Wind beneath Kite Pharma

December 19, 2015 11:00 AM

Like many other businesses that went through the IPO process in 2014, Kite Pharma (KITE) is involved in the biotechnology and healthcare industry. The small companies in this industry aim to focus on one area in the hope of finding a profitable solution to a disease that is currently not served adequately, or one that is completely untreated.

Kite Pharma, founded in 2009, is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient’s own immune system to eradicate cancer cells. To achieve this, KITE is developing a pipeline of product candidates for the treatment of advanced solid and hematological malignancies using a therapeutic platform—engineered Autologous Cell Therapy (eACT)—in which a patient’s own T cells, or white blood cells, are engineered to recognize and destroy their cancer. 

The patient’s immune system, particularly T cells, plays a critical role in identifying and killing cancer cells. KITE’s eACT technology involves the genetic engineering of T cells to express either chimeric antigen receptors (CARs) or T cell receptors (TCRs). Their technology has been developed in part through collaboration with the National Cancer Institute, Surgery Branch through a cooperative research and development agreement (CRADA). KITE is advancing a pipeline of proprietary eACT-based product candidates to create personalized therapies targeting a broad range of indications in cancer. 

While impressive, KITE’s story alone doesn’t necessarily mean the stock will rise. Recommending a name with no earnings and a $2.5 billion market cap (when “buy” was initiated) is unusual for us. KITE deserves to be an exception. Ten years ago there were biotech names trading with market caps of a few billion dollars and no earnings; today some of those names are with market caps of $10 billion to $20 billion. Yes, they are volatile early on, as we see in “KITE’s time to soar.” The shares came down more than 40% from the 2015 high along with most of the industry, and that may be presenting a good entry point. 

Here are a few of KITE’s 2015 highlights:

  • Presented clinical biomarker results at the 2015 American Society of Clinical Oncology Annual Meeting, which demonstrated that conditioning chemotherapy was associated with a significant rise in homeostatic cytokines and chemokines, which could favor expansion, activation and trafficking of CAR T cells. 
  • Announced its first TCR product candidate, targeting HPV-16 E6, which they plan to advance to a company-sponsored clinical trial. 
  • As of June 30, 2015, Kite had $393 million in cash, cash equivalents and marketable securities, compared to $367 million at the end of 2014.
  • R&D expenses were $16.6 million for Q2, FY15, compared to $7.4 million for Q2, FY14. The increase was primarily due to costs associated with the ongoing KTE-C19 Phase 1/2 clinical trial in DLBCL, preparing for the additional trials in acute lymphoblastic leukemia (ALL), mantle cell lymphoma (MCL) and chronic lymphocytic leukemia (CLL) later this year, as well as increased personnel expense, including non-cash stock-based compensation and costs related to growing KITE’s operations in the United States and European Union. 

Our initial buy recommendation for KITE was made at the end of August when it dipped below $50. We have downgraded KITE to hold after the massive fall rally pushed it above $80, but will reinstate the “buy” on a dip below $75 and maintain our target of $100 for KITE by 2017-18.

About the Author

Ronnie Moas is the founder and director of research at Standpoint Research. TipRanks recently ranked Ronnie #1 in a ranking of 3,500 analysts evaluating more than 400 of his recommendations since 2008. Ronnie Ideas are generated by a 155-variable computer model after heavy fundamental and subjective overlays are applied. Ronnie is also the founder of Research free trial at @RonnieMoas