Little Kitov Pharmaceuticals (KTOV) debt free and with only 16M ADSs walked a long winded path to its FDA approval of Consensi. After achieving licensing deals in China and South Korea, shareholder are getting a little nervous about the last mile to redemption: The long awaited US deal.
Updates (Work In Progress Article)
– 2018-12-15 Initial Draft
– 2018-12-16 Added AGM + RS section (refined & fixed). Updated chart + price table, set image, added slides, added commercialization progress, emphasized Vimovo EU transaction valuing Consensi, added another RS short non-sense refutation
– 2018-12-17 Added NT219 Articles and Publications (more shall come); Summary: Added risk-off notion
– 2018-12-18 For latest published spreadsheet & pdf see latest posts in comment section
– 2018-12-20 Updated charts, latest spreadsheet pdf etc in comments. XBI/IBB @ 1Q17
– 2018-12-21 Refined case pro FDA approved drug usage, added comments
– 2019-01-04 PR 1/3/19: Kitov Signs Marketing and Distribution Agreement for Consensi™ in the U.S. with Coeptis Pharmaceuticals – Added sub in Commercialization, updated Summary; Added new higher valuation based on Coeptis 40-60% net profit royalties, see Valuation section w/ PDF + ODS spreadsheet
– 2019-01-04 Adapted 1 ADS = 1 Ordinary Share in spreadsheet, was 1 ADS = 20 Ordinary
– 2019-01-06 Updated Consensi Valuation model based on average gross margin 75% and current royalties
– 2019-01-08 Updated Consensi Valuation model: Matching Sales-Price; Population, removed awareness (incl in market penetration), added 44% subgroup hypertension, using floor price $1.50/pill and expected price $3.29/pill. China sales price is also 33% minimum of US (Pfizer, GSK, ..). Adding NT219 value note of $30M or $1.15/sh fully diluted. Thanks for review and advice to David.
– 2019-01-11 Adding a more balanced conclusion from @feinsand to Chapter Summary
You can find KTOV’s latest presentation here.
KIT-302, later branded as Consensi, is a combination NSAID targeting osteoarthritic patients who may also suffer from hypertension. Since both indications often occur in the elderly population, a survey even showed that 44% of adults are diagnosed with both. Consensi combines the COX-2 NSAID Celecoxib and the blood pressure lowering calcium-channel blocker Amlodipine. Using NSAIDs alone typically cause increased hypertension, therefor Consensi’s combination is very sensible. Company defined Consensi market size by osteoarthritic patients with hypertension, but knowing that hypertension is also caused by NSAID treatment increases the market size considerably.
KTOV’s patent protected novelty is the finding that the combination of both drugs resolves each component’s side-effects and together even reduce blood pressure more than Amlodipine alone while Celecoxib is the best in class NSAID.
Patients will benefit from this important finding tremendously. Even though the components can be purchased and digested separately, Consensi is patent protected through 2030 and its FDA approved benefits cannot be marketed for alternative drugs. Hence Doctors cannot orderly prescribe the components, foremost due to lack of patient’s safety and compliance. There simply is no other FDA approved NSAID guaranteeing the benefits of Consensi. Off-label prescription of the generic components is a liability to the physician and not recommended by the FDA. Also see new comments.
Our combination is designed simultaneously to relieve pain caused by osteoarthritis and treat hypertension, which is one of the side effects of using NSAIDs for treating pain caused by osteoarthritis. Our strategy in developing KIT-302 is based on our belief that the added anti-hypertensive drug will decrease the side effect of increased hypertension typically caused by the use of NSAIDs alone.
To date, no combination drug exists that offers the combined treatment of pain caused by osteoarthritis and hypertension.
the FDA ordered the withdrawal of Bextra® by Pfizer and issued a Public Health Advisory in April 2005, requiring manufacturers of all prescription products containing NSAIDs to provide warnings regarding potential adverse cardiovascular events as well as life-threatening gastrointestinal events associated with the use of NSAIDs. Moreover, subsequent to an FDA advisory committee meeting in February 2005 that addressed the safety of NSAIDs, and, in particular, the cardiovascular risks of COX-2 selective NSAIDs, the FDA has indicated that long-term studies evaluating cardiovascular risk will be required to approve new NSAID products that may be used on an intermittent or chronic basis. We believe that KIT-302 has a competitive advantage over other drugs in the market because, as a COX-2 inhibitor, it has limited gastrointestinal side effects, and due to the addition of amlodipine besylate it is designed to address existing hypertension and the cardiovascular side effects of NSAIDs.
