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Research: Healthcare
Kazia announced that it is expanding its pipeline to include EVT801, a novel small molecule inhibitor of VEGFR3. The drug is being licensed from Evotec for €1m upfront, €308m in milestones and tiered single-digit royalties. EVT801 was developed as part of a collaboration between Evotec and Sanofi. Kazia will be responsible for development, but will collaborate with and have access to Evotec resources to support development. The product is currently in preclinical development, but Kazia believes it can launch a Phase I study before the end of CY21.
Written by
Nathaniel Calloway
Kazia Therapeutics |
New asset to target tumor lymphangiogenesis |
Business update |
Pharma & biotech |
20 April 2021 |
ADR share price performance
Business description
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Kazia Therapeutics is a research client of Edison Investment Research Limited |
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Kazia announced that it is expanding its pipeline to include EVT801, a novel small molecule inhibitor of VEGFR3. The drug is being licensed from Evotec for €1m upfront, €308m in milestones and tiered single-digit royalties. EVT801 was developed as part of a collaboration between Evotec and Sanofi. Kazia will be responsible for development, but will collaborate with and have access to Evotec resources to support development. The product is currently in preclinical development, but Kazia believes it can launch a Phase I study before the end of CY21.
Year end |
Revenue ($m) |
PTP* |
EPADR |
DPADR |
P/E |
Gross yield |
6/19 |
1.1 |
(5.3) |
(0.91) |
0.00 |
N/A |
N/A |
6/20 |
0.8 |
(7.7) |
(1.01) |
0.00 |
N/A |
N/A |
6/21e |
12.0 |
1.1 |
0.09 |
0.00 |
N/A |
N/A |
6/22e |
0.9 |
(13.8) |
(0.97) |
0.00 |
N/A |
N/A |
Source: <Insert>. 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.
A specific inhibitor of VEGFR3
EVT801 is an oral small molecule that targets VEGFR3. The VEGFR family of proteins are receptor tyrosine kinases involved in the formation of the circulatory system, and in cancer they are implicated in angiogenesis. These proteins and their ligand (VEGF) have been a common target for therapeutics, including both targeted angiogenesis inhibitors (eg Avastin) and multi-tyrosine kinase inhibitors (eg Nexavar). However, there have been fewer efforts to specifically target the VEGFR3 isoform, which is important for the formation of lymphatic vessel networks.
Lymphangiogenesis has multiple roles in cancer
Lymphangiogenesis is an important component of tumor biology. An initial metastasis for many tumor types is via the lymphatic system to nearby lymph nodes. The lymphatic system acts as a highway of sorts for immune cells, and EVT801 has also shown capacity in vitro to shift the balance of immune cell subtypes in a tumor. This shift in immune cell populations can potentially sensitize tumors to immunotherapy. We expect this to be the focus of some of the research into this molecule in the coming years.
A good strategic fit while paxalisib is in the clinic
Strategically, this is an important deal for Kazia, because it enables it to expand the pipeline to multiple drugs. Paxalisib will remain the lead asset, but most of the operational burden of that development is borne by the investigators running GBM AGILE. This leaves capacity for the company to expand its offering.
Valuation: Increased on new drug to A$346m
We have increased our valuation to US$247m or US$19.14 per basic ADR from US$215m or US$16.60 per basic ADR due to the new drug (initial valuation of US$33.7m). This has also increased expected R&D spending significantly and our financing requirement for the company to US$36m (including US$21m in FY23) from US$7m, previously.
Kazia expands its pipeline
Kazia announced on 19 April 2021 that it has licensed the compound EVT801 from Evotec. The deal included €1m upfront for Evotec, €308m in milestones, and tiered single-digit royalties. Kazia will assume all development, regulatory and marketing responsibilities. However, Kazia noted that it would be collaborating with Evotec and will have access to Evotec resources such as clinical trial management and manufacturing as part of a services agreement. The company noted that the initial focus of development will be for renal cell carcinoma (RCC), hepatocellular carcinoma (HCC), and soft tissue sarcoma (STS).
Evotec is a company that is operationally focused on drug discovery, and out-licenses these assets and discovery programs to a range of (typically big pharma) partners. EVT801 in particular was previously discovered in a collaboration agreement between Evotec and Sanofi, but Sanofi decided not to option the program, leaving it open for licensing to Kazia. Sanofi’s decision not to exercise the option could have been for any number of strategic reasons, so we do not assume it would have any bearing on the clinical viability of the program.
EVT801 is an inhibitor of vascular endothelial growth factor receptor 3 (VEGFR3). Many readers are likely to be familiar with this family of proteins (VEGFR) and their ligand (VEGF) because they have been successfully targeted by a number of anti-cancer therapeutics. Avastin (bevacizumab, Genentech) was the first drug approved to specifically target this signalling pathway. It is a ligand trap for VEGF-A that depletes this growth factor from the blood and prevents activation of the VEGFR family of receptors. Additionally, proteins of the VEGFR family are frequent targets for so-called multi-tyrosine kinase inhibitors. VEGFR proteins are members of the receptor tyrosine kinase class along with other growth factor receptors such as EGFR and FLT3. These other growth factors are also important for tumorigenesis and multi-tyrosine kinase inhibitors like Nexavar (sorafenib, Bayer) inhibit a wide number of these receptors to varying degrees, and achieve their efficacy by this combined effect.
