Kazia Therapeutics Ltd (ASX:KZA) is making steady progress in advancing its investigational new drug, paxalisib, executing an agreement last week to participate in the GBM AGILE pivotal study in glioblastoma.
GBM AGILE (Glioblastoma Adaptive Global Innovative Learning Environment) is an international platform study that has been established specifically to facilitate the approval of new medicines for glioblastoma, an aggressive type of cancer that can occur in the brain or spinal cord.
The study is set to move into an operational phase with recruitment of patients to the paxalisib arm expected to begin in the first quarter of 2021.
Corporate Connect Research has initiated coverage on Kazia with a 12-month price target of $2.05 (current share price: 85 cents).
The following is an extract from Corporate Connect’s initiation report:
Since August 1st, Kazia Therapeutics has announced US Food & Drug Administration fast track status for one program & orphan drug and rare paediatric disease designation for another, while finishing the period by announcing a new trial for its cancer drug, paxalisib. Over the next nine months investors are likely to see six data readouts from five programs. How fast can a company go?
Introduction: A shake up of the board and senior management at drug-developer Novogen Ltd (formerly, ASX:NRT), brought the company a new CEO and several new board members, including a new chairman. Management wasted no time in trimming the dead wood from the development pipeline and licensing in a phase II ready, unique anti-cancer compound from storied cancer drug developer Genentech. The drug, that would later become known as paxalisib, had a very well understood mechanism of action and clinical data showing that the drug could do something other four marketed drugs of the same class could not do. It could cross the blood-brain-barrier and penetrate the tissues of the brain and the spine. Paxalisib and been purpose built to treat cancers of the central nervous system.
Clinical Trials: Kazia moved paxalisib into the clinic quicky and the trials in the table are underway. The best way for a drug developer to add value is by trialling their drug broadly, but also wisely, so as to inform future decisions they may have to make, while also protecting the drug from being studied in a no-win trial. The main program is in glioblastoma multiforme (GBM), an aggressive form of brain cancer. It is the one Kazia expects to take into a pivotal trial starting early next year and the one Kazia will be aiming to gain approval from regulators for, if and when the time comes. An added advantage of Kazia’s strategy is that it will also build value in the eyes of those who might see paxalisib as valuable addition to their existing businesses. Any small pharma should be open to being acquired at the right price. Given the nature of pharmaceutical sales and marketing, good drugs developed by smaller companies invariably reach a point where they become worth substantially more to larger companies than to the existing owner. The reason is that the larger companies have the infrastructure, the human capital, and the financial capital to quickly and efficiently take advantage of all the opportunities a good drug provides.
Valuation Methodology: I have used a probability weight discounted cash flow approach to value Kazia. The biggest assumption I have made is that if Kazia is successful in moving paxalisib through trials for GBM, they will be acquired. The discount rate is also a big decision because of its large impact on the target price. Most large pharmaceutical companies use a rate of 11% or 12%. I have used 15% to keep my valuation on the conservative side. The third key assumption was that the US accounted for 55% of the world’s cancer drug revenue. By doing this, I could go into the biggest market, by far, in some depth, rather spend time on much less lucrative geographies. Valuations can tell you whether an asset is mispriced, but it will not tell whether a mispriced asset will move to fair value over the coming year. The emphasis on the data readouts, above, provide a compelling argument that the target price target can be reached, if not exceeded.
Recommendation: Kazia’s fate is in paxalisib’s hands, and that is how it should be. We initiate coverage with a 12-month price target of $2.05.