If the objective of a value-seeking investor is to buy securities at the widest discount from intrinsic value, then the time to buy a security is when either the intrinsic value is growing or when the price of the business has fallen to create a bigger discount to intrinsic value. In the case of biotechnology company Kindred Biosciences (KIN), the latter happened last week.
Kindred is a small-cap biotech focusing on pet care pharmaceutical products. Last week, the company announced that it was terminating its AtoKin study. The company will instead focus those resources on other candidates in its pipeline. Since AtoKin was one of the closest compounds Kindred had approaching marketability, the shares fell 30% on the news. I added to my stake.
Even after the subsequent 10% advance the next day, Kindred now commands a market cap of $133 million. The company has over $100 million in cash and no debt for an enterprise value of $27 million. Let's quickly examine the optionality you get for $27 million.
First, Kindred has a portfolio of over a dozen potential candidates. Second, the cost to bring a pet drug to market under Kindred's system is less than $5 million from start to end, so the company can see to every single one of its portfolio drugs without running out of cash. Third, as Kindred begins to push more of these candidates further down the approval process, the value of the company is likely to swell. The cherry on top is if the company sees a product to market - the market cap could approach $1 billion easily.
What Kindred does is take already approved human drugs and focuses on reformulating them into animal compounds. R&D expenses is minimal, and Kindred has a deep menu of drugs to choose from. The pipeline will never lack potential candidates. The company is basically a calculated bet on a probabilistic outcome.
At this price, it's tails you lose a little, heads you hit a homerun.