Originally published by NDF Research
Kazia Therapeutics is a cancer drug developer. Picking up where Genentech left off Glioblastoma is an acute brain cancer with, at the moment, limited treatment options. As such, there’s a billion-dollar market opportunity waiting to be realised. That is Kazia Therapeutics’ prime focus – and it recently commenced a Phase 2 trial of its small-molecule GDC-0084. Back in 2016, notwithstanding positive Phase 1 results, Genentech offered this candidate for sale and Kazia was the successful bidder, attracted by the prospects for a successful inhibitor of the cellular signalling pathway PI3K.
There are others chasing this pathway and in 2014 Gilead obtained approval for Zydelig. But unlike their drug, Kazia’s candidate is specifically focused on glioblastoma and has the advantage of a molecule that not only has an already-demonstrated Phase 1 safety record but, uniquely, has the ability to cross the blood-brain barrier. If the recently initiated Phase 2 is successful, there may be accelerated approval for GDC-0084 given the paucity of current glioblastoma treatments. In addition to GDC-0084, Kazia has an ovarian cancer drug (developed internally) that completes Phase 1 in 2018. Kazia was formerly known as Novogen.
The name change in late 2017 reflects the new lead compound and the arrival of a highly-experienced management team, led by Dr James Garner. We value Kazia at $0.73 per share base case and $3.50 per share optimistic case. Our target price of $2.10 per share sits at the midpoint of our valuation range. We see Kazia being re-rated by the progress into the clinic of GDC-0084.
This note is our original note on Novogen from 7 November 2017, updated for what has happened since then.
Rating Risk Current price Target price
Buy Speculative $0.75 $2.10
Daily Turnover: ~A$32,000
Market Cap: A$36.3m
Shares Issued: 48.4m
52-Week High: $0.80
52-Week Low: $0.34
Introducing Kazia Therapeutics (ASX: KZA, Nasdaq: KZIA)
Kazia Therapeutics is a Sydney-based cancer drug development company, currently focused on small molecules. For close to 20 years the company, as Novogen, had worked on the discovery and development of various small molecules, mainly with a focus on cancer, where the drugs were derivatives of a natural product found in soybeans. The company’s candidates had generated meaningful pre-clinical and clinical data up to Phase 2 but had failed to progress to the market. When Dr James Garner became Kazia’s CEO in February 2016, the new strategy which he put in place for creating shareholder value was to in-license programmes that had reached the clinical stage, move them forward some way to demonstrate their potential value, and then out-license them to larger companies for commercialisation. The first such programme which passed through all of Kazia’s screens was GDC-0084, potentially a new glioblastoma drug. This candidate, a Genentech-developed drug for which rights were acquired October 2016, has completed Phase 1. GDC-0084 is now the company’s lead candidate, in Phase 2 clinical development, and to reflect this Novogen changed its name to Kazia Therapeutics in late 2017.
What is GDC-0084 and why is it a potentially valuable new drug to treat glioblastoma? GDC-0084 is an inhibitor of a signalling pathway within cells called PI3K, which has been implicated in a variety of cancers. While many drug candidates have been trialled that work via this pathway, GDC-0084 is understood to be the first that can cross the blood-brain barrier, making it useful to treat brain cancers such as glioblastoma. Kazia is now building on Genentech’s Phase 1, which generated some indications of efficacy as well as established a reasonable safety profile. Kazia’s Phase 2 initiated in March 2018. Some have questioned the value of GDC-0084, arguing that Big Pharma doesn’t just hand valuable candidates over to small development companies2. However, in our research we have found that such transactions happen frequently, thanks mainly to changed corporate priorities, and in this note we highlight a number of examples, including the notable Puma/Pfizer transaction of 2011. Kazia argues that Genentech remains supportive of the GDC-0084 programme while it transitions to focus more on its late-stage pipeline. We also argue that the prestige of Genentech as the originator raises the reputation of Kazia as inheritor of the drug’s mantle.
What other candidates does Kazia have in the works? Kazia is also working on Cantrixil, a ‘super-benzopyran’ drug currently in a Phase 1 study in platinum-resistant ovarian cancer which is expected to read out data in 2018. The company also received a grant in early 2017 from the Australian Department of Industry Innovation and Science to develop a new form of anti-tropomyosin technology which is intended to provide potential new therapies for cancer. Early work on this program is generating interesting leads.
