[Ip-health] ​NYT story on Kite Pharma: Harnessing the U.S. Taxpayer to Fight Cancer and Make Profits

Jamie Love james.love at keionline.org
Mon Dec 19 16:49:23 PST 2016

Below is a link to an almost 3400 word story in the New York TImes on NIH
relationship with Kite Pharma, for development of new treatments for
cancer, which the NYT says it cost "at least" $200,000 per treatment.

The NYT story by Matt Richtel and Andrew Pollack explores the extraordinary
relationship between the NIH and Kite, and the policy questions about the
pricing of products based upon federally funded research.

KEI had earlier asked the NIH to put text into a Kite licensing agreement
to protect US residents from unreasonable pricing.

There are several quotes from Mark Rohrbaugh, the key official shaping NIH
policies on technology transfer, including this one:

    “N.I.H. has made it clear that its job is not to decide prices of
drugs, period,” Dr. Rohrbaugh said

Below is the NYT story, but if you can, read it from the web page, so the
NYT benefits from page views and the authors from reader metrics.



​Harnessing the U.S. Taxpayer to Fight Cancer and Make Profits

DEC. 19, 2016

[Photo: Dr. Steven Rosenberg, left, who has led the surgery branch at the
National Cancer Institute for 42 years, and Dr. Arie Belldegrun, the
founder of Kite Pharma.]

Enthusiasm for cancer immunotherapy is soaring, and so is Arie Belldegrun’s

Dr. Belldegrun, a physician, co-founded Kite Pharma, a company that could
be the first to market next year with a highly anticipated new
immunotherapy treatment. But even without a product, Dr. Belldegrun has
struck gold.

His stock in Kite is worth about $170 million. Investors have profited
along with him, as the company’s share price has soared to about $50 from
an initial price of $17 in 2014.

The results reflect widespread excitement over immunotherapy, which
harnesses the body’s immune system to attack cancer and has rescued some
patients from near-certain death. But they also speak volumes about the
value of Kite’s main scientific partner: the United States government.

Kite’s treatment, a form of immunotherapy called CAR-T, was initially
developed by a team of researchers at the National Cancer Institute, led by
a longtime friend and mentor of Dr. Belldegrun. Now Kite pays several
million a year to the government to support continuing research dedicated
to the company’s efforts.

The relationship puts American taxpayers squarely in the middle of one of
the hottest new drug markets. It also raises a question: Are taxpayers
getting a good deal?

Defenders say that the partnership will likely bring a lifesaving treatment
to patients, something the government cannot really do by itself, and that
that is what matters most.

Critics say that taxpayers will end up paying twice for the same drug —
once to support its development and a second time to buy it — while the
company reaps the financial benefit.

“If this was not a government-funded cancer treatment — if it was for a new
solar technology, for example — it would be scandalous to think that some
private investors are reaping massive profits off a taxpayer-funded
invention,” said James Love, director of Knowledge Ecology International,
an advocacy group concerned with access to medicines.

[photo Dr. Rosenberg and Dr. Belldegrun in the mid-1980s. Dr. Belldegrun
became a research fellow for Dr. Rosenberg at the cancer institute in 1985.
Credit Kite Pharma]

The debate goes squarely to one of the nation’s most vexing challenges:
rising health care and drug prices. Kite is one of a growing number of drug
and biotech companies relying on federal laboratories. Analysts expect the
company to charge at least $200,000 for the new treatment, which is
intended as a one-time therapy for patients.

While the law allows the government to demand drug-price concessions from
its private-sector partners, the government has declined to do so with Kite
and generally disdains the practice.

Insisting on lower prices, federal researchers say, would drive away
innovative partners that speed the drug-development process and benefit
patients. But with the government doing so much pivotal research, others
say that the private sector cannot afford to walk away.

