Phase IIa shows good safety, consistent efficacy

Kazia Therapeutics 2 December 2020 ADR Update
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Kazia Therapeutics

Phase IIa shows good safety, consistent efficacy

Clinical update

Pharma & biotech

2 December 2020

ADR research

Price

US$9.9

Market cap

US$125m

ADR/Ord conversion ratio 10:1

Net cash (US$m) at 30 September 2020

4.67

ADRs in issue

12.6m

ADR code

KZIA

ADR exchange

NASDAQ

Underlying exchange

ASX

Depository

BNY

ADR share price performance

52-week high/low

US$13.47

US$2.56

Business description

Kazia Therapeutics is a pharmaceutical company with lead asset paxalisib, a PI3K inhibitor licensed from Genentech that can cross the blood-brain barrier, which is entering a pivotal study for GBM. It is also being investigated for other brain cancers, and the company has the legacy asset Cantrixil in Phase I for ovarian cancer.

Next events

BCBM Phase II results

H220

First patient in GBM AGILE

Early 2021

GBM Phase IIa complete

H121

Analyst

Nathaniel Calloway

+1 646 653 7036

Kazia Therapeutics is a research client of Edison Investment Research Limited

Kazia presented the results from a new interim data analysis of its ongoing Phase IIa study of paxalisib in glioblastoma multiforme (GBM). The data were consistent with previous data and showed progression-free survival (PFS) of 8.4 months and overall survival (OS) of 17.5 months. Importantly, Kazia also published some of the first safety data at the full 60mg dose, which show an attractive profile compared to other members of this class.

Year end

Revenue (US$m)

PTP*
(US$m)

EPADR
(US$)

DPADR
(US$)

P/E
(x)

Gross yield
(%)

06/19

1.1

(5.3)

(0.91)

0.00

N/A

N/A

06/20

0.8

(7.7)

(1.05)

0.00

N/A

N/A

06/21e

1.0

(8.2)

(0.69)

0.00

N/A

N/A

06/22e

1.1

(8.5)

(0.64)

0.00

N/A

N/A

Note: Converted at A$1.4/US$. Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

Pivotal studies here we come

The company presented the data from the study at the Society for Neuro-Oncology (SNO) meeting on 19 November 2020. The study is a dose-escalation/expansion study, which previously established 60mg as the maximum tolerated dose (MTD), and is currently in the Phase IIa expansion portion. A total of 29 patients were included in the analysis, of which 24 received the 60mg dose. The study is expected to continue to follow these patients into H121, but the company is not waiting to progress the program and expects to enroll the first patient into the pivotal GBM AGILE study in early calendar Q121.

Efficacy looks good, safety is key

The PFS and OS currently being reported are very similar to previous reports (8.5 and 17.7 months with n=27), which were promising the first time and it is good to see this consistency. However, the real game changer in this release is the safety data, which give us a much higher degree of confidence in this program. The PI3K class of drugs has historically been difficult to develop without high-risk adverse events such as opportunistic infections or GI complications, but the current profile from the 24 60mg patients presented shows little indication of these problems.

DIPG might need a combination approach

There was also an oral presentation at the meeting on the Phase I investigator-sponsored study of paxalisib in diffuse intrinsic pontine glioma (DIPG), an aggressive childhood brain cancer. Unfortunately, the study did not demonstrate a clear survival benefit for paxalisib, but the study authors believe there is potential in a combination.

Valuation: Increased to US$184m or US$14.55/ADR

We have increased our valuation to US$184m or US$14.55 per ADR from US$104m or US$10.98 per ADR. This is driven by increasing our probability of success for paxalisib in GBM to 35% (US$151.8m) from 20% (US$81.8m) and the October US$18m raise (31.5m shares at A$0.80).

Phase IIa update: Good news on efficacy and safety

Paxalisib is a PI3K and mTOR inhibitor currently being studied in a Phase I/IIa study of patients with newly diagnosed GBM and unmethylated MGMT promotor. The drug is used as an adjuvant following initial resection, radiation treatment and temozolomide.

