KNSA - Kiniksa Pharmaceuticals: A Somewhat Complicated Story

2023-06-09 12:32:12 ET

Summary

• Today, we take our first look at a commercial stage biopharma concern called Kiniksa Pharmaceuticals, Ltd.
• The company is seeing impressive growth from its primary drug asset and has an intriguing pipeline.
• An investment analysis follows in the paragraphs below.

In self-defense and in defense of the innocent, cowardice is the only sin .”? Dean Koontz.

Today, we put Kiniksa Pharmaceuticals, Ltd. ( KNSA ) in the spotlight for the first time. The stock has made a big move since first quarter results came out five weeks ago and the company raised guidance for its primary drug asset. Can the rally continue? An analysis follows below.

Company Overview:

Kiniksa Pharmaceuticals, Ltd. is locating in Bermuda. The company is focused on building up a portfolio of therapeutic medicines for patients suffering from debilitating diseases with significant unmet medical needs, both via development and via acquisition. The stock currently trades at $15.00 a share and sports an approximate market capitalization of $1.05 billion.

The company gets most of its current revenues via a compound called ARCALYST. This is an interleukin-1alpha and interleukin-1beta, for the treatment of recurrent pericarditis. ARCALYST had Orphan Drug and Breakthrough Therapy status before it was approved for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and pediatric patients 12 years and older in 2021. It is the first and only FDA approved therapy for this indication.

ARCALYST was licensed from Regeneron Pharmaceuticals ( REGN ) via a 50/50 profit sharing agreement . The compound was previously called rilonacept.

The firm has a marketing partner in China around ARCALYST in Huadong, which paid just over $20 million upfront when this agreement was reached in 2022, which included potential milestones of just north of $600 million.

The company has several compounds currently in development, some of which they have licensed out. Kiniksa is developing KPL-404 internally. The company is currently enrolling the third and final cohort of a Phase II study to evaluate KPL-404 as a potential treatment for rheumatoid arthritis. Enrollment should be complete soon. Management also continues to pursue potential collaborative agreements with a compound called mavrilimumab to evaluate its potential in rare cardiovascular diseases. Huadong holds the rights to develop mavrilimumab in Asia, outside Japan.

In August of last year, Kiniksa entered into a global licensing agreement with drug giant Genetech, a unit of Roche Holding ( RHHBY ), around its candidate Vixarelimab. This is a fully human monoclonal antibody that is designed to target oncostatin M receptor beta. As part of this deal, Kiniksa received $100 million in upfront and near-term payments as well as potential milestone payments of nearly $600 million and royalties on annual net sales.

First Quarter Results:

The company posted its first quarter numbers on May 2nd. Kiniksa had a GAAP loss of 18 cents a share in the quarter as revenues rose 50% on a year-over-year basis to $48.3 million.

Net product revenue from ARCALYST jumped to $42.7 million from just $22.2 million in the same period a year ago. Revenue from licensing and collaboration payments totaled $5.7 million, down from $10 million in 1Q2022. Total operating expenses rose to $59.5 million from $55.5 million a year ago.

Due to the continued adoption of ARCALYST in the marketplace and the increasing duration of the therapy program, Kiniksa leadership lifted its full year guidance for sales from this product in FY2023 to $200 to $215 million. This would represent nearly 70% revenue growth over FY2022 at the midpoint of that range.

Analyst Commentary & Balance Sheet:

Since late February, five analyst firms have reiterated Buy/Outperform ratings on Kiniksa stock. Price targets proffered range from $18 to $28 a share.

Just over nine percent of the outstanding float in the shares is currently held short. After posting a net loss of $12.3 in the first quarter, the company had just over $185 million worth of cash and marketable securities against no long-term debt. Management stated that funding in place is sufficient to sustain all planned activities at Kinasa at least into 2026. There has been no insider activity in the shares so far in 2023.

Verdict:

The current analyst firm consensus has Kiniksa Pharmaceuticals, Ltd. losing 63 cents a share in FY2023 as sales move two percent higher to $225 million. They project the company will hit breakeven status in FY2024 as revenues soar over 60%.

There are obviously a lot of moving parts to the investment case to Kiniksa. ARCALYST sales growth is gaining traction and its balance sheet is in a good position. There are some wildcards both within its own wholly own pipeline and the assets it has licensed out that are hard to value with any certainty at this time. A domicile offshore adds a bit to that uncertainty.

Kiniksa Pharmaceuticals stock has had a nice run since first quarter numbers/guidance posted but still trades at approximately three times next year's projected revenues. It seems poised to push to cash flow breakeven status in the foreseeable future.

I am bit on the fence on Kiniksa Pharmaceuticals, Ltd. after the stock's over 30% rally since first quarter results posted on May 2nd. I have taken a small " watch item" position in the stock via covered call orders and will probably add a bit to that holding if Kiniksa Pharmaceuticals stock drifts back to down to the $12-$13 area.

The most part of all princes have more delight in warlike manners and feats of chivalry than in the good feats of peace. ”? Sir Thomas More.

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