KNSA Breakout Report

Investor Analysis

Investor Summary: Kinnate Biopharma (KNSA)

Note: Kinnate Biopharma entered into a definitive agreement on March 28, 2024, to be acquired by XOMA Corporation for $2.33 per share in cash plus one Contingent Value Right (CVR) per share, representing potential additional payments of up to $1.87 per share. This summary provides context for KNSA's prior investment thesis and the potential underlying value of its assets, which are now largely reflected in the acquisition terms and the value of the CVRs.

Business Overview

Kinnate Biopharma Inc. (KNSA) is a clinical-stage precision oncology company focused on developing small molecule kinase inhibitors for difficult-to-treat, genetically defined cancers. The company leverages its proprietary discovery platform to design highly selective and potent compounds intended to overcome known resistance mechanisms and address unmet medical needs. Its lead product candidates, KIN-2787 (targeting BRAF mutations) and KIN-3248 (targeting FGFR2 fusions), are in early-stage clinical development for various solid tumors, including melanoma, lung cancer, and cholangiocarcinoma.

Key Competitive Moats

• Precision Oncology Focus: Kinnate's strategy targets specific, actionable genetic alterations, aiming for higher response rates and better patient outcomes compared to broad-spectrum therapies. This "right drug for the right patient" approach offers differentiation.
• Proprietary Discovery Platform: The company's in-house platform is designed to identify and optimize small molecule inhibitors against challenging kinase targets, with an emphasis on addressing resistance mutations that limit the efficacy of existing treatments.
• Addressing Unmet Needs: Kinnate's pipeline targets cancers with high unmet medical needs and limited effective therapeutic options, such as certain BRAF-mutant cancers and FGFR2-driven cholangiocarcinoma, offering significant market potential upon successful development.
• Experienced Management Team: The company boasts a team with extensive experience in drug discovery, clinical development, and commercialization within the oncology space, crucial for navigating complex drug development processes.

Revenue and Earnings Growth Projections (Illustrative for Pipeline Potential)

As a clinical-stage biotechnology company, Kinnate Biopharma has not generated significant commercial revenue. Prior to the acquisition announcement, analyst consensus models, contingent on successful clinical development and regulatory approval of its lead candidates, projected the potential for initial commercial revenue generation to begin in late 2025 or 2026. These projections were highly speculative and contingent on numerous factors but illustrate the significant upside potential analysts saw in Kinnate's pipeline that influenced the acquisition valuation and CVR structure.

• Q4 2025 (October - December 2025): Illustrative Revenue: $5M - $10M; Illustrative EPS: -$1.20 to -$0.90
• Q1 2026 (January - March 2026): Illustrative Revenue: $15M - $25M; Illustrative EPS: -$0.90 to -$0.60
• Q2 2026 (April - June 2026): Illustrative Revenue: $30M - $50M; Illustrative EPS: -$0.60 to -$0.30

These figures represent potential milestones or initial sales ramp-up, with earnings remaining negative during early commercialization due to ongoing R&D and SG&A expenses. The actual realization of such growth is now tied to XOMA's development and commercialization of Kinnate's assets and the subsequent impact on CVR value.

Recent Catalysts

• Acquisition by XOMA Corporation: The definitive agreement for XOMA to acquire Kinnate (announced March 28, 2024) for $2.33 cash per share plus a CVR for up to an additional $1.87 per share provided a clear valuation floor and significant upside potential for shareholders. This event likely drove the "breakout" and the 40.6% gain mentioned, reflecting an appreciation of the company's assets and a clearer path to monetization for shareholders.
• Strategic Review Conclusion: The acquisition followed a strategic review process initiated by Kinnate, signaling a proactive approach to maximizing shareholder value for its pipeline assets.
• Ongoing Clinical Progress: While the acquisition is the primary recent catalyst, continued positive (even if early-stage) clinical data for KIN-2787 and KIN-3248 contributed to the perceived value of the pipeline, underpinning the acquisition price.

Main Risks

• Acquisition Completion Risk: While definitive, the acquisition is subject to customary closing conditions. Should it fail, KNSA's stock price could revert significantly.
• Contingent Value Right (CVR) Uncertainty: The value of the CVRs is highly speculative and dependent on the achievement of specific clinical, regulatory, and commercial milestones for Kinnate's pipeline assets. There is no guarantee these milestones will be met, or that the CVRs will pay out their full potential.
• Clinical Trial Risk: Kinnate's drug candidates (now part of XOMA's portfolio) are still in early clinical stages. They may fail to demonstrate sufficient efficacy or safety in later-stage trials, or face unexpected side effects.
• Regulatory Risk: Even with positive clinical data, there is no guarantee of regulatory approval (e.g., from the FDA or EMA), which is essential for commercialization.
• Competition: The oncology market is highly competitive. Existing or new therapies from larger pharmaceutical companies could prove more effective or gain market share.
• Intellectual Property Risk: The validity and enforceability of patents protecting Kinnate's drug candidates could be challenged, impacting their market exclusivity.

Disclaimer: This summary is based on publicly available information and general market understanding as of the knowledge cutoff date. It is not financial advice. Investment in biotech companies carries significant risk, and past performance is not indicative of future results. Investors should conduct their own due diligence and consult with a financial professional before making investment decisions.

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