KalVista: Sebetralstat Nears Approval, Aiming For 2025 Launch (NASDAQ:KALV)

koto_feja KalVista Pharmaceuticals (NASDAQ:KALV) is a clinical-stage pharmaceutical company that develops oral small-molecule therapies for hereditary angioedema [HAE]. KALV’s inhibitors target plasma kallikrein and Factor XIIa in uncontrolled bradykinin generation. These peptides cause inflammatory processes and increased vascular permeability, producing severe swelling (i.e., HAE). Sebetralstat, KALV’s leading product candidate, is an oral on-demand kallikrein inhibitor that recently completed phase 3 clinical trials. Hence, despite the dilutive effects of its recent equity offering, I believe KALV’s pullback post-raise offers a compelling entry price for new investors. Therefore, I rate it a “buy” for investors aware of the inherent biotech risks. Sebetralstat: Business Overview KalVista Pharmaceuticals was established in 2011 and is now based in Cambridge, Massachusetts, with additional offices in Porton Down, United Kingdom, Salt Lake City, Utah, and Zug, Switzerland. It is a clinical-stage pharmaceutical company focused on developing small-molecule orally administered therapies indicated for HAE. In my view, its main value driver is Sebetralstat, its late-stage drug candidate now pending regulatory approval. Sebetralstat, if approved, would be the first oral HAE treatment in the $900.0 million on-demand HAE market. KALV leverages its expertise in the Kallikrein-Kinin System [KKS], which involves enzymes and their substrates. These produce peptides called kinins related to inflammation, pain, vascular permeability, and blood pressure regulation. Plasma kallikrein is associated with the generation of bradykinin. Broadly speaking, bradykinin contributes to inflammatory vascular processes, and Factor XIIa activates the plasma that produces bradykinin. Both enzymes are part of the KKS, and KALV’s drug candidates target those related conditions caused by unregulated bradykinin production. It’s worth mentioning that HAE is a rare genetic disease causing recurrent outbreaks of intense swelling called angioedema. These edemas can affect the skin and gastrointestinal tract, producing abdominal pain, nausea, and vomiting. They can also affect the respiratory tract, leading to upper airway obstruction, which can be potentially life-threatening. Source: Corporate Presentation. June 2024. Moreover, HAE is typically HAE)%20is%20a,threatening%20episodes%20of%20upper%20airway” rel=”nofollow”>associated with C1 inhibitor protein deficiency, which causes uncontrolled kallikrein plasma activation and increased bradykinin production, leading to severe swelling. Unfortunately, HAE is an orphan disease with an incidence of 1 in 10,000 to 1 in 50,000. In the US, 6,500 to 8,000 patients have around two monthly episodes. However, if KALV is successful with its current research, it could tap into a new market with a solid competitive profile. Therefore, KALV’s flagship drug candidate is Sebetralstat, an oral, on-demand kallikrein inhibitor for HAE. Currently, there’s an approved injectable plasma kallikrein medicine indicated for HAE. However, KALV is developing orally administered, non-invasive alternatives for this and other KKS-related diseases. Sebetralstat has completed its KONFIDENT phase 3 clinical trial and reported positive data meeting all primary and secondary endpoints with good safety profiles. Also, the company recently submitted its NDA on June 18, 2024. It’s worth noting that KALV’s ongoing KONFIDENT-S trial should provide more safety data, potentially paving the way to FDA approval. The formula for orally disintegrating tablets [ODTs] is also in the documentation and data preparation phase to support a supplemental New Drug Application [sNDA] to the FDA. The company’s ODTs dissolve in the mouth without water, which is convenient for patients who cannot swallow traditional tablets. Lastly, the company intends to run another KONFIDENT-KID trial in Q3, 2024 to test such ODTs as a potential new treatment alternative. Source: Corporate Presentation. June 2024. Lastly, KALV has another drug candidate called the Oral Factor XIIa Inhibitor for multiple potential indications. However, it’s currently in the preclinical stage, so I wouldn’t consider it a major value driver. Still, this program aims to develop next-generation treatments for HAE and other conditions related to the KKS. KALV is planning this research in partnership with another company that provides expertise and resources to reduce the related R&D expenses. They might facilitate the drug’s progression along the FDA’s regulatory approval processes. The Sebetralstat Opportunity: First Oral Therapy for Acute HAE Sebetralstat is poised to become HAE’s first oral therapy, unlocking a $900 million on-demand market for treating acute HAE episodes. Sebetralstat could also improve the current standard of care, enhancing its TAM to the entire $2.9 billion HAE market. These therapies include prophylactic, on-demand, and supportive care treatments. Source: Corporate Presentation. June 2024. What I find particularly