“The market is so reliant on the knowledge and know-how that comes out of
the government and academic labs,” said Dr. Aaron Kesselheim, director of
the Program on Regulation, Therapeutics and Law at Brigham & Women’s
Hospital in Boston.

Price curbs, he said, “would not suddenly lead to a total abandonment of
this pipeline. It couldn’t possibly.”

Drug makers would be especially unlikely to turn away from immunotherapy,
where the promising science has set off a “gold rush mentality,” according
to Mark Edwards of Bioscience Advisors, a company which tracks
pharmaceutical licensing deals.

The National Institutes of Health, the parent agency of the National Cancer
Institute, currently has about 400 cooperative research agreements with
companies, and licenses hundreds of patented inventions for private-sector

Kite executives and national health officials characterize their
partnership as a model arrangement in a system established by Congress
three decades ago. The system has given birth to the cancer drug Taxol, the
AIDS drug Prezista, two cervical cancer vaccines and a widely used test for
H.I.V. infection, among other innovations.

[Photo: Dr. Rosenberg in his lab at the cancer institute in Bethesda, Md.
Partnerships between government labs and drug companies are “absolutely
essential or many discoveries will not see the light of day,” he said.
Credit Jesse Dittmar for The New York Times]

Kite’s first drug, called KTE-C19, could help thousands of patients each
year in the United States with certain blood cancers. If it succeeds, it
could generate sales of $1 billion to $2 billion annually, according to
Wall Street analysts, making it among the most lucrative drugs to come from
government research.

But the government’s share of any Kite success would be modest, much lower
than some academic research groups have wrangled in immunotherapy deals
worth hundreds of millions of dollars. Federal officials counter that the
reward to the taxpayer is not money but the drug itself.

“This is exactly the way things should work,” said Dr. Steven Rosenberg,
who has led the surgery branch at the National Cancer Institute for 42
years and led development of Kite’s drug. Such partnerships, he said, are
“absolutely essential or many discoveries will not see the light of day.”

Moreover, government officials say, companies in such deals must take
significant financial risks and expenditures on their own, without any
guarantee that the drug will be approved.

Kite says it has spent more than $200 million on research and development,
including running larger clinical trials than those conducted by the cancer
institute, and recently spent about $30 million to build a factory that
will be able to make treatments for up to 5,000 patients a year.

Setting the price of the drug, Dr. Rosenberg said, “is for the marketplace.”

A Public-Private Partnership

Like many business deals, this one began with a personal relationship — in
this case between Dr. Rosenberg and Dr. Belldegrun.

After finishing medical school in his native Israel, performing surgery in
helicopters for the Israeli armed forces, and completing residency at
Brigham & Women’s Hospital, Dr. Belldegrun became a research fellow for Dr.
Rosenberg at the N.C.I. It was 1985, and Dr. Belldegrun was put to work on
a new project of Dr. Rosenberg’s — extracting tumor-fighting immune cells
from cancer patients, multiplying them in the laboratory, and putting them
back in.

“He was one of the more outstanding fellows to come through,” said Dr.
Rosenberg, 76, who is widely considered a cancer research luminary.

[Photo:  Dr. Belldegrun, center, at the Nasdaq stock exchange, where Kite
Pharma is listed. The company was founded in 2009 and went public in 2014.
Credit Nasdaq, 2016]

When the fellowship ended in 1988, Dr. Belldegrun became a prominent
surgeon at the University of California, Los Angeles, but the two men
stayed in touch. Eventually, Dr. Belldegrun, 67, got the entrepreneurial
bug. He co-founded a biotech company, Agensys, which was acquired by a
bigger company for more than $500 million. He was also involved with Cougar
Biotechnology, which developed the prostate cancer drug Zytiga and was
acquired by Johnson & Johnson for $1 billion in May 2009. A month later,
Dr. Belldegrun formed Kite with a group of colleagues and investors to
pursue cancer immunotherapy.

