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KTRA: 2Q:21 Update & Target Price Increase

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By John Vandermosten, CFA

NASDAQ:KTRA

READ THE FULL KTRA RESEARCH REPORT

Second Quarter Fiscal Year 2021 Operational and Financial Results

Kintara Therapeutics, Inc. (NASDAQ:KTRA) announced second quarter financial and operational results in a February 12th press release and filed its 10-Q with the SEC for its fiscal second quarter ending December 31, 2020. The reporting period included the execution of the agreement between Kintara and the Global Coalition for Adaptive Research (GCAR) for participation in GCAR's Glioblastoma Adaptive Global Innovative Learning Environment (GBM AGILE) study. Interim data from the MD Anderson newly-diagnosed, MGMT-unmethylated study demonstrated improved survival. Data was released in November and final patient enrollment was announced on February 17th. In January, VAL-083 was started in the GCAR trial with the initiation of patient recruitment. Our updated model reflects a contribution from VAL-083 in methylated patients and updates anticipated shares outstanding generating our new target price to $5.25 per share.

Financial Summary for 2Q:21

Kintara reported no revenues in 2Q:21, matching results in the prior year period. Operating costs were $5.4 million which includes a full quarter of expenses after the combination with the former Adgero Biopharmaceuticals in August 2020. Research and development expenses rose substantially over 2Q:20 levels by almost 200% to $2.6 million. Increases were attributable to higher clinical development costs related to the GCAR GBM AGILE study and additional expenditures related to the REM-001 program. Non-cash share based compensation was also greater year over year. General and administrative expenses increased 160% due to higher non-cash compensation and additional personnel related to the Adgero merger.

Other loss was $35,000 comprised predominantly of amortized deferred loan costs. There was a small component of net interest expense and a $3,000 foreign exchange loss.

Cash on the balance sheet as of December 31, 2020 was $17.2 million, compared to $2.4 million as of fiscal year end 2020. The change in the balance was the sum of cash from financing of $23 million offset by ($9.5) million in cash burn. Shares outstanding as of February 10, 2021 were 30.6 million in active equity shares with another 19.5 million shares represented by the unconverted Series B and Series C preferred stock (see share balance on page 1) (1). The increase in shares on page 1 of our report is represented by exercised warrants and options up to February 10, 2021.

Operational Update for 2Q:21 and to Date

In January, Kintara announced the start of patient recruitment in the Global Coalition for Adaptive Research (GCAR) registrational Phase II/III clinical trial for glioblastoma multiforme (GBM). Kintara’s candidate, VAL-083, will be considered in three subpopulations: newly-diagnosed methylated O6-methylguanine-DNA methyltransferase (MGMT) GBM, newly-diagnosed unmethylated MGMT GBM and recurrent GBM.

In the January press release, Kintara announced that GCAR would be adding an additional active arm to VAL-083’s study in newly-diagnosed methylated GBM patients, complementing the existing arms investigating newly-diagnosed unmethylated and recurrent GBM. We had hypothesized this eventuality in our initiation, highlighting the benefits of the adaptive nature of the GCAR structure, which allows for multiple subtypes of GBM to be evaluated. Methylated GBM patients see some benefit from the current standard-of-care temozolomide (TMZ) and may be better served by VAL-083.

Our Thesis

Kintara is developing multiple oncology assets. The first, VAL-083, is expected to yield topline results in 2023, followed by a new drug application (NDA) and a 2025 launch of the product in selected geographies. The second is REM-001, a photodynamic therapy (PDT) that consists of a drug, a laser light source and a light delivery device, which is expected to start a confirmatory trial in 2021 and later convert into a Phase III study, generating data by late 2023, followed shortly after by NDA submission and commercialization in 2024.

VAL-083 presents a differentiated mechanism of action and a favorable safety profile, especially in contrast with other commonly used agents. It is a bifunctional compound that is able to alkylate N7-guanine to form interstrand crosslinks and force double strand breaks. Unlike standard of care TMZ, the response to VAL-083 is not dependent on MGMT promoter methylation status. At the target dose, only a minority of patients presented dose limiting toxicities and the drug is well tolerated.

REM-001, will begin a dose identifying confirmatory study in 2Q:21 enrolling up to 15 patients as a direct lead-in to Phase III. Extensive studies have been conducted that have characterized the safety and efficacy of REM-001 to address CMBC. The cancer has no effective treatments despite minor benefits from surgery, chemotherapy, radiotherapy and other approaches.

