Back at the start of July, we published this piece on Kitov Pharmaceuticals Holdings Ltd (ADR) (NASDAQ:KTOV).
At the time, the company was trading for in and around $1.95 a share and we suggested that this level was under-representative of its overarching long-term potential but, in addition, that we weren’t surprised to see it trading below inherent value.
Our thesis was relatively simple.
The company was in the process of submitting a new drug application (NDA) for its lead development asset by way of a third party electronic submission platform and, because of this submission choice, was filing each section of the NDA one by one with the agency in the US. This sort of filing practice can be efficient and cheap, but it can also bring with it some degree of uncertainty as to when the submission will complete and, in turn, when the drug in question will be up for review by the FDA in the US.
On the back of this, we suggested that submission completion and, in particular, the acceptance of the submission by the FDA and the subsequent setting of a PDUFA date by the latter, would lift the uncertainty and, with it, a large portion of the risk associated with the stock.
When risk lifts, so does sentiment and when sentiment lifts, so does share price.
This week, we have had our thesis validated almost to the letter.
The company just announced that not only has it completed its electronic submission of the NDA for the asset in question, a drug called KIT-302, but that the FDA has accepted it for review and has subsequently set a PDUFA date for KIT-302 of May 31, 2018.
As of last close, Kitov went for $3.15 – a 62% run on our initial highlight price.
The importance of this development cannot be understated.
Investors at this end of the biotechnology space have to consider cash balance and – by proxy – runway as a primary risk before taking the plunge. If you don’t know how long it’s going to be before a company can have a shot at generating revenues with its development asset, the risk you are required to take on is completely open-ended as cash runway is impossible to calculate against near-term chances of revenue generation.
Now that a PDUFA is in place, an investor knows exactly when the FDA is going to greenlight KIT-302 or not, allowing them to be much more accurate with a risk-reward calculation.
For those new to this company, the drug is targeting pain caused by osteoarthritis and hypertension and the data that underpins the application is relatively strong (both from a safety and efficacy perspective) meaning it should have a pretty solid chance at picking up a regulatory thumbs up with its first time in front of the agency.
Outside of KIT-302, we also now know that the company has upped its holding in TyrNovo Ltd., a privately- held developer of novel small molecules in the oncology therapeutic field, from 65% to 92%, meaning it now has a potentially impactful interest in TyrNovo’s NT219 asset, which has shown considerable promise when used in combination with oncology blockbuster Keytruda.
Cash on hand at end June is a little over $8 million and we saw a $3 million raise back in July. There is a good chance that the company will raise money between now and the above-discussed PDUFA date since it’s probably going to need cash to support a commercialization effort for KIT-302 in the US. These sorts of raises will generally be dilutive to a degree, but if the cash raised goes towards something like a strong commercialization effort (as is the case here) then the decline brought about by the dilution will generally be quickly offset by topline impact.
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Disclosure: We have no position in KTOV and have not been compensated for this article.