It’s been a while since we last covered Kraig Biocraft Laboratories Inc (OTCMKTS:KBLB). The company is a very early stage biotech (although not a healthcare stock, we’ll get to this shortly) and in theory, its lead technology and resulting product have the potential to capture market share that will exceed its current valuation. That’s the reward potential. The risk is that it’s taken a long time to get to its current stage of operations, a stage that isn’t particularly advanced and should have probably been reached a long time ago, and that this lack of momentum might be representative of a long wait before any value rebalancing takes place – if it ever does.
Right now, Kraig goes for $0.079 a share. That’s a more than 12% premium to the company’s last Monday close, and the run suggests there might be an underlying sentiment shift taking place.
So, what’s our take?
Let’s take a look.
For those new to the stock, Kraig Biocraft uses a proprietary technology in combination with some licensed genetic sequences (licensed from the University of Notre Dame) to create a form of genetically engineered spider silk. Spider silk (the stuff that spiders use to make webs) has long been well known for being incredibly strong, and this strength has the potential to meet a whole host of commercial applications – the lead of which right now, as far as Kraig is concerned, is as a ballistic impact resistant material (in other words, to replace Kevlar in bulletproof clothing and equipment).
The problem is that spiders are cannibalistic, so you can’t just get a bunch of them in a facility and harvest silk from them. Kraig’s technology, and process, allows for the creation of spider silk without the spiders. The company has taken silkworms and genetically engineered them to produce the product.
So that sounds interesting, and promising, and it is both. The problem, however, is ramping up production to commercial levels. Management has spent the last year or so trying to move out of the lab and get to a point where it can provide product, initially, to the DoD in the US for a testing contract. This is one of the real value drivers (if not the primary value driver) for the company right now, and delays in the production chain have translated to delays in supply against the contract, and in turn, the delaying of any potential long term supply agreement between Kraig and the US Government – an agreement that would essentially amount to a golden ticket for the company at its current valuation.
Management just announced the purchase and installation of a piece of kit that can (reportedly) process more cocoons in one hour than the company currently process in a month. This cocoon processing is just one part of a process that incudes a third party, so it’s not a fix-all, but it’s a big step in our eyes to getting to a point where the company might be able to satisfy commercial demand, and by proxy, it’s a positive development.
Further, at the end of last month, the company picked up what’s called an Investment Certificate in Vietnam. Kraig wants to set up a facility in Vietnam that can handle production at low cost, but the process associated with this is pretty drawn out. The Investment Certificate is (for all intents and purposes) the penultimate step towards that aim, and so we should see some sort of development from Kraig in Vietnam near term. Again, it’s not going to change the game for the company overnight, but it’s another box ticked.
The thing with this company right now is that it’s at what we might call ‘claim stage’. Kraig management has spent a lot of time making claims as to what this product can do, and the potential markets that exist, but as yet, we’re yet to see any real delivery against these claims. This doesn’t mean we won’t see delivery, but it makes an exposure that bit riskier. Of course, the opposite can be said on the reward side of the equation.
Management is set to put out a newsletter at the end of this month that might clear up some of the wider market concerns about progress. We’re looking out for this letter as a potential catalyst.
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Disclosure: We have no position in KBLB and have not been compensated for this article.