Kazia Therapeutics — Cantrixil efficacy data presented at AACR

Kazia presented a poster summarising the safety and efficacy of data from the dose escalation cohorts of the Phase I study of intraperitoneal Cantrixil (TRX-E-002-1) at the AACR conference held from 29 March to 3 April 2019 in Atlanta, Georgia. The study recruited women with ovarian, fallopian tube or primary peritoneal cancer who had failed at least two prior lines of therapy, including standard platinum-based therapy (eg cisplatin, carboplatin or oxaliplatin).

The key new information in the poster is that it reports for the first time the efficacy data on all nine evaluable subjects. The company had previously reported that the maximum tolerated dose (MTD) had been identified as 5mg/kg and that three of the first five evaluable patients achieved stable disease at the end of the six-week monotherapy treatment period and that one of these subjects went on to experience a partial response when treated with Cantrixil in combination with paclitaxel. The company has noted that the 5mg/kg dose is well within the range that was expected to be effective based on preclinical studies.

The poster presentation shows that five of the nine subjects (56%) who had received at least three weekly doses (one cycle) of Cantrixil achieved stable disease when evaluated six weeks after treatment commenced (Exhibit 1). The 56% stable disease rate in this larger body of patients is consistent with the 60% rate reported for the first five patients.

Exhibit 1 shows that subject 03-002 experienced substantial tumour shrinkage during the six-week period when she was treated with Cantrixil at 2.5mg/kg as a monotherapy. The sum of tumour diameters, the standard tumour measurement used in the RECIST1 response criteria, shrank from 45mm to 13mm. While there was a substantial reduction in tumour burden, the level of the CA125 cancer marker in the bloodstream had increased and this patient was considered to have had stable disease rather than a tumour response at six weeks. At the completion of Cantrixil monotherapy the patient subsequently received six cycles (18 weeks) of treatment with 2.5mg/kg Cantrixil combined with paclitaxel. The tumours continued to shrink and the CA125 levels declined during the combination treatment period and 12 weeks after entering the study the patient had achieved a partial response. The response was ongoing at the end of the 24-week follow-up period when the patient exited the study. Exhibit 2 shows that the tumour shrinkage was maintained at a further assessment two months after the end of the study.

The main purpose of the study was to determine the MTD and to investigate the safety of Cantrixil. In total, 14 subjects were enrolled and 11 received at least one dose of Cantrixil infused into the abdominal cavity (intraperitoneal administration) and were evaluated for safety. Nine subjects received at least three doses and were evaluated for efficacy.

Exhibit 3 shows that dosing escalated all the way to 20mg/kg, the highest planned dose, before the first dose limiting toxicity was observed. The dose was then de-escalated in two steps to 5mg/kg, which was identified as the MTD. The dose limiting toxicity was ileus syndrome (temporary arrest of intestinal peristalsis) and safety signals of bowel obstruction and abdominal pain.

Exhibit 4 shows that a total of 161 adverse events were recorded, 66 of which were considered to be drug related. There were 12 serious adverse events recorded, only three of which were drug related: ileus syndrome, abdominal pain and worsening of abdominal pain.

It is notable that most of the adverse events were gastrointestinal. Treatment centres have strategies in place to manage side effects such as pain, nausea and vomiting, but those strategies were not used in this study because the investigators did not want to mask any adverse events.

Pharmacokinetic (PK) data shows that Cantrixil is rapidly absorbed following intraperitoneal administration. Levels in the bloodstream peaked around three hours after administration and then declined to very low levels after 24 hours. Intraperitoneal administration exposes abdominal organs to higher levels of the drug than other parts of the body.

Kazia is recruiting a 12-patient expansion cohort, which is being treated with Cantrixil monotherapy at the MTD of 5mg/kg. As of March 2019, nine of the 12 patients have been recruited. Kazia expects to fully recruit the expansion cohort in Q219 and report initial efficacy data in H219.

The 56% of subjects with stable disease at the end of the monotherapy treatment period and the substantial reduction in tumour size seen in one patient receiving combination therapy are encouraging signs that Cantrixil inhibits tumour growth. However, it is not yet clear whether the efficacy is sufficient for it to be a commercially successful product. The expansion cohort will provide additional data to help assess the safety and potential efficacy of Cantrixil.

Kazia’s overall business strategy is to in-license drug candidates then add value by conducting early to mid-stage clinical development, before out-licensing or selling the programme to a partner who would conduct late-stage development.

Therefore, we expect the company to seek a partner for late-stage development of Cantrixil. Depending on the level of interest from potential pharma partners and on Kazia’s available financial resources, it could also seek a partner for the next stage of Cantrixil development. Another option would be for Kazia to conduct a small study if there is a particular question that potential pharma partners want to have addressed before they commit to a transaction.

We suspect the next steps in Cantrixil’s development will be strongly influenced by discussions with potential partners, which will enable Kazia to learn what additional data partners would require before they could decide whether to seek to in-license or acquire the programme. Discussions with the Scientific Advisory Board and clinicians, including trial investigators, will also be influential.

