Kazia Therapeutics — EVT801 data published in peer-reviewed journal

Kazia Therapeutics (NASDAQ: KZIA)

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Research: Healthcare

Kazia Therapeutics — EVT801 data published in peer-reviewed journal

Kazia Therapeutics has announced the publication of pre-clinical data for its second pipeline asset, EVT801 in the journal Cancer Research Communications. The research was conducted by licensing partner Evotec and was the key driver for Kazia in-licensing the asset in 2021. EVT801 is an inhibitor of vascular endothelial growth factor receptors (VEGFR), which play an important role in angiogenesis and lymphangiogenesis (processes that contribute to tumor growth and metastasis), making VEGFR a well-established therapeutic target. While VEGFR inhibitors have been on the market for over a decade, Kazia asserts that by selectively targeting VEGFR3, EVT801 offers a potent and less toxic therapeutic profile than other benchmark drugs, such as Novartis’ Votrient (pazopanib) and Bayer’s Nexavar (sorafenib). EVT801 is currently in a Phase I clinical trial with initial data expected in H1 CY23. Our valuation changes slightly to $143.9m or US$8.81 per basic ADR, reflecting the additional shares issued under the at-the-money (ATM) facility.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Kazia Therapeutics

EVT801 data published in peer-reviewed journal

Development update

Pharma and biotech

7 December 2022

ADR research

Price

$0.6

Market cap

$10m

ADR/Ord conversion ratio 1:10

Net cash (US$m) at end-September 2022

3.4

ADRs in issue

16.34m

ADR code

KZIA

ADR exchange

Nasdaq

Underlying exchange

ASX

Depository

BNY

ADR share price performance

52-week high/low

$8.65

$0.59

Business description

Kazia Therapeutics is a late-stage clinical pharmaceutical company with lead asset paxalisib (a PI3K inhibitor that can cross the blood-brain barrier, licensed from Genentech) in a pivotal study for GBM and in early-stage studies in childhood brain cancers, DIPG and AT/RT. The other asset is the Phase I drug EVT801, an inhibitor of VEGFR3.

Next events

Interim data from EVT801 Phase I study

H1 CY23

Phase III GBM AGILE top-line data

H2 CY23

Interim data from Phase II PNOC22 trial

CY23

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Kazia Therapeutics is a research client of Edison Investment Research Limited

Kazia Therapeutics has announced the publication of pre-clinical data for its second pipeline asset, EVT801 in the journal Cancer Research Communications. The research was conducted by licensing partner Evotec and was the key driver for Kazia in-licensing the asset in 2021. EVT801 is an inhibitor of vascular endothelial growth factor receptors (VEGFR), which play an important role in angiogenesis and lymphangiogenesis (processes that contribute to tumor growth and metastasis), making VEGFR a well-established therapeutic target. While VEGFR inhibitors have been on the market for over a decade, Kazia asserts that by selectively targeting VEGFR3, EVT801 offers a potent and less toxic therapeutic profile than other benchmark drugs, such as Novartis’ Votrient (pazopanib) and Bayer’s Nexavar (sorafenib). EVT801 is currently in a Phase I clinical trial with initial data expected in H1 CY23. Our valuation changes slightly to $143.9m or US$8.81 per basic ADR, reflecting the additional shares issued under the at-the-money (ATM) facility.

Year end

Revenue
(US$m)

PBT*
(US$m)

EPADR
(US$)

DPADR
(US$)

P/E
(x)

Gross yield
(%)

06/21

10.5

(3.1)

(0.25)

0.0

N/A

N/A

06/22

0.0

(14.6)

(1.08)

0.0

N/A

N/A

06/23e

0.0

(18.6)

(1.12)

0.0

N/A

N/A

06/24e

10.6

(16.8)

(1.01)

0.0

N/A

N/A

Note: *Converted at 1.45/US$. Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

A specific inhibitor of VEGFR3

The VEGFR family of proteins are receptor tyrosine kinases and in cancer are implicated in angiogenesis and lymphangiogenesis. These proteins have been a common target for therapeutics (such as the first-in-class angiogenesis inhibitor Avastin), although fewer efforts have been made to specifically target the VEGFR3 isoform, which is important for the formation of lymphatic vessel networks. Management believes that more selective VEGFR3 inhibition may result in improved drug tolerance and lessen development of resistance to therapy.