exciting is that KALV’s NDA on June 18 will soon be followed by applications to EU, UK, and Japan regulatory authorities in 2H2024. If Sebetralstat is approved in the US, it’s much more likely to obtain approvals in other jurisdictions. This means KALV could launch Sebetralstat by 2025 across several markets worldwide. Additionally, KALV has ensured IP protection and full rights for this medicine until the 2040s, providing long-term market exclusivity, which is vital for considering its longer-term prospects. Promising Post-Raise: Valuation Analysis As of January 2024, KALV’s balance sheet held roughly $23.1 million in cash and equivalents plus $52.5 million in marketable securities. It also has an R&D tax credit receivable worth $23.0 million, which could be sold for liquidity if needed. Then, in February 2024, KALV announced an additional equity offering and raised $150.1 million in net proceeds. Adding up these four figures suggests total available short-term funds of about $248.7 million. Likewise, this raise increased the diluted shares outstanding from 34.7 million in January 2024 to 45.2 million post-raise. This implies a fully diluted market cap of $530.9 million using the latest stock price of $11.74. Moreover, since the company remains pre-revenue, I’ll value it through its book value. As of January 2024, its book value was $88.6 million. However, after the recent equity raise, I estimate it increased by about $150.1 million (the funds raised), resulting in stockholders’ equity of approximately $238.7 million post-raise. This means KALV trades at a P/B ratio of 2.2. For context, its sector median P/B multiple is 2.32, so it looks slightly undervalued from that perspective. I also calculated that KALV’s latest quarterly cash burn was approximately $27.7 million by adding its CFOs and Net CAPEX. This suggests a yearly cash burn of about $110.8 million, which is moderate compared to the short-term liquidity figure I previously estimated. This indicates that KALV’s cash runway is 2.2 years post-raise. However, I imagine this estimate might be somewhat higher as it used the recent quarterly figures when KALV invested heavily in its recent phase 3 trials that it just concluded. KALV’s cash burn may decrease going forward because its focus is now on obtaining regulatory approval with its trial data, which should be less cash-intensive than conducting trials. Source: Seeking Alpha. Nevertheless, KALV has enough resources to fund its potential commercialization initial efforts in 2025. Still, KALV’s CFO recently disclosed a sale of 40,855 KALV shares worth $613,205. I can only speculate on the reasoning behind it. But I don’t interpret it as a vote of confidence when the CFO sells 20.4% of his shares in the company. Ultimately, I lean bullish on KALV because while it recently diluted shareholders, its current financials support its potential launch in 2025. Moreover, if KALV starts to generate revenues, my cash runway estimate will probably be extended further. KALV could also take on some debt on favorable terms with a revenue-generating product backing it. Since the shares are down about 30.0% from their 52-week high of $16.88 in February 2024 pre-raise, I suspect the offering’s dilution effect is already priced in. So, on balance, I think KALV is a promising investment at this juncture, so I rate it a “buy” for new investors at these levels. Investment Caveats: Risk Analysis Naturally, my investment thesis hinges on Sebetralstat obtaining the required regulatory approvals for KALV to initiate its commercialization efforts. However, meaningful setbacks on this front could significantly detract from its investment appeal, likely translating to shareholder losses. Moreover, it’s important to remember that Sebetralstat is uniquely differentiated in its market, but HAE has some treatment alternatives today. Source: TradingView. So, while its competitive profile is favorable, large market adoption is not guaranteed. If revenues disappoint, it could also likely cause a stock price decline as the market reassesses KALV’s potential. Still, at this juncture, I think KALV does present a favorable investment profile because it has good approval odds and is essentially at the finish line of the regulatory approval process. The company also has enough resources for the foreseeable future after its recent raise, and the recent pullback in the shares offers a favorable price entry for new investors. Good “Buy”: Conclusion Overall, KALV is a promising biotech investment in the sector. Its flagship drug candidate, Sebetralstat, seems remarkably close to obtaining regulatory approvals across several jurisdictions. KALV also recently performed a successful capital raise, providing it with enough resources for the foreseeable future until its potential commercialization begins in 2025. Moreover, despite the recent dilutive effects, the recent pullback post-raise could offer a compelling entry price for new investors. Therefore, I rate KALV as a “buy” for investors aware of the abovementioned risks.

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