Throughout the course of the study, the efficacy results presented by the company have been very consistent, showing survival data in the same range as the current results: PFS of 8.4 months and an OS of 17.5 months (Exhibits 1 and 2). Only two additional patients have been included in the most recent survival analysis (n=29 vs n=27 in the AACR update), but the new data also include six more months of data on previously enrolled patients. It is not necessarily surprising that the previous results were replicated, but this is not something that was guaranteed, even if the drug is active.

Exhibit 1: PFS of GBM treated with paxalisib

Exhibit 2: OS of GBM treated with paxalisib

Source: Kazia Therapeutics

Source: Kazia Therapeutics

Exhibit 1: PFS of GBM treated with paxalisib

Source: Kazia Therapeutics

Exhibit 2: OS of GBM treated with paxalisib

Source: Kazia Therapeutics

These values compare favorably to historical controls using temozolomide alone in a similar patient population (Exhibit 3). Patients with an unmethylated MGMT promoter are more resistant to temozolomide. It is difficult to draw definitive conclusions using historical controls given the variability between patient populations, so these data should be interpreted with some caution, but they are what you would expect with an active drug.

Exhibit 3: Overall survival and PFS in GBM with unmethylated MGMT promoter treated with radiotherapy plus adjuvant temozolomide

Median overall
survival (months)

Median PFS
(months)

PFS
at six months

Two-year
survival rate

Hegi et al NEJM 2005

12.7

5.3

40%

14%

Nabors et al, Neuro-Oncology 2015

13.4

4.1

N/A

N/A

Gilbert et al, JCO, 2013

14.0

5.7

N/A

N/A

AVAGLIO ASCO, 2013

14.6

5.8

N/A

N/A

RTOG-0825, ASCO, 2013

14.3

N/A

N/A

N/A

Average

13.8

5.2

Source: Edison Investment Research; Hegi et al N Engl J Med 2005;352(10):997-1003; Nabors et al. Neuro-Oncology 2015 17(5):708-717; Gilbert et al. J Clin Oncol 2013 31(32):4085-4091. Note: RTOG = Radiation Therapy Oncology Group.

As encouraging as the efficacy data are from this presentation, the key insight from this release is in the safety data. PI3K inhibitors as a class have generally shown anti-cancer activity, but their utility has been severely limited by safety issues. Three of the four drugs approved from this class have documented fatal side effects, with opportunistic infections being the most common, but including fatal GI, lung and liver complications. Countless other PI3K programs in development have been terminated following the discovery of similar problems. By comparison, paxalisib shows a profile much more similar to Piqray (alpelisib, Novartis), where hyperglycemia and rash are the most common grade 3-4 adverse events (AEs). We should note that neither paxalisib nor Piqray has a fully benign profile by any means. However, safety is one of the key hurdles for this drug, and this is the first definitive bit of data showing that the drug has to potential to clear it.

Previous safety data largely come from the Genentech Phase I study, which only examined six patients at this approximate dosing level.1 Moreover, the dose used was poorly tolerated in that much more heavily treated population. However, the general profile is consistent. A key aspect of Kazia’s strategy is to improve on these earlier results by finding a higher MTD in earlier-stage patients, and the current research establishes the safety profile at this higher dose.

  Wen PY, et al. (2020) First-in-Human Phase I Study to Evaluate the Brain-Penetrant PI3K/mTOR Inhibitor GDC-0084 in Patients with Progressive or Recurrent High-Grade Glioma. Clin Cancer Res 26, 1820-1828.

Exhibit 4: Adverse events in two or more patients, 60mg paxalisib (n=24)

Source: Kazia Therapeutics, taken from SNO 2020 poster

This trial is slated to continue into H121, but we believe we have gained the bulk of the information we can get from the study already. Kazia is also not waiting for the final readout and is progressing directly to pivotal studies. The drug is to be included in the GBM AGILE study, a Phase II/III study examining multiple drugs from multiple institutions in GBM. The company has officially started its participation in the study (at least on paper, which triggered a A$5m fee) and expects to enroll its first patient in early CY21.

