2014 was a record-breaking year for initial public offerings (IPOs). Businesses as wide ranging as furniture retailers, fast food outlets and digital technology firms began trading on the stock market. This proved to be a feast for the writers of options advisory newsletters and professional options trading services as each new business demanded their attention.
However, some IPOs performed much more strongly than others. The IPO process involves selling shares to large "cornerstone" investors before they become publicly traded. When the stock debuts on the stock exchange, a gain in price will mean a day one or "stag" profit.
Strong share price gains on day one are an indication to options trading services that the demand for the stock is high, and investors want to own a piece of the company.
Being able to continue share price gains after day one is also important, as long-term investors and true believers in the business model are also rewarded if this occurs.
Very rarely, a stock meets all of these expectations, and is able to notch a first day profit and build strongly in the weeks and months after it. Kite Pharma (KITE) is one of those stocks, with an incredible rise in the share price from a debut of below $30, to recent trading in excess of $89 in less than a year. So are shares in Kite Pharma set to fly higher in 2015?
Understanding the Business
Like many other businesses that went through the IPO process in 2014, Kite Pharma is involved in the biotechnology and healthcare industry. The small companies in this industry aim to focus on one area in the hope of finding a profitable solution to a disease that is currently not served adequately, or one that is completely untreated.
Kite Pharma (KITE) is a young company, founded in 2009 that is at the small end of the scale. Its target market is drugs that fight cancer. Their point of difference is using the patient's own cells and immune system as the building blocks for this treatment. This differs from more traditional treatments that introduce chemicals and compounds into the human body to fight the disease, and are the same no matter who the patient is.
The name for the kind of therapy that Kite Pharma researches and develops treatments for is engineered Autologous Cell Therapy (eACT) where the cancer fighting T-Cells in each patient are harnessed to fight and kill cancerous cells.
The company is undertaking various trials to achieve this goal. Their most advanced study is in Phase 2 of its trial stage, while they have another in Phase 1. A further four studies are scheduled to begin in 2015 and enter the Phase 1 stage. The more phases a trial has completed, the closer it is to being successfully commercialized and sold. There are usually three phases of trials, followed by an approval phase.
Each of these phases are key dates, for options advisory newsletters, as they have the potential to strongly influence the share price movement of the company.
Metrics and Measures
The recently reported quarterly results for Kite Pharma may look poor at first glance, however, they are fairly typical of an early stage pharmaceutical company. The company recorded a loss of $9.1 million for the quarter, compared to just $2.1 million the year before.
The reason for the widening of the loss was because of the higher investment in new trials and research. Drug development is a costly process, and requires high levels of initial spending to eventually drive in revenues and profits later on.
The other crucial figure to watch is the cash held by the company. Kite Pharma held $195.4 million in cash at the end of the quarter. This means that the company is well-funded and able to self-fund continued activities without needing to raise more money.
The Investment Case
The investment case for Kite Pharma (KITE) is a difficult one. The stock has well and truly soared since its IPO with gains suggesting that investors believe it will return positive trial results in a range of areas. The area that they are trying to develop treatments in is cutting edge, and represents the next step forward in cancer treatment, as it would allow doctors to use tailored products to fight their patient's cancer.
However, the fact that the process is in such an early stage means that successful trials and product sales could be many years away. In addition, there is no guarantee that Kite will be the first to develop a treatment, with many other players interested in this space, including the industry giants.
Further complicating the picture is the fact that the stock is often mentioned as a takeover target. Any early stage trials that show considerable promise could have the effect of attracting a large wealthy acquirer to the company.
Conclusion
Kite Pharma (KITE) is a company that is in an innovative and cutting-edge field attempting to develop a newer, better way of treating cancer. It is in the process of investing heavily in commercial trials for its treatments, with a strong pipeline of up to six studies in 2015. Strong success from any one of these trials could help to justify the share price gains in 2014 and 2015. With the assistance of a professional options trading service, you could also join the ranks of investors who have benefited from Kite Pharma's impressive share price gains to date.
