Kura Oncology (KURA): Partially De-Risked Precision Biotech with Near-Term 50% Upside Potential



Summary: Kura Oncology (NASDAQ: KURA) is a $800M market cap biotech developing targeted oncology drugs. The company IPO’ed in 2015 and is led by a highly-respected group of scientists and researchers with a strong track record of successfully developing and commercializing precision oncology medicines. Kura’s primary asset, tipifarnib, has shown impressive data that could help it become the first drug approved for the treatment of HRAS-mutated cancers, providing a line of sight to $500M in peak sales over time. We believe this would support a valuation of $20-25/share over the next year (vs. $16/share today) without even accounting for value from Kura’s earlier stage pipeline.


Key Takeaways

  • Kura is currently enrolling its registrational AIM-HN trial that could read out as early as October 2020, and based on tipifarnib’s Phase 2 data, we believe that there is a strong likelihood of a successful readout. Kura is developing tipifarnib, a farnesyl transferase inhibitor, for HRAS-mutated cancers, starting with head and neck squamous cell carcinoma (HNSCC).

  • Tipifarnib could achieve ~$500M in peak sales in HRASm HNSCC alone, with the opportunity to expand into larger HRAS indications as well as earlier lines of treatment through combination therapies.

  • Using a peak sales multiple of 2.5-3x and POS of 75% for tipifarnib, we arrive at a probability-adjusted value of $20-25/share based on tipifarnib alone. When factoring in the additional upside potential of the early stage pipeline, we believe that Kura offers an attractive risk-reward from ~$16/share today. We will be initiating a position in Kura, targeting a 6% weight.


Key Stock Drivers

  • Unique asset with scientifically-sound mechanism of action. HRAS is a gene that, when mutated, produces a defective HRas protein that activates a signaling cascade that has been identified as a central contributor to tumor growth and proliferation. The HRas protein can only activate its signaling pathway by binding to the cell membrane through a process called farnesylation (basically adding a special protein group to HRas). Tipifarnib, Kura’s drug, is a farnesyl transferase inhibitor (FTI) that prevents the farnesylation process and thus prevents HRas signaling. While this may sound simple, Kura is currently the only company in the clinic with an FTI and could be the first to market with a drug for HRAS-mutant cancers.

  • Initial patient population with high unmet need. HNSCC is the 6th largest cancer indication worldwide, with 60,000 new patients in the US annually. Of these cases, 5-8% (~3,000 patients) have an HRAS mutation. The prognosis for these patients using standard immunotherapy and chemo is extremely poor, with an average 15-35% objective response rate (ORR) and 3 months progression free survival (PFS) across 1st and 2nd line therapy.

  • De-risked Phase 2 data. Tipifarnib has already demonstrated strong activity in HRASm HNSCC; in its Phase 2 trial, tipifarnib achieved an ORR of 56% (10/18) and a clinical benefit rate of 100% in advanced recurrent/metastatic HRASm HNSCC patients, and a median PFS of 6.1 months. Given the already poor outcomes of HRASm patients, we believe that the bar for approval is low, with 25% ORR and 6 months PFS being sufficient for approval, which compares favorably to what tipifarnib has already achieved.

  • $500M Peak Sales Potential. At peak, assuming 3,000 HRASm HNSCC patients, 50% penetration, average treatment duration of 1 year + 10,000 additional HRAS-eligibile patients, 10% penetration (conservative), and 6 months average treatment duration, and an annual price of $250,000, we arrive at $500M in potential peak sales for tipifarnib in HRAS-mutant cancers.

  • Experienced, accomplished leadership team. Kura’s management team boasts stellar track records in drug development and commercialization, achieved over decades of industry experience. CEO Troy Wilson previously led Wellspring Biosciences, a notable private, targeted oncology biotech, as well as Intellikine, which was acquired by Takeda. CCO Kirsten Flowers led the successful launches of Brafktovi/Mektovi at Array Biopharma prior to its $11B acquisition by Pfizer. Other team members boast similarly impressive resumes from their time at companies including Merck and Pfizer, where they held senior leadership positions.

  • Optionality from early stage pipeline. Besides HNSCC, tipifarnib is also being evaluated in additional squamous cell carcinomas, peripheral T-cell lymphoma (PTCL) and chronic lymphocytic leukemia (CML), where it is currently in Phase 2 trials. These opportunities could represent up to 10,000 additional patients eligible for tipifarnib. Kura is also developing KO-539, a menin-MLL inhibitor, for certain types of leukemia, starting with AML.

  • Upcoming catalysts in 2020/21. Kura has clear upcoming milestones that we expect will have a large impact on the stock:


  1. Late 2020/early 2021. Potential readout of registrational AIM-HN trial evaluating tipifranib in HRAS-mutant HNSCC.

  2. Mid-2020. Data from the ongoing Phase 2 trial evaluating tipifarnib in CMML.

  3. Year-end 2020. Readout of Phase 1 trial evaluating KO-539 in AML and achievement of a recommended Phase 2 dose.


  • Cash to fund operations into 2022. Kura ended 1Q20 with $350M in pro-forma cash (includes proceeds from equity issuance in May 2020), which the company expects will fund operations comfortably into 2022. This should provide Kura with ample time to fully enroll the AIM-HN trial barring any extreme delays and support the rest of its clinical programs.

  • Strong IP estate. Kura has multiple patents that provide tipifarnib exclusivity in HRASm HNSCC until 2036, while protecting other IP including the mechanism of action, use in combination therapy, and dosing/scheduling, etc.


Key Stock Risks

  • Clinical and regulatory failure. Like most biotechs, Kura’s value would be significantly impaired if tipifarnib were to show worse-than-expected clinical results or severe safety issues. Regulators could also set a higher bar for approval than we are projecting.

  • Delay of trial timelines. The biggest near-term risk to Kura is the possibility that the enrollment of the AIM-HN trial is delayed meaningfully past the late 2020/early 2021 target management has guided to. While this would only delay tipifarnib’s data readout, we would expect any material slippage in the trial timeline to have an adverse effect on the stock.

  • Lower-than-expected HRAS sequencing. Identifying patients with HRAS-mutant cancers is critical to tipifarnib’s commercial potential. While Kura is working to establish HRAS genetic screening as standard practice, this may be difficult in indications where HRAS mutations are rare (such as HNSCC) and thus limit tipifarnib sales.


Disclosure:

We currently own shares of Kura Oncology. This article expresses our own opinions, not Kura’s or any other party’s opinion. We are not receiving compensation for this report. We do not have a business relationship with the company mentioned in this report.