Paxalisib for DIPG

Additionally, at the SNO conference, the physician from St Jude running the study gave a presentation on the results from the Phase I investigator-sponsored trial of paxalisib for DIPG (n=27). The investigator stated that the study did not show a clear survival benefit compared to historical controls. DIPG is one of the hardest cancers to treat, and single agent activity has never been seen for the disease. The possibility of seeing activity as a monotherapy was therefore a longshot, but the study fulfilled its primary purpose, because it helped to establish the safety profile of the drug in pediatrics. Kazia stated that the profile was similar to that seen in other paxalisib studies, although the MTD of 27mg/m2 in children is a bit lower than for adults (35mg/m2, assuming 1.7m2 for an adult). We expect any future investigations in this indication to examine the drug as a combination therapy. The study remains ongoing and final data will be released in calendar 2021.

Valuation

We have increased our valuation to US$184m or US$14.55 per ADR from US$104m or US$10.98 per ADR. This is driven by increasing our probability of success for paxalisib in GBM to 35% from 20%. We are increasing this on the basis of the interim safety and efficacy results from the Phase IIa study. The study is not complete, but we do not expect to see any more definitive data than we have already seen. The company highlights the fact that the current study stage is relatively mature, which suggests the final results will be very similar to the interim analyses. We believe the reported data reduces some of the risk surrounding safety for the molecule. Conversely, we are removing DIPG from our models. We do not necessarily believe the drug cannot work in this indication, but new studies will need to be undertaken and we are unaware of any plans to finance this program internally. Moreover, more preclinical research may be needed on paxalisib in DIPG.

Additionally, we have rolled forward our NPVs and adjusted for the new cash balance, which includes US$4.67m reported at the end of September 2020 and the US$18m offering (estimated US$17m net) announced (for approximately 31.5m shares at A$0.80) in October 2020. Additionally, we have deducted US$5m to reflect the milestone fees associated with starting the GBM AGILE study.

Exhibit 5: Valuation of Kazia

Development program

Indication

Clinical stage

Prob. of success

Launch year

Patent/ exclusivity protection

Launch pricing (US$/course)

Peak sales (US$m)

rNPV (US$m)

Paxalisib

GBM

Phase II

35%

2025

2037

169,000

450

151.80

BCBMs

Phase II

5%

2029

2037

183,000

249

5.97

Cantrixil

OC

Phase I

10%

2027

2040

124,000

174

9.27

Total

167.04

Net cash and equivalents (Q121 + subsequent transactions) (US$m)

16.59

Total firm value (US$m)

183.63

Total basic ADRs (m)

12.6

Value per basic ADR (US$)

14.55

Dilutive options (as ADRs, m)

0.45

Total diluted ADRs

13.1

Value per diluted ADR (US$)

14.05

Source: Kazia Therapeutics reports, Edison Investment Research

Financials

We have not changed our financial forecasts at this time, save for the addition of the October offering. This offering has reduced our expected financing requirement to US$14m (from US$32m previously), which we include in our forecasts as illustrative debt in FY23.

Exhibit 6: Financial summary

$'k

2019

2020

2021e

2022e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

1,117.9

757.8

1,003.4

1,087.0

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

1,117.9

757.8

1,003.4

1,087.0

R&D

4,625.4

6,781.7

7,346.4

7,746.4

SG&A

2,704.0

2,635.6

2,785.6

2,841.3

EBITDA

 

 

(5,260.9)

(7,697.7)

(8,166.9)

(8,539.0)

Normalised operating profit

 

 

(5,261.0)

(7,697.7)

(8,166.9)

(8,539.0)

Amortization of acquired intangibles

(774.5)

(774.5)

(774.5)

(774.5)

