KTOV is a clinical-stage pharmaceutical company poised for big gains. They are a speculative investment due to their ties with MRK for a potential acquisition offer.
Excerpt o their latest product offering from Seeking Alpha.
The Most Promising Product Candidate: CM-24
CM-24 is a monoclonal antibody developed to block CEACAM1, a checkpoint, which contributes to tumor immune evasion. Kitov expects to use CM-24 in a combination with several anti-PD1 inhibitors. The company targets non-small cell lung cancer and pancreatic cancer. Bristol-Myers Squibb Company will collaborate with KTOV in the phase 1/2 clinical trials.
The Phase 1 trial, which was conducted by Merck in UCLA and Sheba, assessed safety and tolerability. 27 patients with different conditions received doses from 0.01 mg/kg to 10 mg/kg. The trial shows no discontinuation of study and no drug-related mortalities, so researchers decided to head to Phase 1-2.
KTOV’s shareholders most likely already know that the company acquired FameWave in January 2020. The transaction was smart because it gave the company access to the CM-24 asset.
Careful due diligence reveals ties with Merck. FameWave paid a significant amount of money to one of Merck’s subsidiaries, which discovered CM-24. In my view, smart money managers will appreciate that a large conglomerate like Merck was responsible for the discovery. Most readers will not have time to read all the contracts, but let me show a few lines that were included in the annual report:
KTOV financed the acquisition of FameWave with KTOV shares. KTOV also paid FameWave lenders with equity. Financial analysts may not appreciate that the company bought FameWave with shares. Equity dilution is never a great announcement for shareholders. Kitov also issued warrants with an exercise price equal to $1.98 and expiry in four years. Investors have the right to get to know these contracts.
In consideration of the transfer of the FameWave shares to us and the other obligations set forth in the Acquisition Agreement, the aggregate purchase price paid by us for 100% of FameWave shares consisted of the issuance by us to the FameWave Shareholders, and, on behalf of FameWave, to (i) THM, and (ii) the lenders with outstanding balances under the Convertible Loan Agreement, their respective share, as set forth in the allocation table to be provided to us prior to closing of the Transaction, of (A) 8,075,610 of our ADSs (equal to $9,933,000 divided by $1.23, (the “Consideration Shares PPS”)), and such ADSs with aggregate value of $9,933,000 served as the total consideration for 100% of the fully diluted share capital of FameWave, and was allocated among all selling FameWave shareholders, lenders under the Convertible Loan Agreement, THM, and any other persons with equity based rights in FameWave and/or rights to receive consideration from an exit transaction of FameWave or any other type of FameWave reorganization, and Kitov Warrants to purchase 4,037,805 additional ADSs, with an exercise price equal to $1.98 per ADS of Kitov, and with a term of exercise of 4 years beginning on the date of issuance, and subject to other terms and conditions as set forth herein and in the Warrant Agreements, the form of which is attached to the Acquisition Agreement.
Interestingly, Arkin Holdings, Orbimed and Pontifax Venture Capital signed an agreement to acquire ADSs at $1.23. The share price is right now at less than $1:
As part of the Acquisition Agreement, three leading life science focused investment funds, Orbimed, Pontifax Venture Capital, and Arkin Holdings, who collectively (together with their respective affiliates) held approximately 90% of FameWave, will invest an aggregate $3.5 million in us in exchange for 2,845,528 newly issued ADSs of the Company, priced at $1.23 per ADS. Source: Annual Report
Investors need to understand well that the research is at a preliminary stage. KTOV will take a significant amount of time to go through Phase 2 and 3, and will need financing. Yes, investors will be able to make money if the FDA approves the treatment, but having a position in the company is a bit speculative. It is also very relevant knowing that a sample of 27 patients does not represent a large number of patients. In Phase 2 and Phase 3, the company will need to test a significant number of patients. In my expertise, the company may need to treat close to 300 to 700 patients to meet the FDA standards.
With that about the number of patients to be treated, the market opportunity is massive. Taking into account only non-small cell lung cancer, we see more than 193,000 new cases per year with a survival rate of only 23%.
The global market opportunity for the treatment of global non-small cell lung cancer is close to $11 billion. The market is also growing at a CAGR of 8.5%. KTOV’s market capitalization is equal to $120-160 million. If the FDA and other international organizations approve KTOV’s treatment, revenue would be massive. Let’s assume that KTOV can sell to only 10% of the total market. Note that I am very conservative here. Sales could reach $1 billion. Using a ratio of 4x-5x sales, I would say that the company’s total valuation may touch $4-5 billion.