That same month, a Florida marine contractor named Eric Karlson, whose
non-Hodgkin’s lymphoma was advancing despite four prior treatments, became
the first patient treated by Dr. Rosenberg with what would eventually
become KTE-C19. The treatment entailed removing some of Mr. Karlson’s
immune system T cells from his blood, genetically engineering them to
recognize and fight his cancer, multiplying the T cells to huge numbers in
the laboratory and transferring them back into his body. After two such
treatments, Mr. Karlson remains alive and cancer-free eight years later.

Kite initially thought it would pursue an approach to immunotherapy known
as cancer vaccines, but in 2010, Dr. Belldegrun visited Dr. Rosenberg and
was shown the X-rays of Mr. Karlson and of a second patient.

Dr. Belldegrun was bowled over. “I had no doubt that this is going to be a
drug and, more than that, it will become a platform for multiple products,”
he recalled. “We never looked back.”

Over the next two years, the National Cancer Institute worked out a deal
with Kite that was signed in 2012. It was the first of eight contracts
between the government and the company that generally take two forms.

In one type of contract, Kite licenses patented inventions and agrees to
pay the government royalties, roughly 5 percent of sales of any commercial
product arising from a particular patent. However, there is no such license
specifically for KTE-C19 because the underlying treatment was not patented
by the N.C.I., so royalties will be minimal.

Officials say the agency did not apply for a patent because the treatment
was similar to what others had been developing. Also, at the time the
treatment was first created, in 2007, immunotherapy was considered to have
dim commercial prospects.

“Back then, we didn’t even think about commercial aspects,” said Dr. James
N. Kochenderfer, a scientist at the agency who designed the treatment when
working in Dr. Rosenberg’s group.

Under the second type of contract, known as a cooperative research and
development agreement, Kite provides money to the N.C.I. to support
research. Kite is now paying $3 million a year to Dr. Rosenberg’s lab and
has provided $7.5 million to it in total since 2012. Based on its
regulatory filings, Kite is paying $7.8 million a year for research
agreements and licenses in total, with at least $4 million of that going to
the cancer institute and the rest to academic or corporate partners.

The taxpayer has invested, too. Dr. Rosenberg estimated that the government
has spent roughly $10 million over the years on what has become KTE-C19. He
said Kite’s $3 million a year is about equal to the taxpayer funding in
that area and has helped speed research.

These days, researchers from Kite and the cancer institute, typically
including Dr. Rosenberg and Dr. Belldegrun, confer by conference call every
other Thursday for 90 minutes. Kite employees have spent long periods at
the N.C.I., learning how to manufacture the therapy and how to treat
patients in advance with chemotherapy.

“We shouldn’t underestimate the value and the importance of N.I.H., not
only to Kite but to the whole field of engineered T-cell therapy,” Dr.
Belldegrun said. When Kite signed its first deal with the cancer agency, he
said, it “tapped into six years of monumental work that they had done.”

Some immunotherapy competitors marvel at the company’s coup in tapping into
the agency’s expertise. “They got 20 years of research all together in one
scoop,” said Dr. Carlos Paya, chief executive of Immune Design, which is
pursuing a different approach.

But government officials say few, if any, other companies were interested
in the technology at the time Dr. Belldegrun came calling. Dr. Rosenberg
said that before Kite, a few companies, including Johnson & Johnson, had
looked at an earlier version of his technology but were wary because
treatment involved processing each patient’s cells.

Government-developed technology available to be licensed to companies is
posted on the website of the National Institutes of Health. And when the
agency intends to grant a license to a particular company, it publishes
that in the Federal Register, inviting public comment and possible
competing offers. Both steps were taken in the case of Kite, officials said.

Kite did not get everything the cancer institute has developed in the
field. Some other companies, including Opus Bio and Bluebird Bio, got
rights to some products, in part because the companies had special
expertise that the agency’s researchers desired. But Kite seems to have
gotten the balance of them and N.C.I. technology accounts for the majority
of its pipeline of possible products, though the company is diversifying.

