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Kitov Pharmaceuticals: A Bullish Valuation Based On Comparables


In order to more accurately value KTOV, I've researched several comparables.

I present the three most relevant comparable situations here.

I then apply the valuations to KTOV.

This analysis corroborates my original estimate, with a target range for KTOV of $13 to $29 per share.

In a recent article, I explained why I thought Kitov Pharmaceuticals' (NASDAQ:KTOV) positive phase 3 results were being under-appreciated, and as a result why the company's stock was underpriced. I also performed a "back-of-envelope" valuation which resulted in a price target of $22.50 per share four years from now.

In this article, I'd like to look at some comparable situations in order to further refine/substantiate/correct the rough valuation put forth in my original article.

There are several leads to pursue here, including citations given by the company in its SEC filings, analyst reports and various Seeking Alpha articles, including this one. In going through those, I've selected what I consider to be the three most relevant comparables. I discuss each below and then in the final section apply the comparable data to KTOV's valuation.

Comparable #1: VIMOVO

VIMOVO is the single best comparable that I've been able to find, because a) it involves a compound drug with one arm aimed at relieving pain, while the second arm is added to alleviate a side-effect, b) it was bought in a market transaction which established a market price and c) its sales numbers before and after the acquisition are known.

VIMOVO is a compound drug sold by Horizon Pharma (NASDAQ:HZNP) which combines Naproxen (a pain relieving, anti-inflammatory NSAID) with Esomeprazole magnesium (a drug which protects the stomach against ulcers). The graphic below explains the advantages of Vimovo over Naproxen alone, and serves as an example of the type of marketing KTOV will be able to do, should KIT-302 be approved. (Though KTOV will be able to go one step further, claiming that the anti-hypertensive properties of KIT-302 are actually better than just using amlodipine on its own.)

On November 19, 2013, HZNP bought the US rights to VIMOVO for $35M upfront and a 10% royalty on net sales to Pozen (NASDAQ:POZN). According to Evaluate, VIMOVO had worldwide sales of $90M in 2013. HZNP has raised the price of VIMOVO over a 1,000% since its acquisition of the product, such that for the last two years, POZN has be receiving approximately $21M in royalty revenue per year from Horizon's VIMOVO sales. As a result, we can ballpark VIMOVO's peak annual sales at $250M. (HZNP has been accused of price gouging partially due to the VIMOVO price escalations, but it's not clear that the original pricing wasn't substantially under-market.)

Comparable #2: AstraZeneca Buys Privately Held Pearl Therapeutics

In June 2013, privately held Pearl Therapeutics, which was developing a fixed-dose combination drug to treat chronic obstructive pulmonary disease, was purchased by AstraZeneca. Pearl's lead product was described in the (cached) press release as:

Pearl's lead product, PT003, is a fixed-dose combination of formoterol fumarate, a long-acting beta-2-agonist (LABA) and glycopyrrolate, a long-acting muscarinic antagonist (LAMA). LABA/LAMA combinations are expected to become a new class of treatment for COPD. A global Phase 3 program has been initiated and will test the improvement in lung function in individuals with moderate to severe COPD in response to PT003. PT003 is delivered by inhalation via a pressurized metered dose inhaler (pMDI) using Pearl's novel...