The two things you need to know about Kite's target increase today

Friday, 2-January-2015

Kite Pharma (Nasdaq: KITE), currently my favorite long-term hold, was up 5.1% today and closed at $60.61, a new high.  The reason is because last night analysts at Credit Suisse increased their price target on the stock from $34 to $71. 

 

Here are the two most important things you need to know about the upgrade:

 

1.  The analysts think KITE will soon sign a partnership with a larger pharmaceutical company to market KITE's technology outside of the United States.  In fact, the analysts have assigned an estimated $127.5 million in upfront payments to their 2015 model to reflect that.

 

My personal take is while I do agree a partnership is a given, Credit Suisse’s upfront payment estimate is way too low.  CAR-T is a unique technology, and will fetch better terms than that.  Keep in mind that we are still in inning one of understanding how this platform can be put to use.  Not only is there a chance T-cell thearpies might work in other cancers like solid tumors, but there also might be uses beyond oncology further on down the road.  While competition (both autologous and allogeneic) is heating up, partners are going to want to get in on the ground floor with an experienced company like KITE who is putting CAR-T to use right now.  The partner will gain a lot from that relationship (even if just through a marketing deal), and so they will have to pay up.

 

2.  The analysts are focused on what a busy year 2015 is going to be for KITE.  The company plans to initiate four pivotal trials in: DLBCL, CLL, MCL, and ALL.

 

I put the word “pivotal” in bold because it highlights something casual observers might not be aware of about these CAR-T companies, which is that they aren't very far from market.  Because this is all so new, I think many people assume the technology is a long way off from commercialization.  It isn’t.  Take note of how lightning quick the development pathway has been.  At last month’s ASH conference, the three main CAR-T companies presented data on only dozens of patients, yet they are already quickly moving many indications into a pivotal stage.  This speed is due, of course, to the amazing efficacy that has been shown so far, and the urgent need of these highly refractory patients.  That is exactly the type of thing you want to invest in.  Not only is the efficacy impressive, but you also know your capital will be used efficiently given the short path to market.  It’s a win-win.