KaloBios’ Active Clinical Pipeline Could Prove Transformative in the Next 6-12 Months

Before the markets opened on Thursday morning, KaloBios reported second-quarter financial results and provided an update on clinical programs. While the financial results were a non-event, the company provided an updated clinical development timeline, highlighted by the possibility of two potential data readouts within the next 6-12 months, which we believe could be transformative for the company, given the current valuation. In our opinion, KaloBios stands to benefit from increased interest in partnership opportunities with KB001-A, pending positive data in the CF indication.

Notably, given the program had already received Fast Track designation from the FDA, the potential partner could proceed directly to a pivotal trial, which in our view could be registration enabling. We believe clinical success in the Phase II CF trial of KB001-A would sufficiently de-risk the asset, and we are therefore encouraged by the asset’s partnership potential going forward. The company reported that the Phase I dose escalation study completed enrollment in July and identified the dose for the planned Phase II expansion trial.

We highlight the absence of dose-limiting toxicity associated with the KB004 compound, and we agree with management’s decision to enrich for EphA3-positive patients for the Phase II study, which we believe stands to benefit from increased efficacy profile by optimizing KB004’s clinical activity. Importantly, we are encouraged by the positive response with KB004 in a variety of hematologic cancer with significant unmet medical needs, and we look forward to a potential data update in 2015.

We believe the next 6-12 months could potentially be transformative for the company, given the current valuation. With data announcements with KB001-A in CF in the first quarter of 2015 and KB004 in a number of hematologic cancers in mid- 2015, we believe the stock could potentially appreciate from current price levels, pending positive outcomes. Moreover, with $59 million in cash, we project the company has sufficient runway through the aforementioned events. We updated our financial estimates, which reflect operating trends in exhibit 3. We believe KaloBios’ technology platform remains underappreciated by the Street. The company has two potential trial readouts expected within the next 12 months and cash runway through these events. We therefore maintain our Outperform rating on KaloBios shares.

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