Exceptionals

(1,337.4)

(458.8)

0.0

0.0

Share-based payments

(176.0)

(187.2)

(187.2)

(187.2)

Reported operating profit

(7,548.9)

(9,118.3)

(9,128.6)

(9,500.8)

Net Interest

0.0

0.0

0.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(5,261.0)

(7,697.7)

(8,166.9)

(8,539.0)

Profit Before Tax (reported)

 

 

(7,548.9)

(9,118.3)

(9,128.6)

(9,500.8)

Reported tax

213.0

213.0

348.4

362.6

Profit After Tax (norm)

(5,261.0)

(7,697.7)

(8,166.9)

(8,539.0)

Profit After Tax (reported)

(7,335.9)

(8,905.3)

(8,780.2)

(9,138.2)

Minority interests

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(5,261.0)

(7,697.7)

(8,166.9)

(8,539.0)

Net income (reported)

(7,335.9)

(8,905.3)

(8,780.2)

(9,138.2)

Basic average number of ADRs outstanding (m)

5.8

7.3

11.8

13.3

EPADR - basic normalised (US$)

 

 

(0.91)

(1.05)

(0.69)

(0.64)

EPADR - diluted normalised (US$)

 

 

(0.91)

(1.05)

(0.69)

(0.64)

EPADR - basic reported (US$)

 

 

(1.28)

(1.22)

(0.74)

(0.69)

Dividend (A$)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

9,758.8

8,864.4

8,089.9

7,315.3

Intangible Assets

9,638.9

8,864.4

8,089.9

7,315.3

Tangible Assets

0.0

0.0

0.0

0.0

Investments & other

119.9

0.0

0.0

0.0

Current Assets

 

 

5,367.3

7,609.7

15,239.0

6,812.4

Stocks

0.0

0.0

0.0

0.0

Debtors

1,221.9

965.9

659.8

714.7

Cash & cash equivalents

3,881.3

6,260.0

14,195.5

5,713.9

Other

264.0

383.8

383.8

383.8

Current Liabilities

 

 

(1,357.4)

(3,619.6)

(2,495.8)

(2,608.2)

Creditors

(1,260.0)

(2,492.1)

(2,261.2)

(2,373.5)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

Other

(97.4)

(1,127.5)

(234.7)

(234.7)

Long Term Liabilities

 

 

(3,629.6)

(2,764.8)

(2,416.4)

(2,053.8)

Long term borrowings

0.0

0.0

0.0

0.0

Other long term liabilities

(3,629.6)

(2,764.8)

(2,416.4)

(2,053.8)

Net Assets

 

 

10,139.1

10,089.7

18,416.7

9,465.7

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

10,139.1

10,089.7

18,416.7

9,465.7

CASH FLOW

Op Cash Flow before WC and tax

(5,260.9)

(7,697.7)

(8,166.9)

(8,539.0)

Working capital

252.1

1,192.2

(1,166.1)

(305.2)

Exceptional & other

213.0

213.0

348.4

362.6

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(4,795.9)

(6,292.5)

(8,984.6)

(8,481.6)

Capex

0.0

0.0

0.0

0.0

Acquisitions/disposals

0.0

0.0

0.0

0.0

Net interest

0.0

0.0

0.0

0.0

Equity financing

2,725.5

8,671.2

16,920.0

0.0

Dividends

0.0

0.0

0.0

0.0

Other

1,685.1

0.0

0.0

0.0

Net Cash Flow

(385.3)

2,378.7

7,935.4

(8,481.6)

Opening net debt/(cash)

 

 

(4,254.4)

(3,881.3)

(6,260.0)

(14,195.5)

FX

12.2

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(3,881.3)

(6,260.0)

(14,195.5)

(5,713.9)

Source: Kazia Therapeutics reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Kazia Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Kazia Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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60325 Frankfurt

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London +44 (0)20 3077 5700

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London, WC1V 7EE

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 4, Office 1205

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NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Kazia Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Kazia Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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