KNTE - Kinnate Biopharma: Righting The Ship But Still Not The Right Time (Rating Upgrade)

2023-12-12 01:26:03 ET

Summary

• Kinnate Biopharma is focusing on the development of a novel RAF inhibitor to overcome challenges in targeted therapy for melanoma and other BRAF-mutated cancers.
• The company is narrowing its near-term development to work on the RAF inhibitor exarafenib, which has shown promising signs of safety and efficacy.
• Kinnate Biopharma is also working on a MET inhibitor and an FGFR inhibitor, offering potential novel treatment options for lung cancer and pancreatic cancer, respectively.

Topline Summary and Update

Kinnate Biopharma ( KNTE ) is a developmental biotech specializing in discovery of anticancer targeted therapies, most notably a novel RAF inhibitor that may help overcome challenges faced by targeted therapy for diseases like melanoma and other BRAF-mutated cancers. In my first look at the company , I had a strong sell sentiment due to cash concerns and the lack of real catalysts coming up.

The main driver for updated coverage here is that they have recently addressed one of my main concerns considering they're such an early-stage company: high cash burn. This is a very positive development, and I'm starting to feel as though they don't have much more room to fall...as long as they have some kind of potential in the pipeline. A total failure would lead to annihilation, of course, but they're not there yet, which offers potential for the most risk tolerant among us. For me, I'm not convinced this is a buy yet, and I think it's going to take more time in development before anything really starts to sing.

Pipeline Overhaul

As part of their announced restructuring , KNTE has narrowed the focus of their near-term development to work mainly on their RAF inhibitor exarafenib. They are working on finding an optimal dose to move forward with in clinical trials for patients with melanoma that have developed an NRAS mutation, an area of current unmet need.

Exarafenib has previously demonstrated extremely early phase 1 signals of safety and efficacy, and although they are not definitive signs of life for exarafenib, they justify further development, and I look forward to keeping up on the story.

As part of the restructuring announcement, KNTE also gave an update on the data from patients with NRAS-mutant melanoma across the 6 dosing cohorts. 24 out of 44 patients continued on therapy as of the data cutoff, with 12 of 20 evaluable patients having reduction in their tumor burden. 6 out of 16 patients with no prior RAF, MAK, or ERK inhibitor exposure achieved an objective response.

KNTE guided that they expect to select doses for further exploration later this quarter. I expect a formal data readout to come as early as ASCO 2024, but I don't think this will likely be a fully convincing data look one way or the other, given how early the trial still is.

KIN-8741

Also cooking in the early cauldron is KIN-8741, a MET inhibitor in the vain of tepotinib and capmatinib. MET is an important target in non-small cell lung cancer, since it can drive resistance to EGFR targeted therapies or be an actionable target itself in de novo disease. KNTE guided that it anticipates filing an IND to begin human studies this quarter. Ideally, this would offer a potentially novel treatment option in that setting to overcome resistance to approved inhibitors, which is understood to be an inevitable outcome of targeted therapy in lung cancer management.

KIN-3248

KNTE is also working on an FGFR inhibitor, reporting in its company update a few partial responses in patients with pancreatic cancer and no prior exposure to an FGFR2 inhibitor. I'm still anticipating a potential presentation at ASCO GI coming up in January as the earliest formal data readout for this agent.

Financial Overview

In their latest quarterly filing , which is the first financials we've seen after the restructuring of the company, KNTE reported that they had total current assets of $170 million, including $51.7 million in cash and equivalents and $115.9 million in short-term investments.

Their total operating expenses were $33.1 million, down slightly from the previous quarter, so it remains to be seen what impact the workforce reduction is going to have on cash burn. After interest income, KNTE realized a net loss of $30.7 million. This would suggest a runway of 5-6 quarters, but now KNTE is guiding that the funds they have on hand should get them to at least Q2 2026.

Strengths and Risks

Through this restructuring, KNTE is simultaneously solving a big problem and creating a major risk for itself. By relying almost entirely on exarafenib success (at least in the near term), the company finds itself with very few options to pivot while maintaining equity valuation should they report negative trial data. And given that they're still in phase 1 with their trials, you should be willing to accept a high level of risk of failure.

However, they've also bought themselves a lot of time to get to a point of promise. With more definitive positive data in hand, they could raise funds from a position of strength, and the near-$100 million market cap will be a major bargain. This represents a rather interesting "ground floor" type opportunity, since KNTE is rather far along in phase 1 study to start generating some excitement as they move into more crucial trials.

Bottom-Line Summary

I'll reiterate that KNTE offers an interesting opportunity for those with the highest levels of risk tolerance. My big concern with getting in right now would be that exarafenib remains quite unproven, with only the earliest signals of efficacy and seemingly alright tolerability. Not exactly a clear slam dunk. But they have the potential to address a unique unmet need, and they now have the time to see where they might fit, if anywhere.

That said, I'm much more conservative an investor to consider this a solid bet at this time. I don't think there's that much more room for the share price to decline as long as they still have exarafenib in the pipeline . These recent developments, as well as potential catalysts in 2024, mean I feel the need to update my recommendation. I cannot really maintain my previous "strong sell" sentiment, in which I would tell my brother to sell his stake if he had one, and definitely don't go in. Right now, if you feel comfortable with the risk, this has a high upside. But I'm putting this in the sell bucket, more accurately translated "don't buy at this time." It could be a long wait to any kind of convincing data, and that means strong potential for eroding shareholder value.

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