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.  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.”  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.
Public funding is backing a new immunotherapy treatment, but the bulk of any profits will go to a private company. So are taxpayers getting a good deal?