Historically, the VEGFR family has been targeted to prevent the formation of new blood vessel (angiogenesis) in a tumor. By preventing the generation of new blood vessels, the tumors can be starved of nutrients and oxygen. Avastin is a so-called angiogenesis inhibitor. However, the specific isoform VEGFR3 is associated with the formation of lymphatic vessels (as opposed to blood vessels). Therefore the specific inhibition of this protein may have a different activity profile from other drugs that target this VEGFR class. The lymphatic system is the primary route of metastasis for many tumor types.
One featured highlighted by Evotec is that EVT801 can shift the balance of immune cells in a tumor including the proliferation of CD4+ (helper) T-cells among others (Exhibit 1). This may be an advantage if EVT801 is combined with immunotherapy such as checkpoint inhibitors. Most of the research into tumor-infiltrating lymphocytes has been into the role of CD8+ (killer) T-cells, but CD4+ cells are important for driving a sustained immune response.1
Tay RE, et al. (2021) Revisiting the role of CD4+ T cells in cancer immunotherapy—new insights into old paradigms. Cancer Gene Ther. 28, 5-17.
|
Exhibit 1: EVT801 induces CD4+ T-cells |
|
|
Source: Evotec |
Relatively few programs in which VEGFR3 was specifically targeted have reached the clinic. IMC-3C5, originally developed by ImClone (now owned by Eli Lilly), was an anti-VEGFR3 monoclonal antibody that was abandoned after it failed to show activity in Phase I. VGX-100 (Ceres Oncology) is a VEGF-C ligand trap (and this is a ligand primarily associated with VEGFR3 activation) that was tested in Phase I, but never further developed. Most other drugs that have had activity against VEGFR3 have been multi-tyrosine kinase inhibitors, with a range of other activities, so it is difficult to draw conclusions from these programs. However, the aim is that by using a more targeted approach this can improve the tolerability of EVT801 compared to tyrosine kinase inhibitors.
Much of Kazia’s operational capacity has opened up with the inclusion of paxalisib in the GBM AGILE study, and the company believes that it can dedicate significant resources to the EVT801 program. It has the drug on an accelerated track to the clinic and is targeting initiation of Phase I in CY21.
Valuation
We have increased our valuation to US$247m or US$19.14 per basic ADR from US$215m or US$16.60 per basic ADR. This increase is due to the Evotec transaction, and we have added EVT801 to our models with an initial valuation of US$33.7m. We model initial commercialization of the drug for RCC, and assume it will be used in the second line after progression on checkpoint inhibitors. We estimate a total addressable market of approximately 70,000 in the US and Europe. We assume an initial launch price of US$120,000 per course. This is a discount from the pricing of checkpoint inhibitors (~$150,000 per course in current day pricing) because we model it being used primarily as an adjunct to these treatments. Our peak penetration is 15%, and we expect initial commercialization in 2028. The company noted in the press release that patents on the compound extend to 2031/32 in most jurisdictions and we assume a five-year patent term extension to this. We model royalties of 4–8% payable to Evotec as well as €158m in milestones (out of €308m in total), of which €18m are clinical and regulatory and €140m are commercial. Our probability of success is 10%, which we view as average for a drug at this stage. Many of these details are subject to change based on the performance of the drug and its particular qualities in the clinic, which are not clearly understood at this point. For instance, RCC is one of several potential target indications for this treatment, and this may change in the future. We have adjusted our net cash line to reflect the €1m upfront payment for the program.
Exhibit 2: Valuation of Kazia
Development Program |
Indication |
Clinical stage |
Prob. of success |
Launch year |
Patent/Exclusivity Protection |
Launch Pricing ($/course) |
Peak sales (US$m) |
rNPV (US$m) |
Paxalisib |
GBM |
Phase II |
35% |
2025 |
2037 |
169,000 |
450 |
173.66 |
BCBMs |
Phase II |
5% |
2029 |
2037 |
183,000 |
249 |
6.15 |
|
Cantrixil |
OC |
Phsae I complete |
15% |
2027 |
2040 |
124,000 |
174 |
6.05 |
EVT801 |
RCC |
Phase I ready |
10% |
2028 |
2037 |
120,000 |
807 |
33.74 |
Total |
219.60 |
|||||||
Net cash and equivalents (FQ221 + Oasmia + Simcere - Evotec) (A$m) |
27.72 |
|||||||
Total firm value (US$m) |
247.32 |
|||||||
Total basic ADRs (m) |
12.9 |
|||||||
Value per basic ADR (US$) |
19.14 |
|||||||
Dilutive options (as ADRs, m) |
0.45 |
|||||||
Total diluted ADRs |
13.4 |
|||||||
Value per diluted ADR |
18.69 |
|||||||
Source: Kazia reports, Edison Investment Research.
