2023-08-09 16:21:48 ET
Summary
- Kymera Therapeutics' valuation is difficult to estimate due to lack of positive net income, making it a poor buy.
- The company received FDA Orphan Drug Designation for KT-253, a potential treatment for acute myeloid leukemia, boosting its prospects.
- KYMR's partnership with Sanofi provides significant funding opportunities, but the company's lack of profitability and potential need for capital raises are concerning.
Investment Outline
The valuation of Kymera Therapeutics ( KYMR ) remains difficult to estimate as the company is still many years out from the first positive net income. This uncertainty seems to not hover over the company anyway as the p/s sits at some of the highest levels I have come across, over 18x on a forward basis. Even if growth is rapid, that leaves a lot of "dead time" when the share price would have to go nowhere for the valuation and earnings to eventually catch up. I think KYMR presents itself as a rather poor buy because of this.
The company operates in the biotechnology industry, an industry that has been labeled as very risky given the uncertainties and regulatory constraints a lot of the companies have to undergo. The company focuses on discovering and developing novel small-molecule therapeutics that degrade disease-causing proteins. The company is at the forefront of this and the opportunities look enticing, which leads me to at least have a more neutral hold rating for the company.
Recent Developments
Back in June of 22, KYMR received the positive news of recording an FDA Orphan Drug Designation for KT-253 which is a novel and highly potent and selective MDM2 degrader aimed at the treatment of acute myeloid leukemia. This is fantastic news for the company as it brings them one step closer to expanding manufacturing and justifying the valuation that it has right now.
The CEO of KYMR Nello Mainolfi had some remarks on these developments saying the following, "This orphan drug designation reinforces the potential of KT-253 to advance the treatment of AML by targeting MDM2, a protein that has been challenging to effectively drug with conventional medicines. We have a significant opportunity to deliver an important new medicine that acts on this common cancer mechanism, and we look forward to rapidly advancing KT-253 in AML and exploring its potential in other hematological and solid tumors".
Company Overview (Investor Presentation)
The market that KYMR could tap into is massive and this optimism has led to the share price being valued at these levels. There isn't perhaps as much optimism in the market though as the short-interest sits at 21% for the company. A failure to deliver on strategic goals will likely result in the share price getting cut once more.
2023 Targets (Investor Presentation)
There are a lot of targets for KYMR to achieve right now, one of them being to demonstrate solid results in many of its projects. I don't think we should be expecting any significant growth to the revenues anytime soon but rather look out for positive study results and approval from government entities.
One of the key advantages though with KYMR right now above other similar companies is the fact it has engaged in a partnership with Sanofi ( SNY ), a giant company in the industry based in France. This is opening up significant funding possibilities for KYMR which should let them be able to continue developing and eventually reach a point where they can be self-sustaining based on sales and margins.
Margins
Margin Profile (Seeking Alpha)
Margin-wise for KYMR it's quite horrible. The company lacks any form of profitability in terms of gross margins. This has lent to burning cash quite quickly. The cash sits at $52 million right now, down from $68 million in December 2022. That decrease is perhaps not that worrying seeing that the company is still in the early stages of development, but what it does do is increase the likelihood of needing to raise capital in either the latter part of 2023 or the being on for 2024. Seeing as the company has a history of diluting shares to raise capital I think it's likely raising future capital will come from this practice. That doesn't incentivize a buy in the company in the least and contributes to my hold rating for them.
Risks
The journey of the company's shares has been tumultuous, experiencing a significant decline of more than 75% from their peak after the IPO. This decline reflects a combination of market dynamics, investor sentiment shifts, and the inherent uncertainties associated with early-stage biotech companies. As for investors, the company has not been very rewarding and likely contributed to the high short interest for them. But with that, significant positive news might result in the share price shooting up quickly.
Crucially, it's important to acknowledge that the path to potential commercialization in the biotech industry is often long and riddled with hurdles. The process of developing novel therapeutics, conducting clinical trials, obtaining regulatory approvals, and ultimately bringing a product to market is a complex and resource-intensive endeavor. It requires not only scientific expertise but also substantial financial investments and a significant amount of time. Recognizing that the company is still in the preliminary stages of this journey underscores the inherent risk associated with investing in a company that is not yet near the finish line of commercialization. Luckily, it seems that the partnership with SNY is helping with this somewhat. The healthcare giant has a lot of funds they could potentially disperse to KYMR to keep operations and developments up.
Investor Takeaway
KYMR is a very early-stage company in the biotechnology space where it focuses on both discovering and developing novel small molecule therapeutics that selectively degrade disease-causing proteins. The technology is cutting-edge and has lent the company a partnership with healthcare giant Sanofi.
I think however there isn't a substantial amount of progress made, yet that would make me want to rate the company a buy. Instead, I think KYMR makes a lot more sense as a hold.
For further details see:
Kymera Therapeutics - Need More Developments Before Making This A Buy