The trial data also showed that the favorable blood pressure effects of Consensi™ were present in all blood pressure variables measured in the study. Kitov determined that the blood pressure reduction synergy seen with combining celecoxib and amlodipine was present in daytime systolic blood pressure – the study’s primary efficacy endpoint. Based on the data, however, the blood pressure reduction synergy was also present with all other blood pressure variables and at all times of day – i.e. daytime diastolic blood pressure, nighttime systolic blood pressure, and nighttime diastolic blood pressure. Although celecoxib, when combined with amlodipine, appears to have a synergistic effect by lowering blood pressure, it lacks this effect when administered by itself.
Consensi™ may protect against the amlodipine side effect of causing fluid retention by the kidneys…. Phase III/IV clinical trial .. showed that Consensi™ improves renal function.
On 2018-05-31 FDA Approves Kitov’s Consensi™ for Treatment of Osteoarthritis Pain and Hypertension, finally. This is an important detail, since the 2017 allegations even claimed that Consensi data was tainted and drug may not even work as advertised.
Besides Consensi, KTOV also has NT219 in their pipeline. NT219 prevents resistance to multiple anti-cancer drugs and will probably become the leading drug for KTOV in the future. Beside its cancer indication, NT219 also showed to be beneficial for brain diseases Alzheimer’s, Parkinson’s, and Huntington’s. NT219 might become a blockbuster combo treatment for cancer patients and is surely worth separate articles.
- Dec 2013 TyrNovo’s Novel and Unique Compound, named NT219, selectively Inhibits the process of Aging and Neurodegenerative Diseases, without affecting Lifespan
- Dec 2013 NT219 slows the aging process, can lead to brain disease treatments
- Sept 2017 A step toward development of drugs for diseases such as Alzheimer’s, Parkinson’s, and Huntington’s
- Jan 2017 Kitov Takes Majority Stake in TyrNovo to Expand Pipeline with Immunotherapeutic Candidate
- July 2017 NT-219 Re-sensitizes Cancer to Keytruda, Stopping Tumor Progression, Study Shows
- Nov 2017 Kitov Pharmaceuticals Announces Receipt of FDA’s Favorable Response to NT219’s pre-IND Meeting Package
- June 2018 Kitov Announces Positive Pre-clinical Data from NT219 Demonstrating its Dose-Dependent Anti-Tumor Efficacy
- Nov 2013 A novel inhibitor of the insulin/IGF signaling pathway protects from age‐onset, neurodegeneration‐linked proteotoxicity
- Feb 2014 Selective manipulation of aging: a novel strategy for the treatment of neurodegenerative disorders
- Sept 2015 Rational design of combination therapies and blockage of acquired targeted drug resistance
- Dec 2015 The inhibition of IGF-1 signaling promotes proteostasis by enhancing protein aggregation and deposition
- July 2016 Rational design of combination therapies and blockage of acquired targeted drug resistance
- July 2018 Abstract 2754: NT219, a novel dual inhibitor of STAT3 and IRS1/2, converts immuno-oncology resistant tumors to responders
Allegations of Trial Data Manipulation pre FDA approval
- 2017-02-07 CEO arrested and released, misleading study results suspected; shares down 26% premarket, stock halted
- 2017-02-09 ISA investigation centered on DMC associated with Phase 3 KIT-302 study
- 2017-02-09 Nasdaq Scheduled Resumption in Kitov Pharmaceuticals Holdings Ltd
- Stock reached a low of $1.27/ADS
In hindsight all allegations were refuted with the FDA approval of Consensi and the stock recovered some value thereafter.
Post FDA approval Slide
Only ISA continues with some minor investigation details and even requested assistance by the SEC to force Dr Waymack to release information. Stock dropped ~13% to $1.68/ADS on 2018-09-18 in a hysterical manner.