Financials
With the new development program, we expect an increased R&D expenditure going forward. We have increased our expected R&D spending for FY21 to US$7.6m (from US$5.8m) and to US$10.0m (from US$4.7m) in FY22. We may adjust this spending schedule in the future once we have a more concrete timeline for development. This has also increased our expected financing requirement for the company to US$36mm (A$21m in FY23, A$15m in FY25) from US$7m previously (which had been modelled in FY24). Otherwise, our forecasts remain unchanged.
Exhibit 3: Financial summary
$'k |
2019 |
2020 |
2021e |
2022e |
||
30-June |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
1,117.9 |
757.8 |
12,003.4 |
1,124.0 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
1,117.9 |
757.8 |
12,003.4 |
1,124.0 |
||
R&D |
4,625.4 |
6,781.7 |
7,596.4 |
9,996.4 |
||
SG&A |
2,704.0 |
2,635.6 |
4,285.6 |
5,871.3 |
||
EBITDA |
|
|
(5,260.9) |
(7,697.7) |
1,083.1 |
(13,782.0) |
Normalised operating profit |
|
|
(5,261.0) |
(7,697.7) |
1,083.1 |
(13,782.0) |
Amortisation of acquired intangibles |
(774.5) |
(774.5) |
(774.5) |
(774.5) |
||
Exceptionals |
(1,337.4) |
(458.8) |
0.0 |
0.0 |
||
Share-based payments |
(176.0) |
(187.2) |
(187.2) |
(187.2) |
||
Reported operating profit |
(7,548.9) |
(9,118.3) |
121.4 |
(14,743.8) |
||
Net Interest |
0.0 |
0.0 |
0.0 |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(5,261.0) |
(7,697.7) |
1,083.1 |
(13,782.0) |
Profit Before Tax (reported) |
|
|
(7,548.9) |
(9,118.3) |
121.4 |
(14,743.8) |
Reported tax |
213.0 |
213.0 |
(4.6) |
562.7 |
||
Profit After Tax (norm) |
(5,261.0) |
(7,404.0) |
1,041.8 |
(13,256.1) |
||
Profit After Tax (reported) |
(7,335.9) |
(8,905.3) |
116.7 |
(14,181.1) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(5,261.0) |
(7,404.0) |
1,041.8 |
(13,256.1) |
||
Net income (reported) |
(7,335.9) |
(8,905.3) |
116.7 |
(14,181.1) |
||
Basic average number of ADRs outstanding (m) |
5.8 |
7.3 |
11.9 |
13.6 |
||
EPADR - basic normalised ($) |
|
|
(0.91) |
(1.01) |
0.09 |
(0.97) |
EPADR - diluted normalised ($) |
|
|
(0.91) |
(1.01) |
0.09 |
(0.97) |
EPADR - basic reported ($) |
|
|
(1.28) |
(1.22) |
0.01 |
(1.04) |
Dividend (A$) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
9,758.8 |
8,864.4 |
12,497.4 |
10,294.3 |
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 |
4,407.5 |
2,979.0 |
||
Current Assets |
|
|
5,367.3 |
7,609.7 |
24,411.6 |
13,040.9 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
1,221.9 |
965.9 |
1,093.9 |
739.1 |
||
Cash & cash equivalents |
3,881.3 |
6,260.0 |
22,933.9 |
11,918.0 |
||
Other |
264.0 |
383.8 |
383.8 |
383.8 |
||
Current Liabilities |
|
|
(1,357.4) |
(3,619.6) |
(2,927.4) |
(3,910.1) |
Creditors |
(1,260.0) |
(2,492.1) |
(2,692.7) |
(3,675.5) |
||
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) |
(3,838.4) |
(3,275.7) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(3,629.6) |
(2,764.8) |
(3,838.4) |
(3,275.7) |
||
Net Assets |
|
|
10,139.1 |
10,089.7 |
30,143.2 |
16,149.3 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
10,139.1 |
10,089.7 |
30,143.2 |
16,149.3 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(5,260.9) |
(7,697.7) |
1,083.1 |
(13,782.0) |
||
Working capital |
252.1 |
1,192.2 |
(4,154.2) |
2,203.5 |
||
Exceptional & other |
213.0 |
213.0 |
(4.6) |
562.7 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(4,795.9) |
(6,292.5) |
(3,075.7) |
(11,015.8) |
Capex |
0.0 |
0.0 |
0.0 |
0.0 |
||
Acquisitions/disposals |
0.0 |
0.0 |
(1,114.3) |
0.0 |
||
Net interest |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
2,725.5 |
8,671.2 |
20,863.8 |
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 |
16,673.8 |
(11,015.8) |
||
Opening net debt/(cash) |
|
|
(4,254.4) |
(3,881.3) |
(6,260.0) |
(22,933.9) |
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) |
(22,933.9) |
(11,918.0) |
Source: Kazia reports, Edison Investment Research.
|
|
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