The Los Angeles-based team of executives who sold Kite Pharma Inc. last summer to Gilead Sciences Inc. for nearly $12 billion didn’t take long to start a biotech company to develop cellular cancer treatments.
Allogene Therapeutics Inc., launched by Kite founder Arie Belldegrun two months after the sale, has raised $420 million – including a private financing last month of $120 million.
Now the South San Francisco-based firm has filed for initial public offering that could raise up to $288 million more to fuel a pipeline of 17 off-the-shelf cancer treatments known as allogeneic CAR T therapies.
“Arie Belldegrun is a tour de force,” said Peter Emtage, global head of cell therapy research for Kite, a Gilead Co., while addressing a Southern California Biomedical Council conference last month in Long Beach. “Arie Belldegrun can raise money anywhere, wherever.
“You let Arie Belldegrun do his thing – he will do it.”
He certainly did it with Kite Pharma, which turned out to be the priciest acquisition in the history of Foster City-based Gilead Sciences, a company that took in $21.6 billion in revenue and $4.6 billion in profits last year, with a market capitalization now around $102 billion.
The deal also served as a Los Angeles starting gun in a wider race to dominate an emerging field of cell-based cancer treatments.
Allogene is now in the thick of the race. Among its founders are Belldegrun and Dr. David Chang, former chief medical officer of Kite. Among its investors is Pfizer Inc. – and Gilead.
The investment from Gilead doesn’t mean Allogene won’t compete with the new owner of Kite to find a cure for a variety of cancers. The two companies do take different approaches, though.
Gilead’s efforts center on the development of personalized therapies, where treatments include modifying a sick patient’s own autologous T cells to combat cancer.
Allogene, on the other hand, aims to develop a cure for a range of cancers with off-the-shelf treatments derived from the allogeneic T cells of healthy donors, which are then modified for universal use.
“Our goal is to maintain our leadership in allogeneic CAR T therapy and be the first company to develop and commercialize an allogeneic CAR T product,” said Chang, now chief executive of Allogene, in a statement after the company’s Sept. 6 private placement. The IPO filing also came last month, and executives are now in a required quiet period as the company seeks federal approval.
Kite’s flight path
It took only two months after Kite’s sale to Gilead for the Food and Drug Administration to approve Yescarta, a key asset that came as part of the deal. Yescarta was the second chimeric antigen receptor (CAR) T cell therapy approved to treat blood cancers such as non-Hodgkin lymphoma. Novartis AG’s Kymriah was first, a few weeks ahead of Kite.
The gene-based CAR T treatments developed by Kite take a patient’s immune cells and re-engineer them to attack malignant cancer cells.
They also serves as the lynchpin in a Gilead strategy to expand on its leading HIV and hepatitis C drug franchises.
The renamed Kite, a Gilead Co. retained its base of operations in Santa Monica, and has more than doubled the number of its employees to nearly 1,500 worldwide, including hundreds at its manufacturing plant in El Segundo.
Revenue from sales of its Yescarta, at a cost of $373,000 per treatment, reached $108 million in the first half of 2018.
“Yescarta forms the foundation of our leadership position in cell therapy and we continue making significant progress with the launch in the United States and more recently, the (European Union), where Yescarta was approved [in August],” said Shant Salakian, a spokesman for Kite, in an email.
Kite also is researching next-generation cell treatments that include off-the-shelf treatments similar to Allogene’s, in addition to a robust pipeline of cancer treatments that includes ones for solid tumors, Salakian said.
Belldegrun’s bona fides
It was in October 2017 that Belldegrun and Chang – along with Kite executives that included former Communications Officer Christine Cassiano and General Counsel Veer Bhavnagri — helped form Allogene along with veterans of Amgen Inc.
Hundreds of millions poured in from major investors.
Belldegrun, an Israel-born oncologist and cancer surgeon at UCLA, had a track record of co-founding biotech winners. His Agensys Inc. was sold to Astellas Pharma Inc. of Japan for $537 million in 2007. Another venture, Cougar Biotechnology Inc., was purchased by Johnson & Johnson for nearly $1 billion two years later.