Positive pre-clinical data on EVT801  

The recently published pre-clinical data (both in vitro and in vivo) demonstrated that EVT801 was able to achieve strong anti-tumor activity in VEGFR3+ tumors even at low (nanomolar) dosages, suggesting a good safety profile and the potential for a wide therapeutic window. The drug also presented higher activity than currently marketed drugs pazopanib and sorafenib in in-vivo mouse models. Importantly, the drug showed synergistic efficacy benefits in combination with checkpoint inhibitors, which highlight incremental potential as a combination treatment.

Valuation: US$143.9m or US$8.81 per basic ADR

We update our valuation for the latest issues under the ATM facility, which we estimate has contributed c US$4m in funds in H123 to date for Kazia. Our revised valuation stands at US$143.9m or US$8.81 per basic ADR. We expect the upcoming top-line data for EVT801 in H1 CY23 to be a key share price catalyst.

EVT801 – a selective inhibitor of VEGFR3

VEGFR inhibitors’ effectiveness in cancer limited by off-target activity

The role of VEGFR in tumorigenesis is well understood, with several drugs currently available on the market. In 2004, Avastin (bevacizumab) became the first drug to be approved in the category, pulling in sales of US$7.1bn in 2019 before going off-patent. However, despite established efficacy signals, treatment has been challenged by off-target activity of the approved treatments, which is widely attributed to their lack of selectivity. Side effects such as hypertension, anorexia and fatigue are commonly reported, leading to restrictions in therapeutic dosages. Moreover, broad-activity VEGFR inhibitors are believed to cause sustained tumor hypoxia, which may lead to cancer cells developing treatment resistance, adapting and proliferating further.

EVT801 is highly VEGFR3 selective…

EVT801 has been positioned as a more selective, new-generation inhibitor with potentially fewer off-target effects, improved safety profile and capability to lower hypoxia-induced resistance (thereby higher treatment durability). In an in-vitro study using human embryonic kidney (HEK)293 cell lines expressing VEGFR1, 2 and 3, EVT801 and its active metabolite (SAR849) exhibited greater affinity for VEGFR3 over other isoforms (Exhibit 1). While pre-clinical data may not necessarily translate into a meaningful clinical effect, these early results are encouraging for EVT801’s potential market differentiating VEGFR3 selectivity.

Exhibit 1: EVT801’s isoform selectivity

Source: Targeting Tumor Angiogenesis with the Selective VEGFR3 Inhibitor EVT801 in Combination with Cancer Immunotherapy. Cancer Research Communications

…with superior pre-clinical activity over a competing treatment

In an additional in-vivo model using subcutaneous tumor xenografts, oral administration of 30mg/kg twice a day EVT801 demonstrated a significant inhibition of tumor growth compared to the pan-VEGFR inhibitor pazopanib (30mg/kg twice a day) or the vehicle/control (5ml/kg twice a day) over seven days of treatment (Exhibit 2). As a reminder, pazopanib is currently approved under the brand name Votrient, for the treatment of renal cell carcinoma and soft tissue sarcoma.

Exhibit 2: EVT801’s tumor growth inhibition versus benchmark

Source: Targeting Tumor Angiogenesis with the Selective VEGFR3 Inhibitor EVT801 in Combination with Cancer Immunotherapy. Cancer Research Communications.