On 2018-12-14 stock dropped ~18% for no reason at all down to $0.915.
It has been observed that since FDA approval, KTOV surely became under short attack. Short interest (SI) peaked on 2018-09-14 and is declining ever since, therefor short positions cover in anticipation of a Consensi US deal while stock declines.
2018 AGM and TASE RS 1:20, Ordinary 1:1 ADS
On 12/19 is the 2018 Annual General Meeting (AGM) on 16:30 local or 9:30am EST.
2018 Annual General Meeting of the Shareholders of the Company to be held at the Company’s executive offices at One Azrieli Center, Round Tower, 19th Floor, Tel Aviv, Israel on Wednesday, December 19, 2018, at 4:30 p.m. local Israeli time.
Everybody talks about the votes, which shall not matter at all, nothing will change.
The reverse split (RS) 1:20 of the ordinary shares will align them to ADS 1:1 and on p27, KTOV explicitly stated that they like to enable indices on TASE being able to pick up ordinary shares again – requiring an ordinary SP of >= 0.50 NIS!
Our ADSs, listed for trading on the Nasdaq Capital Market, each currently represent 20 Ordinary Shares of the Company. Our Ordinary Shares are traded on the TASE, and presently trade for less that NIS 0.50 per Ordinary Share, the threshold at which our shares would be eligible for inclusion in certain TASE indices. Therefore, we seek the approval of the shareholders to effect a 1-for-20 (“1:20”) reverse share split of the Company’s Ordinary Shares and …
In addition, when the reverse share split is implemented, each ADS will represent one Ordinary Share, no par value, but there will be no effect on the number of ADSs held by any owner of ADSs.
What matters is that company might give an update on the AGM or right thereafter, hence it is understandable that certain parties spreading fear on silence before the probable turnaround. It wouldn’t surprise me if company releases positive news around the AGM and TASE RS timeframe to support the stock. Index ETFs buying KTOV ordinary shares may also lead to a certain uptick after the RS.
Some notorious shorts even claim that the RS on the ordinary shares (only) would be required to keep KTOV listed on TASE, that is non-sense.
KTOV would have been required to state such material risk in their proxy filing. Since they did not, there is no such risk. The bullish reason is simply by allowing the TASE index ETFs to add KTOV ordinary shares again above the 0.50 NIS threshold.
Combo-Drug Consensi has Tremendous Value
The utilized short thesis to allow them to cover their shares is quite simple, they accuse Consensi has no value since patients could simply take the cheaper drug components.
As already mentioned above, Consensi is patent protected through 2030 and it’s FDA approved benefits cannot be marketed for alternative drugs. Hence Doctors cannot orderly prescribe the components, foremost due to lack of patient’s safety and compliance. There simply is no other FDA approved NSAID guaranteeing the benefits of Consensi. Off-label prescription of the generic components is a liability to the physician and not recommended by the FDA. Besides, KTOV proved their novel combination through expensive FDA trials and that alone should support Consensi’s premium before it goes generic. Also see new comments.
Changshan Pharma also wouldn’t have paid $1M upfront cash if they didn’t believe Consensi has a wide profitable market. They will pay additional $2.5M for regulatory and up to $6M for commercial milestones plus 12% net royalties.
Vimovo, also an NSAID combo drug, disproves the short thesis alone.
2018-11-07 HZNP 3Q18 Vimovo US sales $18.6M +24% YoY, reaching $100M annually soon
– HZNP 3Q18 p14
– Vimovo sales in the US are increasing
Vimovo global annual sales near term target is $200M and Consensi is considered more valuable than Vimovo.
Vimovo’s Oct’18 EU Transaction Valuates Consensi
2018-10-30 $AZN sells to Grunenthal: Vimovo ex-US ex-JP $115M upfront + $17M = $132M, Nexium EU $700M
– AZN 3Q18 Results p31
– 1H18 Nexium sales in Europe $121M;
– 1H18 Vimovo global sales ex-US ex-Japan $37M -> $74M annually
– Just Vimovo EU upfront payment implies $7/ads for $KTOV share structure
EU licensing by Grunenthal was just at 2x annual EU sales. Consensi multiple shall be higher for the US licensing.