Current approaches to both GBM and CMBC are insufficient. If Kintara’s VAL-083 and REM-001 are successful in clinical trials, we see these treatments fulfilling an unmet need in two areas that command strong pricing and significant populations. Each of Kintara’s candidates have other indications that may also be addressed, providing additional opportunities for this small cap company.

Kintara Pipeline (2)

Corporate Milestones

Kintara is conducting multiple clinical trials for GBM in VAL-083 and will soon launch a pivotal study for REM-001. The focus for the company is to complete the various Phase II trials underway. Kintara began the GCAR registrational effort and is on the cusp of enrolling patients. It aims to start Phase II for REM-001 by 2Q:21. Below we list recent milestones and anticipated future events.

➢ Launch GCAR AGILE registration study, stage 1 – 4Q:20

➢ Top-line preliminary results for Newly Diagnosed Phase II GBM study at SNO – 4Q:20

➢ Top-line preliminary results for Recurrent Phase 2 GBM study – 1Q:21

➢ Begin enrollment, GCAR GBM AGILE Study – January 2021

➢ Initiate CMBC confirmatory trial – 2Q:21

➢ Top-line preliminary results for Adjuvant Phase 2 GBM study – 2Q:21

➢ AACR Data Updates for Phase II GBM – 2Q:21

➢ CMBC confirmatory trial results & Phase III start – 4Q:21

➢ GCAR AGILE registration study, stage 2 – 1Q:22

➢ CMBC trial complete – 2023

➢ CMBC NDA filing - 2024

➢ GCAR AGILE top-line results – 2023

Valuation

We update our valuation based on the 1) addition of a methylated arm to the GBM AGILE trial, 2) updated share count and 3) estimate of future capital needs in light of materially improved share price. We have identified approximately 11,500 US and 11,400 top 5 European market cases of GBM per year. We assume that if VAL-083 is successful in the methylated population, VAL-083 can penetrate 10% of this 40% of the GBM market. Due to the higher hurdle that must be overcome against a population in which temozolomide has demonstrated some effectiveness, we apply a 50% probability of success compared to the 60% we use for VAL-083 in the unmethylated population. Similar to our estimates for VAL-083 in the unmethylated population of GBM, we forecast a 2025 launch of the product in both US and EU markets. Initial penetration into the addressable market is expected to be 5% rising to 10% over the next three years (3). Other components of our model such as pricing and exclusivity periods match the details we use to estimate value for the unmethylated market.

We had originally estimated the need to issue an additional 42 million shares to advance VAL-083 and REM-001 to approval. However, with the strong and steady improvement in share price over the last six months, we reduce the number of shares needed to fund the effort to 15 million.

The addition of the new possibility for VAL-083 in the methylated population and fewer shares required to fund Kintara’s lead programs to fruition support an increase in our target price to $5.25 per share.

Summary

Kintara’s VAL-083 candidate is poised to make an impact in GBM patients that are treatment resistant, a population that comprises greater than half of the total GBM population. VAL-083 may also acquire market share in the MGMT-methylated population as well, although its efficacy in that population is only now being evaluated in the GCAR AGILE trial. We will update our assessment of success in the methylated population based on additional data for VAL-083 provided in this population.

Kintara is developing a pair of well-researched therapies in oncology with several characteristics that make the candidates particularly amenable to addressing GBM and CMBC. For VAL-083, the ability to cross the blood brain barrier and overcome DNA-repair enzyme resistance combined with the agent’s affinity to be absorbed by cancer cells provides a mechanism of action that may provide superior safety and efficacy compared with the current standard of care. In the case of REM-001, the targeted nature of the approach avoids systemic exposure and addresses many of the shortcomings of surgery, chemotherapy and radiotherapy. Kintara offers exposure to two large oncology markets and is developing assets primed to enter pivotal studies in each. With a wealth of data available for VAL-083 and an unmet need in CMBC, we see Kintara as diversified and undervalued. Based on our updated model we increase our target price to $5.25 per share.

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1. Note that shares outstanding used to calculate our target price includes share balance as of February 10, 2021 as reported on page 1 of the second quarter FY2021 10-Q, assumed conversion of the Series B Preferred Stock and assumed conversion of the Series C Preferred Stock.

2. Source: Kintara 2Q:21 10-Q Filing

3. This contrasts to 50% initial penetration into the unmethylated market. See our initiation for details on our estimates for the unmethylated market.