Potential as combination treatment with immunotherapy

Recent focus in cancer drug development has been on utilizing combination treatments to enhance the efficacy of monotherapies. Mouse model studies across several tumor types testing EVT801 in combination with immune checkpoint inhibitors showed strongly synergistic activity, with the combination performing better than either drug alone. While EVT801 monotherapy activity on tumor volumes was largely similar to the anti-PD-1 antibody, the combination treatment resulted in much lower levels of tumor progression, implying additional benefits (Exhibit 3). In our view, combination therapies will be critical for clinical breakthroughs in oncology, so we see this result as being highly supportive for the pursuit of the EVT801/immune checkpoint inhibitor combination in the clinic.

Exhibit 3: EVT801’s potential as combination treatment

Source: Targeting Tumor Angiogenesis with the Selective VEGFR3 Inhibitor EVT801 in Combination with Cancer Immunotherapy. Cancer Research Communications.

EVT801 is currently undergoing a Phase I clinical trial as a monotherapy in patients with advanced solid tumors (NCT05114668). We expect Kazia to explore EVT801’s potential as a combination treatment with checkpoint inhibitors as clinical development progresses (Exhibit 4 highlights the development strategy for EVT801). The Phase I study is expected to report initial data in H1 CY23 and we expect this could be a key share price catalyst for the company.

Exhibit 4: EVT801’s development strategy

Source: Kazia Therapeutics corporate deck

Financials and valuation

We update our FY23 and FY24 EPS estimates following two capital raises under the ATM facility in October 2022 (13.0m shares/1.3m ADRs for gross proceeds of US$1.56m). The September-end cash balance stood at US$3.4m and the equity proceeds take the updated pro-forma net cash to c US$5.0m (versus our previous estimate of US$7.6m). This results in our overall valuation coming down slightly to US$143.9m versus US$146.6m previously. The per ADR valuation gets affected further on account of the higher number of shares/ADRs outstanding following the issue, falling to US$8.81/ADR from US$9.79/ADR previously. A breakdown of our valuation is presented in Exhibit 5.

Exhibit 5: Kazia Therapeutics valuation breakdown

Development Program

Indication

Clinical stage

Prob. of success

Launch year

Patent/Exclusivity Protection

Launch Pricing ($/course)

Peak sales (US$m)

rNPV (US$m)

Paxalisib

GBM

Phase II/III

20%

2025

2037

169,000

270

81.5

BCBMs

Phase II

5%

2029

2037

183,000

249

6.0

Cantrixil

OC

Phase I complete

15%

2027

2040

124,000

174

7.5

EVT801

RCC

Phase I

10%

2028

2037

120,000

807

43.9

Total

138.9

Net cash and equivalents (end-September 2022+equity offering) (US$m)

4.96

Total firm value (US$m)

143.91

Total basic ADRs (m)

16.34

Value per basic ADR (US$)

8.81

Source: Edison Investment Research

Exhibit 6: Financial summary

USD'000s

2021

2022

2023e

2024e

30-June

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

10,501.5

18.7

0.0

10,620.7

Cost of Sales

0.0

0.0

0.0

(1,149.0)

Gross Profit

10,501.5

18.7

0.0

9,471.7

R&D

10,028.5

13,967.0

17,669.0

20,420.7

SG&A

4,842.6

3,111.4

3,480.9

8,378.1

EBITDA

 

 

(3,058.2)

(14,558.0)

(18,648.1)

(16,825.3)

Operating profit (before amort. and excepts.)

 

(3,058.2)

(14,558.0)

(18,648.1)

(16,825.3)

Amortisation of acquired intangibles

(872.6)

(1,346.9)

(1,346.9)

(1,346.9)

Exceptionals

(1,772.6)

(192.6)

0.0

0.0

Share-based payments

(438.9)

(1,154.9)

(1,154.9)

(1,154.9)

Reported operating profit

(6,142.3)

(17,252.3)

(21,149.8)

(19,327.0)

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)

 

 

(3,058.2)

(14,558.0)

(18,648.1)

(16,825.3)

Profit Before Tax (reported)

 

 

(6,142.3)

(17,252.3)

(21,149.8)

(19,327.0)

Reported tax

334.0

253.8

311.2

284.4

Profit After Tax (norm)