Whatever it will be, this very recent EU Vimovo deal shows that even a miserable multiple is worth at least $7/ads for KTOV.
Consensi Commercialization Progress
Below shows three slides regarding Consensi (KIT-302) commercialization progress from June’17, March’18 and November’18.
- June’17: South-Korea Deal, Ongoing discussion w/ US + EU
- March’18: South-Korea Deal, Ongoing discussion w/ US + China
- China negotiations added
- EU negotiations dropped, no mentioning of deal (yet?)
- November’18: South-Korea + China Deal, Ongoing discussion w/ US
- China deal done
- Waiting for US deal
- What happened w/ EU? Grunenthal?
- January’19: South-Korea + China + US Deal
The US deal with Coeptis Pharmaceuticals was in line with with South-Korea and China, i.e. relative small upfront payment – here even smaller than China and a relative high royalty. Market was expecting a higher upfront payment above $50M for the US deal to avoid an upcoming funding round to push NT219 forward, this wasn’t realized with the Coeptis deal. Since royalties with Coeptis are for net profits only, Kitov might not see these in the first quarter due to initial marketing costs. Coeptis reduced its investment risk with this deal, while Kitov could enjoy long term high royalties of 40-60% net profits if profitable. One might need to believe in the US commercialization outcome, this is no get rich quick scheme yet. However, the high 40-60% net profit royalties allows a higher valuation than previously assumed 12% royalty on net sales. 50% royalties on net profit (EBITDA) equals to around 22.5% of gross sales, with an industry average of only 14.7%. This deal is 53% above the average! Upfront one-time payments have little impact on valuation, only long term revenues.
Coeptis Pharmaceuticals is also a relatively small private company for growth which just recently acquired Elto Pharma 2018-11-27. On 2018-11-28 Coeptis raised $18M, probably to pay for the acquisition of Elto and for launching the newly licensed drugs, like Consensi.
In November 2017, Coeptis Pharmaceuticals signed a Multi-product Co-development Agreement with Ciron including manufacturing, with initial value of above $100M sales. Hence they probably use them for Consensi CMC as well. Quite a well connected growing pharma biz. Details about Ciron’s manufacturing capabilities (CMC) includes USFDA and EU compliance.
multi-product agreement with Ciron Drugs & Pharmaceuticals Pvt. Ltd (Mumbai, India) under which Coeptis and Ciron expect to develop and commercialize several ANDAs. Under the terms of the agreement, Ciron will develop, manufacture, and supply the selected products exclusively to Coeptis for the U.S. market, and Coeptis will market and distribute the products under its label. The initial agreement includes a basket of products with annual U.S. brand sales of more than $100 Million USD, according to IMS Health data.
On 2018-06-19 HC Wainwright gave their last buy PT of $12.50/sh.
Their earlier analysis included a NT219 value of $30M or $1.154 per fully diluted share today.
All references are available at the end of this article and in the PDF file.
Below table (discussed in comment 252 using data from ) shows 75% average gross profit (GP) margins and Coeptis 50% net profit royalties being 53% above industry average 14.7% gross sales royalties. 2010
All per share numbers are based on fully diluted shares or ADS of 26.004M.
Up until today, the WAC sales price is not yet disclosed for any region. China sales price minimum is 33% of US price lately, but could be 50% or higher.
The sales price is also subject of our longest and ongoing debate, i.e. how much lower than the branded Celebrex $6.5380/pill and how much higher than the two heavily discounted generic components $0.3719/pill can it be?
We were advised to compare the rebates of Vimovo and Celebrex and using the rebated price as the maximum possible. We also should only expect 50% of these rebated prices in our model. We went further and took another ~50% cut to mark the absolute floor price. David, a pharma sales manager helped us to find the appropriate perspective. He also emphasized that probably no pharma would start this process for less than $100M annual sales, even $200M would be a no-go for many already and should be used as a constraint. You can see the result in the below table, where we also compared each brand combo drug with their respective generic component(s).
