Shares of Kura Oncology (KURA) have risen by more than 90% since I presented the idea to readers in September of last year. The stock has climbed 38% since my update piece published in late November in which I stated my expectations of continued upside due to multiple clinical catalysts in 2018.
Figure 1: KURA daily advanced chart (Source: Finviz Elite) (Disclosure: Contains affiliate link)
Keys to the original bullish thesis included the following:
Lead product candidate tipifarnib had already shown much promise in treating patients with HRAS mutant relapsed or refractory squamous cell carcinomas of the head and neck (HNSCC) – out of the first six evaluable patients, four experienced confirmed partial responses and two were observed with disease stabilization. This compared very favorably to response rates for approved agents in the range of 13-16%. Updated data presented at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics confirmed the durability of these responses. I pointed to several near- and medium-term catalysts that could boost shares even higher, while also citing peak sales estimates exceeding $600 million for tipifarnib in HRAS-mutant HNSCC and PTCL as further evidence the stock was still undervalued. I also pointed out that in the future CXCL12 could be used as a biomarker, as patients with tumors with high expression experienced better responses and longer time to progression. As for catalysts, I reminded readers of February’s updated results to be presented at the Multidisciplinary Head and Neck Cancers Symposium along with additional data in PTCL, CMML and MDS to be presented throughout 2018. Lastly, I noted that institutional positioning hinted at a bright future, with EcoR1 Capital adding over 1.7 million shares to its position and Great Point Partners establishing a new 1.75 million share position. Other active buyers included BVF (1.35 million shares) and Sio Capital Management (250,000 shares).
Yesterday, the company presented updated preliminary results from the ongoing phase 2 clinical study evaluating tipifarnib in patients with head and neck squamous cell carcinomas (HNSCC) with HRAS mutations. Keep in mind that these are patients who progressed on at least one line of therapy (i.e. chemotherapy, cetuximab or immune therapy) and had experienced a median of two prior therapies (up to 4).
Of nine patients enrolled as of the cutoff date (February 8th), six were evaluable. Overall response rate (ORR) was 83% using RECIST criteria, with durable responses of over 18 months in two patients. The tumor of the sixth patient also shrunk and extended disease stabilization was observed. As a note of caution, of the three additional patients, two were off the study and one was not yet evaluable.
Figure 2: Data summary (Source: Leerink Presentation)
Chief Medical Officer and Head of Development Antonio Gualberto, M.D., Ph.D., had the following remarks to add (my emphasis in bold):
We continue to be very encouraged by the high level of clinical activity of tipifarnib observed in patients with HRAS mutant HNSCC. In addition to rapid responses in patients who do not appear to benefit from current standards-of-care, we are also seeing dramatic resolution of disfiguring and often painful lesions. We are continuing to enroll patients in the ongoing Phase 2 trial while we gather input from regulatory agencies on the design of a potential registrational trial of tipifarnib in HRAS mutant HNSCC anticipated to be initiated later this year.
As noted before, response rates for existing agents in this setting are around 13% to 16% with median overall survival of up to 7.5 months. Observed in this light the prospects of tipifarnib appear quite bright indeed. As another frame of reference, Citi analyst Joel Beatty slapped the stock today with a $28 price target and estimated a 55% probability of success (POS) for tipifarnib in HRAS HNSCC. I believe that POS figure is overly conservative, and therefore it is another gauge that points to significant upside potential in this revaluation and catalyst story.
As for catalysts, the corresponding registrational phase 3 study should get underway later this year following regulatory guidance. We can also look forward to additional data in PTCL, CMML and MDS throughout the year. Readers shouldn’t forget that this year we should also get our first look at data from the phase 1 study of ERK 1/2 inhibitor KO-947 in non-hematological malignancies.
Figure 3: Development strategy for tipifarnib (Source: Leerink Presentation)
For the third quarter, the company reported cash and equivalents of $100.8 million, while net loss amounted to $9.3 million. Research and development costs rose 33% to $7.1 million. Management has guided for cash on hand to provide an operational runway through several important catalysts next year.
Kura Oncology Is A Buy.
Readers who have done their due diligence and are interested in the story should purchase a pilot position in the near term. A “buy the dips” strategy is suggested to add to positions in the near term (possible that a secondary offering could provide such a dip). Those already holding a sizeable stake should continue to do so as the expected revaluation continues.
One risk going forward is disappointing data from readouts in the medium term. As the company recently filed a $200 million mixed securities shelf, I now believe that dilution in the near term is possible – it would make sense for management to take advantage of the strength in the stock to extend the operational runway. Setbacks in ongoing clinical studies as well as the initiation of the pivotal program would also be looked on unfavorably. Regulatory risk is also a concern; as an example, back when the drug was at Janssen, the FDA issued a non-approval letter for tipifarnib as a treatment for elderly, untreated acute myeloid leukemia in June 2005 (yes, the drug has been around for a long time). IP is also a concern, as the patent term for the composition of matter patents covering the API of tipifarnib expired in the United States and countries in Europe in 2016. Tipifarnib is in-licensed from Janssen, which may have the right to terminate the agreement if it deems that Kura failed to comply with the conditions or otherwise breached its terms.
For readers interested in stocks with near- to medium-term upside, I encourage you to take a look at the latest edition of ROTY (Runner of the Year), which includes our ROTY 10-stock model account and the ROTY Contenders List.
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