(2,891.9)

(14,343.8)

(18,373.7)

(16,577.7)

Profit After Tax (reported)

(5,808.2)

(16,998.5)

(20,838.6)

(19,042.7)

Minority interests

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(2,891.9)

(14,343.8)

(18,373.7)

(16,577.7)

Net income (reported)

(5,808.2)

(16,998.5)

(20,838.6)

(19,042.7)

Average Number of Shares Outstanding (m)

11.8

13.2

16.3

16.3

EPS - normalised (c)

 

 

(0.25)

(1.08)

(1.12)

(1.01)

EPADR - diluted normalised (US$)

 

 

(0.25)

(1.08)

(1.12)

(1.01)

EPADR - basic reported (US$)

 

 

(0.49)

(1.28)

(1.28)

(1.17)

Dividend (A$)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

19,790.5

18,862.4

16,136.3

13,410.1

Intangible Assets

15,174.2

13,827.3

12,480.5

11,133.6

Tangible Assets

0.0

0.0

0.0

0.0

Investments & other

4,616.3

5,035.1

3,655.8

2,276.5

Current Assets

 

 

20,269.5

5,247.1

8,003.4

15,416.4

Stocks

0.0

0.0

0.0

283.3

Debtors

58.2

62.7

0.0

6,983.5

Cash & cash equivalents

19,025.4

5,076.6

7,895.7

8,042.0

Other

1,186.0

107.7

107.7

107.7

Current Liabilities

 

 

(5,742.5)

(3,231.1)

(5,236.1)

(7,405.5)

Creditors

(3,401.8)

(2,593.2)

(4,598.2)

(6,767.5)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

Other

(2,340.6)

(638.0)

(638.0)

(638.0)

Long Term Liabilities

 

 

(8,213.6)

(8,024.4)

(21,506.3)

(41,911.5)

Long term borrowings

0.0

0.0

(13,793.1)

(34,482.8)

Other long term liabilities

(8,213.6)

(8,024.4)

(7,713.2)

(7,428.8)

Net Assets

 

 

26,103.9

12,854.0

(2,602.7)

(20,490.5)

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

26,103.9

12,854.0

(2,602.7)

(20,490.5)

CASH FLOW

Operating Cash Flow

(3,058.2)

(14,558.0)

(18,648.1)

(16,825.3)

Working capital

(3,855.7)

(72.5)

3,135.8

(4,002.5)

Exceptional & other

630.8

(1,067.9)

311.2

284.4

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(6,283.1)

(15,698.4)

(15,201.1)

(20,543.4)

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

19,385.4

2,569.8

4,227.0

0.0

Dividends

0.0

0.0

0.0

0.0

Other

0.0

(1,630.8)

0.0

0.0

Net Cash Flow

13,102.3

(14,759.5)

(10,974.0)

(20,543.4)

Opening net debt/(cash)

 

 

(6,234.3)

(19,215.4)

(5,266.7)

5,707.3

FX

(121.1)

810.7

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(19,215.4)

(5,266.7)

5,707.3

26,250.7

Source: Kazia Therapeutics company accounts, 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 £60,000 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 2022 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

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United Kingdom

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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.

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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 £60,000 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 2022 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.

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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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ArborGen Holdings — Seedling supplier’s long-term future looks green

Reflecting ArborGen Holdings’ (ARB’s) strategic shift to focus on Brazil and the United States, the company reported mixed H123 results: growth from Brazil boosted overall revenues by 61% over the prior comparable period, although US challenges and a higher amortisation charge led normalised operating earnings to fall US$1.2m y-o-y to a loss of US$0.6m. ARB made investments in Brazilian and US nurseries, adding capacity for about 38m seedlings. While H223 could be affected by ongoing inflationary pressures and US yields, ARB’s long-term prospects appear solid, benefiting from recent record Mass Control Pollinated (MCP) cone harvests, capacity expansion and the potential for margin recovery from future price increases and a favourable mix shift. We are reviewing our estimates.

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