Therefor we settle for the US prices as follows: Maximum $4.1407/pill, the expected $3.2877/pill and floor $1.50/pill.
Next step is to quantify the OA population size. OA% of adult population is roughly 14% or 11% of overall population, the US has even 36% OA cases referenced for the adult population in one publication. For China we only use 11% for now, around 120M patients, which is due to their lower awareness. The resulting number is the diagnosed OA population, which trend is still upwards.
We only use the 44% hypertension sub-population of the OA population to be on the safe side, even though taking NSAID’s for OA over a long period could increase or cause hypertension and hence this group could be at 100% in the end. The resulting number is the market-size population.
Now we apply a very low conservative market penetration of only 3%, we would expect 6-9% might be possible, leading to 2-3x of below valuations. The resulting numbers are actual patients, sales and KTOV earnings. We did that for all three price ranges as emphasized above.
Maximum Price of $4.1407/pill
This results to $18.852/sh for China & South-Korea and $37.253/sh for the US, $56.11/sh in total @ P/E 10 including a 10% discount. This Consensi valuation is 8x of Grunenthal’s Oct’18 acquisition of Vimovo EU rights (ex-US and ex-JP). As emphasized above, this valuation should be considered the absolute lucky maximum.
Expected Price of $3.2877/pill
This results to $14.97/sh for China & South-Korea and $29.58/sh for the US, $44.55/sh in total @ P/E 10 including a 10% discount. This Consensi valuation is 6x of Grunenthal’s Oct’18 acquisition of Vimovo EU rights (ex-US and ex-JP).
Floor Price of $3.2877/pill
This results to $6.83/sh for China & South-Korea and $13.50/sh for the US, $20.33/sh in total @ P/E 10 including a 10% discount. This Consensi valuation is 3x of Grunenthal’s Oct’18 acquisition of Vimovo EU rights (ex-US and ex-JP).
Further more, the model also shows that if Consensi would be sold at just the same price of discounted generics at $0.3719/pill, the US deal alone is worth $3.35/sh or $5.04/sh with CN+SK in total! (Case included in spreadsheet)
NASDAQ / TASE Price Dislocation
Above elaboration about short players and the following NASDAQ vs TASE price action makes clear that the short attack originates from the US. Most of the time NASDAQ is traded below the TASE price, often even exceeding -4% and at peaks -10% or less.
Summary w/ Catalysts
Kitov managed to achieve the FDA approval for Conensi while being heavily under attack with allegations that even Consensi trial data might have been tainted.
Just days before FDA approval and before the class action settlement agreement, Kitov also managed to get the new deal with China.
Today, Kitov got the US deal done with Coeptis roughly 53% over industry average royalties and the settlement with the accusing party which will be formally closed in January 2019.
We like to congratulate Kitov for acting persistent & sovereign while being under pressure. This especially, because Kitov is not a big company with lots of counselors and lawyers, but run by just a few leading heads.
Adding a more balanced conclusion from @feinsand & I agree
Now we know, Coeptis
– May IPO 2H19
– Consensi 2H19 launch date
– Doing biz with Generic Drug sales
– Relationship with Kamadum (sic, too lazy too look up)
We also know that China’s Changshan must pass one CFDA trial to cover the Chinese population w/ Consensi.
Therefor they maybe able to launch in 2H19 the earliest or in 1H20.
All this directs us to believe that the earliest cash infusions will come up in 2H19 or more towards the end of 2019.
That is a normal timeline.
Coeptis may go for a low Consensi price to please insurance and markets, maybe around $1.50 to get Tier 1 formulary access.
That wouldn’t be too bad.
Now the only thing missing here might be a biz update from company, the horse’s mouth to confirm all that and also clarify whether a tiny offering is required to bridge the time until Consensi revenues trickle in.
Hope this is a fair assessment, also talking about the relatively small risk of a potential offering and modest stretched timeline for the impatient (o8>
Consensi is an almost risk-off investment today with FDA approval and deals in South-Korea, China and the US. May additionally get a deals for Europe, Australia and Canada.
