Citi Sees Kadmon's Trials As 'Risky,' Initiates With Neutral Rating

Citi has initiated coverage of Kadmon Holdings Inc KDMN at Neutral, while its $12 price target represents a potential return of 20.4 percent over Friday's close.

Kadmon is a small-cap company with two major assets in development for cancer, psoriasis, fibrosis and kidney diseases.

However, Citi said most of these programs are risky with limited clinical data. In addition, the ongoing trials are small proof-of-concept (POC) trials, which could limit the upside.

"We believe investors could find a better de-risked entry point in the next 12–18 months with more data as we see long term upside," analyst Robyn Karnauskas wrote in a note.

Related Link: "Kadmon Offers A Diverse Clinical Pipeline, And Value Optionality," H.C. Wainwright Says

"While we note 40–100 percent upside if every POC trial works, the stock could trade at $3–$5/sh (50–70 percent downside) if Tesevatinib fails in cancer trials & could trade at cash ($1/sh) if KD-025 also fails due to safety," the analyst continued.

Karnauskas noted that the company may face cash crunch beyond first–second quarter of 2017 and they may be at risk of going to capital markets again before majority of data readout in the second half of 2017.

That said, the analyst is positive on the Tesevatinib cancer program, as it crosses the blood brain barrier.

"We see FV of this program at $9/sh (75 percent of our valuation) and model 35 percent probability to brain met NSCLC opportunity ($400 million peak unadjusted) and 25 percent probability to GBM opportunity ($800 million peak unadjusted)," Karnauskas highlighted.

At time of writing, shares of Kadmon were up 2.31 percent to $10.20.

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