Ideas Elsewhere: Kinnate Biopharma (KNTE)

Potential Company Sale – 20% Upside

Clark Street Value shared his thoughts on Kinnate Biopharma, a biotech that had recently discontinued several of its most advanced development programs and laid off 70% of its workforce. The company is trading at a substantial discount to net cash. Although KNTE did not launch a strategic review and will continue to pursue earlier-stage development programs, it appears that the company is likely to be sold promptly. Last month, KNTE received a non-binding expression of interest (at an undisclosed price) from major shareholders Foresite Capital and OrbiMed Advisors, holding a combined 46% stake. Foresite has previously pursued a similar playbook with Pardes Biosciences. Shortly after the receipt of the offer, KNTE changed bonus structure adding lucrative payouts to key executives in a company sale scenario. Tang Capital also got involved building 6% position in KNTE – given Tang’s history of takeover bids in the ‘busted biopharma’ space, the activist is likely to support a potential sale of the company. While the offer price has not been disclosed, there appears to be some headroom for a bid above the current trading levels. Assuming a potential takeover offer at the same 15% discount to net cash as with PRDS would imply a price target of $2.65/share or a 20% upside. While the potential downside to pre-announcement levels is significant, it seems that management might have limited options here as major shareholders have indicated their lack of interest in other strategic transactions.

Note: The ‘Ideas Elsewhere’ section is intended to highlight interesting event-driven investment ideas by other authors. These ideas are not my own, and I am simply summarizing them to bring attention of SSI subscribers. I might not actively follow the developments of these ideas, so there might be limited updates or follow-ups in the comments section.


8 thoughts on “Ideas Elsewhere: Kinnate Biopharma (KNTE)”

  1. I got out when it spiked over $2.50 expecting to pay for the sin by having them announce a sale at $3 or something even more ridiculous. Since its fallen back a bit I guess I dodged that punishment for now. I still think this is a high confidence exit north of $2.50 but man is mortal and our knowledge always incomplete so I need much better prices before I get back in.

    • Any thoughts on potential value of the CVR ” plus one non-transferable contingent value right per share, representing the right to receive (a) 100% of the net proceeds payable from any disposition of the Company’s investigational pan-RAF inhibitor, exarafenib, and/or any other pan-RAF inhibitors prior to the closing of the merger transaction and (b) 85% of the net proceeds payable from any disposition of other Kinnate assets entered into prior to, or within one year from, closing and received within five years of closing pursuant to a definitive contingent value rights agreement.”
      Also, any thoughts around the stipulation for “availability of at least $120 million of cash (net of transaction costs, wind-down costs and other liabilities) at closing” –

      • I think cash conditions should be satisfied and the margin of safety is pretty decent:

        KNTE had $180m cash as of Sep’23 (this already includes $2m in restructuring costs incurred in Q3);
        – plus $3m in prepaid expenses;
        – less $15m in accounts payable and accrued expenses;
        – less $10m in Q4’23 cash burn;
        – less $1.2m in restructuring costs (related to the January layoffs);
        – less $10m cash burn for two more quarters until closing (seems conservative enough as the company retained only 12 employees post-January layoffs);
        – less $1m in lease termination expenses;
        equals to around $145m of net cash at closing.

        Regarding the CVR, all of KNTE’s treatments are either pre-clinical or in phase 1, so it’s difficult to believe there’s any value there and it looks more of a free option at the moment. KNTE’s most advanced program exarafenib (phase 1) was discontinued in Sep’23 and KNTE since re-focused on drug’s pre-clinical trial in combination with another treatment. The fact that the buyer agreed to give 100% of the potential sale proceeds of exarafenib to KNTE’s shareholders might suggest it also saw limited value in it.

  2. Sale of exarafenib + “other assets” announced today – 500k upfront + 30.5m milestone payment for 1st patient dosed in a “pivotal” trial for “exarafenib or any other asset acquired”. There is some other language around alt triggers around filing for AA / NDA but not sure how you get there without a patient in a pivotal trial first.
    With 47m shares, the max CVR value for exarafenb now appears to be ~$0.65 (minus fees/expenses) though with low upfront / high milestone and linking the milestone to pivotal/filing it feels like low likelihood.
    Any thoughts from others?

    • KNTE’s buyer XOMA probably saw limited value as it agreed to give KNTE’s shareholders full exarafenib proceeds in a potential asset sale. Now, the asset sale happened, and the buyer Pierre Fabre Laboratories gave only $0.5m cash outright while $30.5m is based on milestone payments. With the treatment being in such early developmental stages, it’s hard to view it as anything other than a free option. Curious to hear other thoughts.

    • Buyer also assumed $5M in liabilities, which I think makes first distribution likely top of range. The CVR is very speculative though so not excited at current prices.


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