Though it went public last year, Kite Pharma Inc. sounds less like a startup and more like a thoroughbred vying for the Triple Crown.
Helmed by executives who sold their previous companies to big pharma and staffed with a slew of Amgen Inc. alumni, it’s running neck and neck with a handful of other biotech competitors to gain regulatory approval on a cutting-edge cancer therapy. Kite, which last week raised about $218 million in a follow-on offering, has more than tripled its June offering price by year’s end to become one of the best performing IPOs of 2014.
Though other companies have also had successful recent IPOs and are producing remarkable results, Kite is looking the most “businesslike,” said Tom Shrader, a New York-based analyst with Stifel Nicolaus & Co. Inc.
“What’s clear is how close Kite is to turning into an actual product rather than a remarkable experiment,” Shrader said, crediting the company’s single-minded focus on collecting quality clinical data.
Dr. Arie Belldegrun, Kite’s Israeli-born chief executive, isn’t modest about his aspirations for the company.
“People ask me: What’s the objective of Kite?” he said, seated at the head of a large conference table in Kite’s Colorado Avenue headquarters, flanked by a dozen executives and researchers from his senior management team. “We are building Amgen in Santa Monica.”
He wasn’t just referring to his hopes for Kite’s success, but also his desire to foster a biotech hub in Silicon Beach. Establishing a Westside version of the $122 billion Thousand Oaks biotech powerhouse is just part of the plan.
Belldegrun’s resume is thick with both clinical and boardroom experience. He’s director of UCLA’s urologic oncology division; chairman of Arno Therapeutics Inc., a Flemington, N.J., company that is also developing targeted cancer therapies; and a director of Israel’s generic drug giant Teva Pharmaceutical Industries. He’s also been closely involved in founding and growing several biotech companies.
He formed drug developer Agensys Inc. in 1996 and sold it to Tokyo pharmaceutical company Astellas Pharma Inc. in 2007 for around $500 million. He was also a director and chairman of the scientific advisory board for Westwood’s Cougar Biotechnology Inc., which was purchased by Johnson & Johnson in 2009 for almost $1 billion.
Belldegrun started Kite around the time of the Cougar sale, funding it himself for the first couple of years. Relationships developed in his previous ventures brought an infusion of capital from investors including David Bonderman, founding partner of private equity giant TPG Capital and now a Kite director. Venture capital, including funds from Alta Partners in San Francisco, and institutional investors followed.
“I don’t think we ever had a problem raising money,” said Belldegrun, who controls 6.4 million shares, a 14.7 percent stake. His position in Kite has ballooned in value to nearly $370 million as shares have more than tripled in value since they priced at $17 in the company’s June IPO. Shares closed Dec. 31 at $57.67. (Bonderman controls 2.4 million shares; Alta has 2.9 million and Israeli venture capital firm Pontifax has 2.2 million.)
The founder’s connections also came in handy when Kite secured a cooperative research and development agreement with the National Cancer Institute in 2012 to commercialize the institute’s research on certain immune system cells genetically engineered to fight cancer. Belldegrun had previously done a fellowship at the institute under the same doctor performing the research his company has licensed.
“It gives us a huge pipeline,” Belldegrun said, referring in part to multiple ongoing clinical trials at the institute. “If that data holds and looks exciting, we will then move it into Kite and we will develop it further.”
The National Cancer Institute will receive what Kite calls modest royalties as part of the deal.
Hot field
Today, Kite has grown to 46 employees and takes 20,000 square feet of offices and lab space in a former Agensys building.
Unlike Puma Biotechnology Inc., another local biotech high-flier that licenses and tests drugs developed by others, Kite is involved in basic research that allows it to move from discovery to drug development and manufacturing.
Kite and its competitors are working in a corner of immunotherapy where doctors are extracting a cancer patient’s immune system cells and engineering them to recognize cancer. The cells are then grown in the lab and released back into the patient’s body, ideally better equipped to find their target.
“Kite and its brethren are the absolutely most exciting thing going on in the (oncology) field,” said Shrader, the Stifel Nicolaus analyst. “They’re treating people essentially at death’s door.”
The research has been percolating for the last 25 years and is possibly about two years away from its first regulatory approval if Kite or competitors Juno Therapeutics and Novartis succeed.
Most of Kite’s focus has been on blood cancers, though solid tumors are the holy grail, said Margo Roberts, Kite’s chief scientific officer.
Proponents say it could transform oncology, relegating chemotherapy and its unpleasant side effects to a last-ditch treatment. Still, though this technology has shown promising effectiveness in a small group of test subjects, some patients have experienced intense side effects such as high fevers and drops in blood pressure that later resolved for the most part.
Build-out
Despite the risks, investors have taken note of the field’s progress and are placing their bets. Juno has a $4 billion-plus valuation in the wake of its IPO last month.
Kite itself has a market cap of more than $2 billion, and its recent secondary offering added to the roughly $230 million it already had in the bank, Belldegrun said. Of the funds raised in the recent offering, $50 million will be allocated to development of a manufacturing facility – the company is already negotiating for space near Los Angeles International Airport – and to commercialize its drugs. An additional $30 million will go to expand research and development efforts.
Still, manufacturing the cells is fraught with risk.
“It’s extraordinarily complicated,” said Tony Butler, a Guggenheim Securities analyst in New York. “They’re fragile. You manipulate them and then you unfortunately have to freeze them and ship them back to the hospital where the patient is located, thaw it and then put it back in the patient.”
But that comes with the territory and hasn’t stopped Kite from planning for the future. The firm is contemplating some strategic partnerships and is in discussions with about 20 companies – from big pharmaceutical outfits interested in research or commercialization, down to smaller companies that might play a role in manufacturing the next generation of products – according to Helen Kim, Kite’s head of business development.
“Put it this way, I’ve been with a lot of companies large and small, and it’s really nice being with a company where you’re so popular other people are calling you and wanting to meet with you,” Kim said.
“A lot of date proposals,” Belldegrun interjected, cracking up his team.
“A lot of dates,” Kim said.
