Kazia Therapeutics Ltd (ASX:KZA) (NASDAQ:KZIA) (FRA:NV9) has secured an increased price target from A$2.25 to A$2.60 a share by Corporate Connect analyst Marc Sinatra on the back of two recent licensing deals.
The company signed an licensing deal with China-based Simcere Pharmaceutical Group Limited (HKSE:2906) for paxalisib in Greater China and earlier in March with Oasmia Pharmaceutical AB (STO: OASM) (OTCMKTS:OASMY) for worldwide rights to Cantrixil.
Deals rated A+
Sinatra has rated both these deals A+, stating: “Licensing deals are the lifeblood of small pharmaceutical companies, representing their exit from the development of a molecule, often in a staged manner, and a coalescing of the value they have added to a compound.
“When an Australian pharmaceutical company does two licencing transactions within the space of month, which is something we have never seen before, that company demands attention.
“We have incorporated the deals into our model and increased our probability of success for paxalisib based on Simcere’s, obviously positive due diligence.
“As such, we move our target price up from A$2.25 to A$2.60.”
Kazia shares today traded up to A$1.66 and the company’s market cap is approximately A$230.4 million.
“Simcere deal stacks up extremely well”
The terms the Kazia-Simcere deal was US$7 million upfront, US$281 million in milestones, a tiered mid-teens royalty on sales and a US$4 million equity investment in Kazia at a 20% premium (~$1.73).
Sinatra said: “Whether you look at the deal based on what paxalisib cost Kazia to obtain or compare it to similar transactions by international and local companies, the deal stacks up extremely well.
“For example, the upfront Simcere paid Kazia for the rights to the GCR alone exceed the upfront cost of paxalisib to Kazia.
“The relevance of this comparison is even more stark when you consider China represents only 8.5% of the worldwide market.
“Moreover, compared to a high-quality Australian deal covering several clinical assets, Kazia received more in combined upfront and milestone payments and, likely, a higher royalty rate on sales.”
Pivot towards oncology
Notably, Simcere is an established hungry company with a good market reach and a solid list of over 40 branded medicines.
From an R&D perspective, Simcere has a proven track record of gaining product approvals in the Greater China Region and has 26 product candidates in its R&D pipeline.
Ten of these have been granted investigational new drug (IND) status and 20 of the product candidates are in the area of oncology, the most advanced of which are nearing the end of phase I.
Sinatra points to the fact that the company is looking to pivot become the leading oncologic medicines company of China and paxalisib could be among one the first of its oncology drugs to hit the market.
He said: “The maturity of Simcere’s pipeline indicates that, if successful, paxalisib will, at least, be part of the spearhead leading that pivot, with commensurate marketing and sales support.
“This deal gets an A+ when you combine the terms and licensee.”
Oasmia Cantrixil deal
Oasmia agreed to pay US$4 million upfront, US$42 million in milestones and a double-digit royalty on sales for the worldwide rights to Cantrixil.
That company is expected to take what is a narrowly applicable ovarian cancer drug that must be given IP and reformulate such that it can be given intravenously – which would make Cantrixil a broadly applicable ovarian cancer drug and possibly even make it applicable to other cancers, as well.
Sinatra notes that Oasmia’s demonstrated speciality is reformulating poorly soluble drugs, which, in Cantrixil’s case, would mean the drug could be given intravenously, rather than intra-peritoneally.
He said: “This would greatly broaden Cantrixil’s applicable market by multiple times.
“The reformulated Cantrixil will need to be studied in a new phase I trial, though.
“Yet, Kazia has still managed to negotiate deal terms that would be considered solid for a drug about to start phase II trials.
“In partnering with Oasmia, Kazia has truly managed to transform Cantrixil’s future and dramatically upsized the royalties that could flow from it.
“All things considered you have to give this deal an A+, as well.”
Cantrixil unexpected upside
Corporate Connect did not include Cantrixil in the model of Kazia, so this represented pure unexpected upside and the price target was raised accordingly.
In a previous report, Corporate Connect listed a range of reasons why it thought Cantrixil would be a hard drug to partner, which ranged from the techniques used to develop it, through to its intraperitoneal (IP) route of delivery.
Sinatra said: “We strongly believe this is the reason why the market has not given Kazia the reward it deserves for obtaining this deal.”
Potential future deals
Sinatra said: “Both the Simcere deal and the Oasmia deal are quality deals that could generate very meaningful revenues for Kazia.
“As we see results start to come in from ongoing paxalisib studies, it is possible that we will see further regional licensing deals, which we would expect to have improved terms.
“If these results augur well enough for paxalisib in glioblastoma, it is always possible that companies may look to get hold of paxalisib before GBM AGILE readouts, if the suite of other studies in which paxalisib is in justifies it.
“More likely, they will come upon a positive AGILE readout.
“Whichever the case, though, the Simcere and Oasmia deals show that investors should be confident that Kazia will be able to negotiate the best deal possible.”
Story by ProactiveInvestors
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