and License Agreement with Daiichi Sankyo Company,
Ltd.

On January 5, 2017, the Company entered into a collaboration and license
agreement (the “DS Agreement”) with Daiichi Sankyo Company, Limited
(“Daiichi Sankyo”) pursuant to which the Company has granted to Daiichi
Sankyo an exclusive license to develop and commercialize KTE-C19, in Japan.

In connection with the execution of the DS Agreement, Daiichi Sankyo has
made an upfront payment to the Company of $50.0 million. In addition, the
Company will be eligible to receive future payments totaling up to $200.0
million for development and commercial milestones relating to KTE-C19 as
well as future royalties.

Joint Venture with Shanghai Fosun Pharmaceutical Industrial Development
Co., Ltd.

On January 10, 2017, the Company entered into a cooperative joint venture
agreement (“JV Agreement”) with Shanghai Fosun Pharmaceutical Industrial
Development Co., Ltd. (“Fosun Pharma”) pursuant to which the parties will
establish a joint venture (the “JV Company”) for the purpose of developing,
manufacturing and commercializing KTE-C19 in the mainland of the People’s
Republic of China, the Hong Kong Special Administration Region and the
Macau Special Administration Region (together, the “China Market”).

Pursuant to the JV Agreement, the Company and Fosun Pharma will each own
50% of the JV Company, with 40% of any profits allocated to the Company and
the remaining 60% allocated to Fosun Pharma. Fosun Pharma will contribute
the RMB equivalent of $20.0 million in cash to the JV Company and the
Company will contribute to the JV Company certain exclusive commercial
rights to be set forth in the Product and Know-How License Agreement with
the JV Company.

Pursuant to the JV Agreement, the Company and Fosun Pharma have agreed that
within 20 business days following the establishment of the JV Company,
which is subject to government approval, the JV Company and the Company
will enter into a Technology License Agreement and a Product and Know-How
License Agreement (together with the Technology License Agreement, the
“License Agreements”). Under the License Agreements, Kite will grant the JV
Company an exclusive license to manufacture, develop and commercialize
KTE-C19 in the China Market.

Pursuant to the Technology License Agreement, the Company will receive a
$40.0 million upfront payment from the JV Company, funded by Fosun Pharma,
and, in exchange for the contribution of KTE-C19, will also be entitled to
(a) regulatory and commercial milestone payments of up to $35.0 million and
(b) subject to certain conditions, mid-single digit sales royalties.
​

-- 
James Love.  Knowledge Ecology International
http://www.keionline.org/donate.html
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love



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