Kite Pharma (KITE) PT Trimmed to $77 at Maxim Group
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Maxim Group analyst Jason McCarthy reiterated a Buy rating on Kite Pharma (NASDAQ: KITE) but lowered its price target to $77.00 (from $87.00) following Q2 results.
- Kite reported 2Q16 with $4.8M in revenue and a net loss of $64.3M. The company began the quarter with $531M in cash.
- Kite continues to advance its lead CAR-T program KTE-C19 towards pivotal data, expected this fall. The ZUMA-1 study has completed enrollment of all 72 relapsed/refractory (r/r, i.e. salvage setting) lymphoma patients and data from the first 50 patients, which will be used to support a BLA (if positive), are expected later in 3Q. However, recent events (clinical hold, subsequently lifted) in a pivotal study for Kite's competitor Juno ([JUNO - $32.69 - Buy], targeting r/r leukemia) have highlighted a significant challenge facing the CAR-T companies: what is the "perfect" balance of "preconditioning" to create the right environment for CAR-T cells to be the most effective while limiting severe side effects (including death)? Meaning, what risk/reward ratio is acceptable to gain approvals in CAR-T?
- CAR-T reality. The unprecedented efficacy observed in the salvage setting outweighs the risk of side effects (provided it is not death) and likely will lead to KTE-C19 approval in 2017 for patients with r/r lymphoma. The challenge will then be moving to the "less sick" patients (larger commercial opportunity), where in our view, a better understanding of the side-effect profile and risk/reward ratio is necessary, likely leading to a slower uptake of CAR-T long-term.
- Model changes. The potential commercialization of KTE-C19 in 2017 remains unchanged in our model, however, we have factored in a slower uptake into "less sick" patients. We believe approvals in additional indications could take more time, and as such we have extended timelines to 2020, from 2019. The net effect is a reduction in our price target to $77 from $87, which still leaves plenty of upside to support our Buy rating.
- Conclusion. We believe it is prudent to adjust our forecasts given a combination of a bearish biotech market environment, catalysts, and revisions to our therapeutic model, as well as other related assumptions. We then apply a modest discount rate of 15% to our free cash flow, discounted EPS, and sum-of-the-parts models, which are equally weighted. The net result is a reduction in our price target to $77, from $87, which still supports a Buy rating given KITE's valuation today.
Shares of Kite Pharma closed at $58.25 yesterday.
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