- Priced below Consensi Approval and NT219 Ownership
- Priced at FDA refuted Consensi data falsification allegations on July’17 $1.27/sh
- Coeptis launch in 2H19, might match $1.50/pill floor price for Generics Tier 1 Class
- Consensi: SP $6.83 floor – $14.97 expected for China + Korea
- Consensi: SP $13.50 floor – $29.57 expected for US -> $20.33 – $44.55 total
- Consensi: Evaluating additional commercialization agreements in major markets worldwide (PR 2019-01-03).
- Changshan paid $1M (May’18) and will pay additional $2.5M for regulatory and up to $6M for commercial milestones
- Changshan in CFDA process, which is a formality lately, expected until end of 2019, launch 2H19 or 1H20.
- Changshan & Korea 12% Net Sales Royalties -> 9% Gross Sales Royalties.
- US Coeptis 40-60% Net Profit Royalties -> 22.50% Gross Sales Royalties.
- NT219: $30M or $1.15/sh minimum should be added here as well.
- 2018-11-13 Slides: NT219 Favorable FDA response pre-IND, IND in 2019 w/ partners (solid prelim interest in NT219)
- 2018-11-13 Slides: NT219 One more patent expected.
- 2018-06-19 HC Wainwright last Buy PT $12.50/ads
- 2018-06-01 Last offering 3.26M @ $2.50/ads
- FDA Exclusivity until 2021-05-31
- U.S. Patent 9,408,837: Filed 2011-02-14; Granted 2016-08-09; Term until 2031-02-14
- U.S. Patent 9,662,315: Filed 2015-11-10; Granted 2017-05-30; Term until 2035-11-10
- Discount rates in drug development 2011 http://www.avance.ch/avance_biostrat_discount_survey.pdf
- Discount Rates for Biotech Companies 2008 http://www.avance.ch/newsletter/docs/discount_1.pdf
- Valuation of Your Early Drug Candidate 2011 https://c.ymcdn.com/sites/www.michbio.org/resource/resmgr/BioToolBox_-_Commercialization/Valuation_of_Drug_Candidate.pdf
- KTOV.TA https://www.reuters.com/finance/stocks/financial-highlights/KTOV.TA (also shows industry + sector multiples)
- 2015 Celecoxib China https://www.prnewswire.com/news-releases/investigation-report-on-chinas-celecoxib-market-2010-2019-featuring-pfizer–shire-300124782.html
- In 2014, 10M of 100M OA patients used Celecoxib. Pfizer covered 98% Sales of CNY165.31M or $25.76M
- 2016 OA China http://m.chinadaily.com.cn/en/2016-04/27/content_24891108.htm
- OA Epidemiology https://patient.info/doctor/osteoarthritis-pro#nav-0 11% hip OA and 24% knee OA in general-adult-population
- 23% US adults doctor-diagnosed A https://www.cdc.gov/publichealthgateway/townhall/2017/downloads/03-mar-presentation.pdf
- US 63M w/ A. In 2020 https://www.cdc.gov/arthritis/data_statistics/national-statistics.html
- Royalty Comparison incl GP and SG&A Averages https://link.springer.com/article/10.1057%2Fjcb.2009.13
- Pfizer Brand $6.54/pill (180 qty, 200mg) https://www.drugs.com/price-guide/celebrex
- Generic Celebrex $0.2919/pill (500 qty, 200mg) https://www.drugs.com/price-guide/celecoxib
- Generic Amlodipine $0.08/pill (500 qty, 5mg) https://www.drugs.com/price-guide/amlodipine
- Vimovo Brand $43.33/pill 20mg/375mg-500mg https://www.drugs.com/price-guide/vimovo (delayed release)
- Generic Naproxen $0.7777/pill (500 qty, 500mg) https://www.drugs.com/price-guide/naproxen (delayed release)
- Generic Esomeprazole $0.82/pill (90 qty, 20mg) https://www.drugs.com/price-guide/esomeprazole (delayed release)
- Population 0-19: China 23%, Europe 20.8%, US 25.4% https://www.livepopulation.com/country/china.html
- Demographics Age 0-19: China 22.7%, Europe 21%, US 25.1% https://www.populationpyramid.net/united-states-of-america/2019/