The Baupost Group's 4Q13 positions: An investor's must-know guide (Part 3 of 6)
The Baupost Group and Kindred Biosciences
Seth Klarman’s Baupost Group started new positions in Fidelity National Financial Inc. (FNF), Kindred Biosciences Inc. (KIN), and Alon USA Partners LP (ALDW) and increased its positions in Idenix Pharmaceuticals (IDIX) and PBF Energy Inc. (PBF).
The Baupost Group opened a new position in animal health company Kindred Biosciences Inc. (KIN) that accounts for 0.92% of the fund’s $3.5 billion portfolio. Baupost disclosed a 17.93% passive stake in the company via a 13G filing in December 2013.
The Burlingame, California, veterinary drug developer saw an IPO in December of last year and sold 7,500,000 shares at $7 per share, amounting to a total offer of $52.5 million. Shares surged 71% during the debut before closing at $11.95.
Kindred’s lead product candidates are CereKin (for the treatment of osteoarthritis pain and inflammation in dogs), AtoKin (for the treatment of atopic dermatitis in dogs), and SentiKin (for the treatment of post-operative pain in dogs). All of these product candidates, if approved, would be first-in-class drugs in the pet therapeutic market. In August 2013, the drug maker initiated the pivotal trial for CereKin, and it expects to initiate the pivotal trials for AtoKin and SentiKin by early 2014. Assuming positive results from these trials, Kindred intends to submit new animal drug applications, or NADAs, for marketing approval of CereKin, AtoKin, and SentiKin in the United States starting in 2014, and the company anticipates potential marketing approvals and product launches in the second half of 2015.
U.S. consumers spent an estimated $53 billion on their pets in 2012, according to the American Pet Products Association, or APPA—an increase of 38% from 2006. The veterinary care segment has been among the fastest-growing segments of the overall U.S. pet market. This segment accounted for an estimated $13.7 billion in 2012, an increase of 48% from 2006. In 2011, approximately $4.3 billion was spent on parasiticides and vaccines and approximately $2.4 billion was spent on pet therapeutics, Kindred’s target segment. Kindred believes several factors, including the increased longevity of pets and willingness of pet owners to treat their pets with medications, will contribute to continued growth in consumers’ spending on pet therapeutics.
The company said in its IPO filing that it has yet to generate revenue and it posted a cumulative loss of nearly $2 million since it was founded in 2012. Kindred’s backers include Adage Capital Partners and EcoR1 Capital Fund.
Kindred recently said fourth-quarter loss widened to $2.4 million (or $0.40 per share) from $120,000 or ($0.06 per share) in the same period last year. For the year ended December 31, 2013, its first full year of operations, Kindred Bio reported a net loss of $4.2 million (or $1.13 per share). Research and development expenses for the fourth quarter of 2013 increased to $1.8 million, compared to $75,000 for the period from September 25, 2012 (its date of inception), to December 31, 2012.
With respect to spending in 2014, Kindred Bio is aggressively expanding its pipeline and accelerating its programs. As a result, the company sees its expenditures increasing significantly from the annualized fourth quarter 2013 level. Accordingly, the company’s guidance on spending for 2014 is $14 million to $16 million.
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