Then came Kite, with its personalized therapy that stood to revolutionize medicine with a potential cure for cancer. But it takes weeks to modify the so-called autologous cells taken from each cancer patient, who might also struggle against a ticking clock.
Allogene’s ambition
Belldegrun’s latest venture aims to go even further. The new Allogene, armed with a portfolio of gene-based assets from Pfizer Inc., aimed to develop a universal cell-based treatment that didn’t require altering the white blood cells of each individual patient to kill cancer.
The holy grail of the new allogeneic CAR T therapy would be to simply engineer healthy donor cells that can be used by a variety of cancer patients – while not be rejected as foreign invaders, as can happen with transplanted organs.
Allogene executives have sought to achieve a market edge by pioneering numerous allogeneic cell therapy candidates to allow for quicker cancer treatments at a potentially lower cost.
The idea instantly caught fire with investors. A $300 million Series A round drew a consortium that included Pfizer, with a 25 percent share, the University of California, TPG Carthage Holdings and its affiliates, Vida Ventures and Belldegrun’s Bellco Capital and Seaview Trust.
Gilead also jumped in with an initial share of nearly 10 percent in the new Belldegrun-led startup, which, as of June 30, amounted to 8.4 percent, according to a Securities and Exchange Commission filing.
There was no noncompetition clause in Belldegrun’s exit from Kite, an Allogene representative said. Belldegrun’s new company struck a deal with Pfizer in April to acquire the rights to 16 preclinical targets licensed from French biopharmaceutical companies Laboratoires Servier and Cellectis SA.
It also includes UCART19, an off-the-shelf CAR T therapy now in a phase 1 clinical trial by Servier for acute lymphoblastic leukemia. Two patients have died during the study as a direct result of the therapy, Allogene said last month in a Securities and Exchange Commission filing.
Allogene Therapeutics is now located next to Pfizer’s South San Francisco office. It now employs 75 people, including 40 workers who once worked for Pfizer.
Gilead’s outlook
Gilead Sciences investors might have cooled on the value of its Santa Monica-based genetically engineered cell division. Gilead’s stock has been up and down, ranging around $70 a mark since the Kite acquisition was completed a year ago.
The Foster City company’s long-time chairman as well as its chief executive and chief medical officer have recently stepped down.
The most recent quarterly filing by Gilead to the SEC reported the identifiable net assets of the Kite acquisition at $8.2 billion as of June 30. Nearly $3 billion in unidentified “goodwill” assets was factored into the overall $11.1 billion valuation.
Some analysts, meanwhile, have downgraded this year’s sales expectations of Kite’s Yescarta CAR T cancer treatment from $400 million to $300 million.
Others say Gilead may have to write down its $11.9-billion deal within an increasingly crowded CAR T marketplace that includes such competitors as Novartis, Celgene Corp., Atara Biotherapuetics Inc., Unum Therapeutics Inc., to name a few.
“They certainly might,” said senior research analyst Brian Skorney of Robert W. Baird & Co., who just downgraded Gilead stock from “outperform” to “neutral.” “Investor expectations have been disappointing. And to make a deal of this scale work, it would have to be a substantial blockbuster drug.”
Tyler Van Buren, senior biotechnology analyst for Piper Jaffray & Co., was more bullish on Kite and its Gilead parent. He expects Yescarta could bring in $2.8 billion for Gilead by 2025, with other genetic treatments for blood cancers soon to follow.
“People are expecting a pretty big inflection – usage and sales – by 2025,” Van Buren said. “For that ($11.9 billion) to pay off, you need at least a $2-billion to $3-billion franchise” in terms of annual earnings.
“Some think that the opportunity for liquid tumors may be a lot smaller, Van Buren said. “The hope is that it can be translated into solid tumors, as well as (off-the-shelf) allogeneic treatments.”