Why is Kazia capitalised at only A$36.3m/US$27.9m? Novogen attracted considerable investor attention in the 1990s and 2000s on ASX as a promising cancer drug developer. However, that company never developed a successful drug. We believe that the low market capitalisation prior to the name change to Kazia Therapeutics reflects long-running investor fatigue, as well as some selling by key shareholders who had been associated with the previous management team. However, we also believe that the new management team led by CEO James Garner, and the recent progress into Phase 2 of GDC-0084, can help overcome some of this negative investor sentiment and continue re-rating Kazia back to a level more appropriate to a mid-stage cancer drug developer. It helps that Kazia stock is traded on two markets, ASX as well as Nasdaq4, potentially widening the scope of investors that can be reached.
Ten reasons to consider Kazia Therapeutics
1. Kazia has a promising new glioblastoma drug in GDC-0084. The drug, which targets multiple forms of the signalling molecule PI3K, is the first PI3K inhibitor that can pass above the blood-brain barrier. GDC- 0084 has shown some promise in glioblastoma in Phase 1 and Kazia initiated a Phase 2 in March 2018.
2. Kazia is an Orphan drug company with a mid-stage clinical asset. Glioblastoma being a relatively rare cancer, Kazia is now effectively benefiting from the potential high pricing and lower regulatory burden traditionally associated with Orphan drugs. The FDA granted Orphan Drug Designation for GDC-0084 in February 2018. Kazia believes it may be able to go after accelerated approval for the drug in the event of Phase 2 success.
3. Glioblastoma could be a company maker for Kazia, with a new drug in this space potentially worth >US$500m in sales on our numbers.
4. Kazia is a play on PI3K as a cancer target. The FDA approval in July 2014 of a PI3K inhibitor called Zydelig, from the major pharma company Gilead, and Bayer’s gaining of FDA approval in September 2017 for Aliqopa5, has established that drugs can work which target the PI3K pathway, and will likely attract investors to re-evaluate this class. Kazia is now a participant in the race to find better PI3K inhibitors.
5. Kazia’s Cantrixil drug has worked well in preclinical models of ovarian cancer. The drug, which has multiple mechanisms of action, is the fruits of two decades of Kazia research around actives from soybean with anti-cancer properties. Cantrixil, for which Kazia has secured an Orphan Drug Designation from the FDA, will read out Phase 1 data in 2018.
6. Kazia has upside in its former lead programme via Noxopharm. Kazia’s lead compound, when it was called Novogen, was an isoflavone analogue with anti-cancer activity called Phenoxodiol. Another company called Noxopharm (ASX: NOX) is now developing a new formulation of Phenoxodiol called NOX66, and, under a December 2017 collaboration agreement, Kazia is supporting the NOX66 programmes through the supply of certain technical and related proprietary information. In return forthis support Kazia received a 4.9% equity stake in Noxopharm. That company expects to be in Phase 2/3 clinical studies by next year.
7. Kazia has a quality leadership team with a good business approach. Kazia’s CEO, Dr James Garner, brings valuable drug development experience gained at the Top 50 Pharma companies Takeda and Sanofi. Backing Garner is an experienced board Chaired by the turnaround specialist Iain Ross which includes the former Lilly executive Bryce Carmine.
8. Kazia has the potential to rapidly create shareholder value. Under Kazia’s new leadership team, which was largely installed in 2016, the company will now seek to in-license undervalued assets from other pharma companies, develop those assets, and then out-license or sell them at a premium. We see this strategy has having potential to yield significant shareholder value in a relatively short time horizon of two-to-four years.
9. Kazia has the cash to get started in the clinic with GDC-0084. As at December 2017 Kazia had A$6.6m in cash and after the collection of near-term receivables, including an R&D tax rebate, there is around A$15m in current assets. Kazia is therefore funded to start the upcoming Phase 2 study.
10. Kazia is undervalued on our numbers. We value Kazia at $0.73 per share base case and $3.50 cents per share optimistic case. Our target price of $2.10 per share sits at the midpoint of our valuation range. We see Kazia being re-rated in part by the progress into the clinic of GDC-0084.
NDF Research’s work is commissioned by the listed companies it covers, and NDF Research has received or will receive payment for the preparation of such work. Please refer to the bottom of the research notes as published on NDF Research’s web site for risks related to the companies being covered, as well our General Advice Warning, disclaimer and full disclosures. Also, please be aware that the investment opinion in this report is current as at the date of publication but that the circumstances of the company may change over time, which may in turn affect our investment opinion.