[Photo: A slide that Kite Pharma used in presentations to potential
investors pointed out the company’s relationship with Dr. Rosenberg.]

Dr. Rosenberg professes no interest in the business side of the Kite
relationship. He does not own stock in any company, even Kite, though he
could get up to $150,000 a year in patent royalties if some of Kite’s
efforts pay off.

Dr. Belldegrun, in contrast to his mentor, has commercial flair. He is
known for his sharp business suits, lives in the Bel-Air neighborhood of
Los Angeles, and seems as comfortable on Wall Street or in high society as
in the operating room.

Kite’s relationship with the N.C.I. is an important part of its appeal to
investors. In some presentations, Dr. Belldegrun has shown a photograph of
himself with Dr. Rosenberg in their younger days. And he persuaded Dr.
Rosenberg to speak at Kite’s first big meeting for investors in June 2015,
the only time he has ever spoken to Wall Street.

In emails obtained through a Freedom of Information Act request by
Knowledge Ecology International, Dr. Belldegrun praised Dr. Rosenberg’s
talk and sent him copies of investment reports from the conference written
by Wall Street analysts.

“Thank you for making the effort to come to NY,” Dr. Belldegrun wrote. “I
heard only raving reviews about your presence and presentation.”

A ‘Reasonable’ Question

The reliance of private companies on government-funded research goes well
beyond obvious cases like Kite. In many instances, companies work with
universities or medical centers that, in turn, have been funded from the
$32 billion annual budget of the National Institutes of Health.

Kite’s two main competitors, Novartis and Juno Therapeutics, for instance,
derived similar immunotherapy treatments largely from academic
institutions, developed at least in part with government funding. Novartis
has a relationship with the University of Pennsylvania, and Juno with the
Memorial Sloan Kettering Cancer Center, the Fred Hutchinson Cancer Research
Center and Seattle Children’s Hospital.

“For the most important drugs you’ll see some public-sector involvement,”
said Bhaven Sampat, an associate professor of health policy and management
at Columbia University. He was one author of a study that found that 9
percent of all drugs approved between 1988 and 2005 were based directly on
a patent held by the public sector. But 47.8 percent of the drugs relied at
least indirectly on some federally funded research.

[Photo:  Eric Karlson at his home on Marco Island, Fla., this month. Mr.
Karlson’s non-Hodgkin’s lymphoma was successfully treated by Dr. Rosenberg
with what would eventually become KTE-C19. Credit Scott McIntyre for The
New York Times]

The figures were higher for more medically important drugs: 17.4 percent
had a direct public-sector patent, while 64.5 percent had at least an
indirect public-sector influence.

These figures are up sharply from before the 1980s. Such partnerships and
licensing deals were encouraged by the 1980 Bayh-Dole and Stevenson-Wydler
Acts, and the 1986 Federal Technology Transfer Act. The laws are credited
with jump-starting the biotechnology industry.

But from the beginning, some people questioned whether taxpayers were
getting a bad deal.

Perhaps the best-known drug developed from a cooperative research and
development agreement — the cancer drug Taxol — was the subject of several
congressional hearings in the early 1990s that investigated whether the
drug’s maker, Bristol-Myers Squibb, charged too much and whether the
government recouped enough of its investment. In the end, the pricing was
left unchanged.

The N.I.H. argues that if it imposes pricing restrictions, it won’t get
partners. In fact, in 1995, it struck from its negotiating tactics a goal
that prices be “reasonable.”

“Companies will not take technologies from us if we say the government will
decide in the future what the price will be,” said Mark Rohrbaugh, who ran
the technology transfer office at the institutes from 2001 to 2013 and is
now an adviser to the agency. After the “reasonable price” clause was
struck, he said, there was a threefold increase in partnership deals.

