Echelon Wealth Partners analyst Douglas Loe calls the new update from Kalytera Therapeutics (Kalytera Therapeutics Stock Quote, Chart, News TSXV:KLY) “highly positive”.
Saying the cannabinoid-focused drug developer is likely to proceed to Phase III trials for its CBD-based drug formulation. In a Healthcare & Biotechnology update to clients on Monday, Loe maintained his “Speculative Buy” rating and $0.30 price target, which at the time of publication represented a 567-per-cent return.
CBD therapeutics company Kalytera on Monday announced that interim results for its Phase II clinical study evaluating cannabidiol for the prevention of acute graft versus host disease (GVHD) are “significantly positive” and as a consequence Kalytera won’t be enrolling the high-dose cohort in its ongoing Phase II study but will be proceeding directly to Phase III clinical registration study.
“We are very pleased and encouraged by these excellent results,” said Robert Farrell, President and CEO of Kalytera, in a press release. “Earlier this year, we announced positive interim results from the first (low dose) cohort. We did not expect the results from the low dose cohort to be as positive as they were, and now we have interim results from the medium dose cohort that are equally as good.”
Loe said that while the Phase II data didn’t provide any new insights on the CBD mechanism involved in GVHD, preclinical data plausibly supports that CBD preserves gut epithelium integrity in patients undergoing bone marrow transplant, a frequently occurring effect of pre-transplant whole-body irradiation, in ways unique in comparison to other immunologically-active agents.
Loe says he continues to believe that KALY’s current market value/adjusted enterprise value of $23.0 million/$19.4 million is “unjustifiably low”
Kalytera also said in its press release that it has received unsolicited inquiries from companies interested in the commercial rights to the company’s GVHD products. On that event, Loe says,
“Kalytera was clear in its CBD update that it is receiving inbound unsolicited interest from other drug developers that we assume are either seeking to augment their intellectual property bandwidth in cannabinoid medical uses, or is seeking to augment an existing Rx portfolio targeting GvHD. We would not be surprised if both categories of partnership candidate were actively investigating CBD’s pharmacology in GvHD while simultaneously investigating Kalytera’s patent portfolio that claims CBD utility in that market. The drug itself of course has long since been ineligible for composition-of-matter-based patent protection, so any relevant IP would necessarily need to be based on novel formulations or novel (and data-supported) medical applications of the drug,” Loe writes.
“We believe Kalytera qualifies by both measures and our model assumes that the firm can benefit from economics ascribed to future cash-contributing partners, partners that we are optimistic could be identified prior to commencing Phase III GvHD testing. Our optimism on this theme is clearly enhanced by Phase II data quality as described above,” he says.
Loe says he continues to believe that KALY’s current market value/adjusted enterprise value of $23.0 million/$19.4 million is “unjustifiably low” based on the Phase II CBD data quality just generated. The analyst expects KALY to become EBITDA-positive in 2024, where it will generate EBITDA of $17.4 million on revenue of $26.4 million.
Last month, Kalytera announced that at the company’s latest Shareholder Meeting, management decided not to proceed with the previously-intended vote on a potential share consolidation but would instead proceed with the corporate initiatives already proposed. KALY has been trading at or below $0.10 per share over 2019.
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