Kymera Therapeutics, Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Kymera Therapeutics is a clinical-stage biopharmaceutical company focused on developing protein degrader therapeutics for a range of diseases, particularly in the areas of immunology and oncology.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Kymera Therapeutics is a biotechnology company specializing in targeted protein degradation (TPD). Unlike traditional drugs that block protein activity, TPD drugs are designed to eliminate disease-causing proteins by leveraging the body’s own protein degradation machinery, with the goal of addressing previously “undruggable” targets. This offers a novel approach to treating diseases, particularly those where conventional therapies have shown limitations.

The company’s pipeline is focused on developing drugs for a variety of therapeutic areas, with a concentration on immunology and oncology. These are two of the most promising areas of the biopharmaceutical industry.

  • Revenue Distribution: As a clinical-stage company, Kymera currently does not generate revenue from product sales. Their primary source of revenue is from collaborative research agreements and milestone payments.

  • Industry Trends:
    • The pharmaceutical industry is increasingly exploring novel drug modalities, including TPD.
    • A push for precision medicine and new treatment options for previously undruggable targets.
    • Greater emphasis on innovation and targeting disease mechanisms at a deeper level.

  • Margins: As a pre-revenue company, Kymera does not have traditional margins to analyze, rather they need to manage their cash burn, as they try to develop new medications.

  • Competitive Landscape: Competition in the biopharmaceutical space is very high. Many companies are targeting similar or different disease pathways. Within TPD, many other companies are aiming to create similar drugs using the same method. Therefore it is crucial that Kymera is at the forefront of research and innovation.

The company has several ongoing collaborations, including a strategic partnership with Vertex Pharmaceuticals. These relationships provide some funding, and validate their development process.

  • What Makes Kymera Different: Kymera focuses specifically on TPD, which could give the company a competitive advantage if they can establish themselves as the industry leader in this drug class. The company utilizes its proprietary technology platform, Pegasus, for the design and development of targeted protein degraders. This platform can be used to analyze proteins and potentially quickly design drugs for new disease targets.

Financials In-Depth

Revenues: The company has no product revenue. Revenue has primarily been from collaboration agreements with biopharma companies. Operating Expenses: Research and development is the biggest cash burn for the company. While general and administrative expenses have increased, it has been at a much slower pace, showing good control. Cash Position: KYMR has a strong cash position with cash and marketable securities exceeding $700 million as of September 30, 2023. It also has good access to new capital with a recent offering of $260.4 million, further bolstering its balance sheet. This is the key strength of this company, allowing them to make investments in their business with the goal of long-term future success. Income: The company’s loss from operations is primarily driven by R&D expenses, as it continues to develop and trial several new medications. The company has not made profits yet.

Income Statement Analysis: The company is currently running a net loss. Balance Sheet Analysis: The balance sheet is very strong. The company has a large cash position and no debt, which would allow them to continue running its operations without issues.

Recent Issues: Kymara’s financial performance, as shown in its Q3 2023 earnings report, reflects its stage as a clinical biopharma company. The absence of product revenues, given the clinical-stage status of its TPD drug pipeline, indicates reliance on collaboration agreements and funding from investors. The increasing R&D and operating expenses emphasize the high costs involved in clinical trials and the process of drug development. The company faces headwinds for increased R&D spend due to pipeline maturation.

  • Management states they are making smart decisions with their finances, they are focused on creating value from their pipeline, and will not be forced to sell at any value. Their goal is for the pipeline to provide a good return for their shareholders.
  • The company is focused on having a strong management team in place to ensure that good financial results will follow.
  • They have a few phase 2 trials ongoing, for which they expect data within the next year, these will be key indicators for their future.
  • The company is focusing on a few high-priority clinical programs while also exploring novel methods and technologies for new drug candidates in its development pipeline.
  • They have partnerships and strategic collaborations with larger biopharma companies.
  • The company is confident they can continue to achieve their targets with their existing capital.
  • They are currently in good shape to start a new study that is going to be a “best in class” and are looking to expand their portfolio.

Moat Assessment: 2 / 5

Kymera’s moat is Narrow. Here’s the breakdown:

  • Intangible Assets: Kymera’s technology platform, Pegasus, while potentially valuable, faces competition from other players and may not offer lasting competitive advantages if similar platforms emerge. The company does have intellectual property through patents in areas of drug discovery and TPD technology.
  • Switching Costs: As a company developing medical treatments, switching costs for its products are high for its customers once a patient is taking medication. However, since the company has no commercially available drugs yet, it is too early to rate switching costs.
  • Network Effect: TPD drugs don’t exhibit strong network effects.
  • Cost Advantage: Kymera does not yet have a durable cost advantage, as they are still developing and trialling novel medications. Therefore their processes are not refined and may be costly to repeat.

  • Size Advantage: Since they are still developing products, they are not yet large enough to achieve a meaningful size advantage.

  • The Main Issue: Despite the intellectual property and potential for novel drugs, Kymera lacks pricing power and may have a lot of competition with other pharmaceutical companies.

Risks to the Moat and Business Resilience

The moat is susceptible to various threats:

  • Technological Change: Disruption of TPD technology from another competing technology could diminish or eliminate Kymera’s competitive advantage.
  • Clinical Trial Failure: If their key trials for their most promising drug candidates fail, this could lead to significant losses.
  • Competition: Successful drug development by companies exploring similar or different methods of targeting disease proteins could diminish Kymera’s ability to attract investors and secure deals.
  • Financial Issues: While the company currently has a good amount of cash, it is always a risk that they might need to get additional money via another equity raise, thereby diluting shareholder equity. The company’s debt free nature can be a positive or negative depending on what their long-term strategy is.
  • Regulatory Hurdles: Changing regulatory frameworks or unexpected hurdles in drug approval processes could also cause a large setback in the company.
  • Patent Challenges: Although Kymera has various patents protecting their technologies and drug candidates, these patents can be legally challenged by other companies or legal entities.

While all of these risks do exist, Kymera has some strengths to overcome these challenges:

  • Financial Strength: the company has considerable cash reserves, with their latest offering bringing in $260 million, and has no debt. That is a strong position, which can allow the company to maneuver around potential hurdles.
  • Technological Prowess: the company’s proprietary Pegasus platform allows them to explore novel drug candidates and target previously undruggable targets.
  • Partnerships: their strategic collaborations, especially with Vertex Pharmaceuticals, provides them with expertise and funding, as well as credibility.

Understandability: 3 / 5

The company’s business is somewhat complex to understand. * The underlying technology of TPD and protein degradation is complex to follow for an untrained investor. * The stages of clinical trials and drug approval are confusing, and require medical and scientific expertise to fully comprehend.

  • The financial statements are relatively straightforward, despite the complex accounting of development expenses, as a good picture can be gotten simply by watching how their expenses go up over time and that their cash balance is stable. * The company does have clear goals with its technology and a strong focus on a niche segment of the pharmaceutical market, which means that it isn’t trying to do many things at the same time.
While it isn’t an easy business to understand, a careful and persistent investor would have a good understanding of what they do.

Balance Sheet Health: 4 / 5

The company’s balance sheet health is strong. They have no debt, a strong cash position and relatively low liabilities. However, there is no commercial product, and therefore no income to show as a balance sheet offset. Therefore, the company is still burning money, but its cash holdings provide safety. The company also does regular offerings, which help bring in further funding. Overall, the company’s balance sheet is in very healthy condition.