The N.I.H. can collect royalties from successful products to help offset
the costs of the research, but so far these royalties have been small,
amounting to an estimated $135 million in the last fiscal year from 870
licenses, with the bulk of the money coming from a small number of drugs.

“We’re not preoccupied with financial value,” Dr. Rohrbaugh said. “Our
mission is treatment of people and improving public health.”

In that regard, the government’s bet on a small company like Kite, which
might have seemed risky, appears to be paying off so far. Dr. Belldegrun
has largely delivered on promises to raise money, assemble an experienced
staff, build the factory, conduct clinical trials and begin to apply for
regulatory approval. Once considered the underdog to Novartis and Juno,
Kite might be the first reach the market.

[Photo:  Scans of Mr. Karlson’s body before and after his treatment. In the
cross-sections on the left, the arrows point to signs of lymphoma in areas
such as his armpits, chest, spleen and pelvis. Credit National Cancer

Academic centers and companies often drive harder bargains in licensing
technology. In some cases, academic centers own a stake in a company they
license technology to, allowing them to reap a financial windfall if the
company does well. Both the Hutchinson cancer center and Sloan Kettering
have owned stock in Juno and are entitled to substantial payments — up to
$350 million and $150 million — if Juno’s stock reaches certain levels.

The N.I.H. does not take equity positions in companies to avoid an
appearance of a conflict of interest. So to critics of the government
deals, drug prices are crucial to understanding taxpayer value. After all,
they ask, is a drug truly widely available — which is what the government
says is its measure of success — if it costs too much for some people?

Rachel Sachs, an associate law professor at Washington University in St.
Louis and expert in innovation policy, said the government had every right
to seek price concessions. She noted that the government, through Medicare
and Medicaid, was effectively buying its inventions back from itself. “The
public is paying for the research and to the extent that many people, if
not most, will pay through public insurance, we’re paying again,” she said.

Hillary Clinton, in her campaign for president, promised to set new rules
for federal support of research so that Americans “get the value they
deserve” for the money taxpayers spend in supporting research. It is not
clear how President-elect Donald J. Trump will approach these issues; he
has said he favors reducing health care costs, but Republicans, who control
Congress, too, have opposed government involvement in price setting.

One mechanism to control pricing already exists. It is called march-in
rights, and it lets the N.I.H. take back control of a patent on an
invention made with federal funding if the drug is not being made available
to the public on reasonable terms. The tool has gone unused.

Earlier this year, Knowledge Ecology International and another advocacy
group, the Union for Affordable Cancer Treatment, petitioned the agency to
exercise march-in rights on Xtandi, a prostate cancer drug that was
developed by federally funded researchers at U.C.L.A. It said the price in
the United States of about $129,000 a year, two to four times that in other
developed countries, meant the drug was not reasonably available. The
effort was supported by other public interest groups and some Democratic
members of Congress.

U.C.L.A. made more than $500 million by selling its royalty rights to the
drug. But the N.I.H. declined to exercise its march-in rights on Xtandi,
arguing that it was not qualified to judge whether a drug’s price is
reasonable and that a high price does not mean a drug is not being made
available to the public.

“N.I.H. has made it clear that its job is not to decide prices of drugs,
period,” Dr. Rohrbaugh said

Kite says it has not decided what to charge for KTE-C19, but Dr. Belldegrun
hinted that Kite’s therapy might be relatively expensive because ideally it
would be a single treatment that would cure the patient, not a drug that
would have to be taken continuously. He added that Kite would take steps to
make sure that everyone who needed the drug could get it.

Meantime, the relationship between Kite and the National Cancer Institute
is expanding to develop treatments for other cancers, including one
technique Dr. Rosenberg thinks could be used to attack solid tumors like
colon, breast and lung cancer.

“The potential for broad applicability is huge,” he said.

That could mean many lives saved and maybe more billion-dollar drugs for
Kite and its investors, with the American taxpayer right in the middle of
the deal.


James Love.  Knowledge Ecology International
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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