Kazia Therapeutics’ EVT801 deal secures price target of A$2.60 from Corporate Connect and BUY rating from HC Wainwright

Kazia Therapeutics Ltd (ASX:KZA) (NASDAQ:KZIA) (FRA:NV9) recently announced an agreement with Evotec SE (FRA:EVT) to in-license the global rights to EVT801, a novel inhibitor of vascular endothelial growth factor receptor 3 (VEGFR3). Off the back of the deal, HC Wainwright & Co analysts Sean Lee, Swayampakula Ramakanth, Arthur He, Sean Kang have maintained the company’s BUY rating and 12-month price target of US$17.00 per ADS. In addition, Corporate Connect has flagged a price target of A$2.60 for the company with the deal expected to de-risk and diversify the product pipeline. Shares have traded up to A$1.39 today and the company's market capitalisation is approximately A$177.2 million. HC Wainwright valuation The report from HC Wainwright said: “We derive our price target based on a risk-adjusted net present value (rNPV) analysis of projected future royalty revenues from paxalisib, assuming a 14% discount rate and a 0% terminal growth rate. “We derive an rNPV of A$374 million for the product and add in pro forma net cash and cash equivalents of A$31 million, to arrive at a 12-month price target of $17 per diluted ADS.”  Expanding pipeline with EVT801 HC Wainwright noted that, as part of the agreement, Kazia is expected to pay an upfront of €1 million (A$1.2 million) and development and commercial milestones of up to €308 million (A$370 million), as well as tiered single-digit royalties based on future sales. “In our view, the in-licensing of EVT801 marks the start of a new chapter for Kazia and allows the company to continue to create value while the lead paxalisib program is undergoing lengthy pivotal clinical study. “According to management, the company intends to bring EVT801 into the clinic by initiating a first-in-human Phase 1 dose-escalation study for the treatment of solid tumours in 2H 2021.  “The study is planned to include both monotherapy and combination immunotherapy arms.”  Targeting VEGFR3 receptor   The VEGF/VEGFR pathway is one of the most well-studied in cancer biology and is the target of several blockbuster drugs such as Avastin marketed by Roche, Sutent marketed by Pfizer, and Nexavar marketed by Bayer.  Unlike these drugs, which tend to target all or several of the VEGFR family of receptors, EVT801 is the only drug currently in development that specifically targets the VEGFR3 receptor and not VEGFR1 or VEGFR2.  The HC Wainwright analysts said: “As a result, we believe EVT801 could trigger tumour cell killing, inhibit lymphangiogenesis, and promote T-cell migration with fewer of the side effects seen in other VEGF/VEGFR inhibitors.  “In particular, we believe this specific anti-VEGFR3 activity and a cleaner safety profile could allow the drug to be used in combinations with chemotherapy or immunotherapy agents for synergistic effect and without overlapping toxicities. “In a mouse pre-clinical study of breast cancer, EVT801 was able to demonstrate synergy when used in combination with an anti-CTLA-4 agent and resulted in an 86% reduction in tumour growth (Exhibit 1).  “In our view, the combinations of EVT801 plus other immunotherapy agents represent the most promising clinical opportunities for the drug.”  EVT801 demonstrates Synergistic Activity with Anti-CTLA-4. "Another A+ deal by Kazia"  Corporate Connect reported that the company had stuck to its core competency in oncology and had a chance to build out its internal capabilities as a result of the Evotec deal. “We assume the deal was done at fair value and will not be raising our target price.  “As Kazia de-risks EVT801, however, that will not be the case.  “The deal does diversify Kazia’s risk profile, which is good for shareholders with a low exposure to the sector and it should attract new investors who like to see a diversified pipeline.  “Kazia has slated EVT801 to start a phase I trial in 2HCY21.  “Another A+ deal by Kazia in our eyes.”  Phase I Trial planned Corporate Connect expects the phase I trial of EVT801 will be an open-label study with several arms (eg, combining different drugs with EVT801) undertaken in patients with tumours more likely to respond to EVT801 than others.  The study will have a dose-escalation phase to find the best dose of EVT801, likely, followed by an expansion phase where Kazia can look for signals of activity in different cancers to determine which cancer(s) are best studied in phase II and how.  Evotec as a partner  The report stated that Evotec as partner is one of the best aspects of the deal. “Evotec may not do clinical development, but they do have many capabilities, like clinical trial management, as well as a huge network Kazia can leverage as it develops EVT801.  “Accordingly, the two companies have agreed to collaborate on EVT801. “To a small company like Kazia, this is hugely helpful. “Remember, Kazia’s success is Evotec’s as well and a company like Evotec would not be successful if it did not understand that.” Successful core strategy Corporate Connect noted that Kazia has shown the end-to-end success of its core strategy by adding value to in-licensed drugs and coalescing that value by out-licensing them. “Paxalisib, Kazia’s, lead drug, is in a fully funded phase III program and, while we may see new investigator-sponsored studies, its course is set. “Moreover, transactions and raisings will see Kazia report a strong cash balance in its next 4C (~mid $30 million).”