Cantrixil has shown encouraging signs of efficacy as a single agent and good tolerability when used in combination with standard second-line therapies. These two factors mean Cantrixil is likely to be well suited to use in combination therapy.

If the data from the expansion cohort are sufficiently encouraging and there is sufficient interest from potential partners, we suspect the likely next step would to be to test Cantrixil in combination with the investigator’s choice of standard chemotherapy drugs in either a first- or second-line setting.

Kazia’s lead drug candidate is GDC-0084, an orally administered small molecule phosphoinositide 3-kinase (PI3K) inhibitor that targets an important growth-signalling pathway in cancer cells, which it in-licensed from Genentech in October 2016. The drug was specifically developed to cross the blood-brain barrier and target GBM, which is an aggressive brain cancer with poor patient survival and for which there are few effective therapies. However, its ability to cross the blood-brain barrier means it is also expected to be effective against other forms of brain cancer and against brain metastases of cancers that originated elsewhere in the body.

Kazia is investigating GDC-0084 in three separate clinical studies, which include one company-sponsored study and two studies conducted in collaboration with prestigious US-based cancer research centres. The three studies are summarised briefly below.

Kazia commenced recruitment of a company-sponsored dose optimisation Phase IIa study of GDC-0084 in recently diagnosed GBM patients in March 2018. Once the MTD in first-line patients has been identified, an expansion cohort of 20 patients will be treated at that dose. The expansion cohort will undergo intensive monitoring to better understand the pharmacokinetic and toxicity profile of the drug, before the randomised controlled Phase IIb study commences.

The Phase IIa study will be followed by a randomised Phase IIb trial comparing GDC-0084 to standard temozolomide (TMZ) chemotherapy. The study will target the 61% of GBM patients where the tumour cells have an unmethylated O6-methylguanine methyltransferase (MGMT) promoter, as this patient population receives only minimal benefit from treatment with TMZ and is in urgent need of more effective therapies.

Initial dosing and safety data from the Phase IIa study are expected in Q219, with preliminary efficacy signals likely to be reported in Q419.

The first of the collaborative studies is a Phase II trial with the Dana-Farber Cancer Institute to investigate GDC-0084 in combination with Herceptin in women with HER2-positive breast cancer who have developed brain metastases. Genentech showed that GDC-0084 improves survival in this indication in animal studies and a successful Phase III study for Novartis’s BYL719 validates targeting PI3K in breast cancer.

The second collaboration is with St Jude Children’s Research Hospital in a Phase I study of GDC-0084 in the aggressive childhood brain cancer diffuse intrinsic pontine glioma (DIPG). Although the number of patients with this disease is small, the fact that there are no approved treatments for this aggressive cancer could open up pathways to an accelerated approval or Breakthrough Designation. Approval could also earn a valuable FDA paediatric priority review voucher.

We have revised our valuation of Kazia to reflect the sale of the shareholding in Noxopharm for A$2.4m (before costs) vs our previous valuation of A$3.6m. Kazia’s remaining unlisted Noxopharm options were valued at A$0.2m at 31 December 2018. We have adjusted the share count to include the 2.82m shares issued to Glioblast shareholders in November 2018 upon meeting the first milestone (initiation of dosing in the phase II study), relating to the in-licence of the GDC-0084 technology and the acquisition of Glioblast in 2016.

Our base case valuation, which models a GDC-0084 market launch in 2026 following completion of a Phase III trial, has increased to A$84m (previously A$83m). Our valuation is equivalent to A$1.36/share undiluted (vs A$1.38/share) and A$1.31/share after diluting for options and convertible notes. Kazia is also listed on NASDAQ under the code KZIA, with each NASDAQ-listed ADR representing 10 ordinary shares. Our undiluted base case valuation equals US$10.31 per ADR at current exchange rates.

Our base-case valuation assumes a 40% likelihood that GDC-0084 is out-licensed to a marketing partner in 2021 after reporting positive PFS data from the Phase II trial, in a deal that includes US$20m upfront and US$120m in clinical and regulatory milestone payments. We also assume that Kazia pays a royalty of 10% of net sales to Genentech and that global sales for GBM reach US$1,050m in 2030.

Exhibit 6 shows our base-case market assumptions for GDC-0084 and Cantrixil and the contribution of product royalties and milestone payments to the rNPV, which have not changed since our last note. We have offset the risk-adjusted trial cost against milestone revenue for each drug, rather than against royalty revenue. This understates the contribution of the milestone payments to the rNPV and overstates the contribution of royalties.

We have also valued Kazia under an alternative accelerated approval scenario for GDC-0084, which assumes a market launch in 2023 and that Kazia receives a higher 20% royalty rate and a larger US$40m upfront payment because the data are ready for filing, with other deal terms the same as for the post-Phase III approval base case scenario. Exhibit 7 shows that accelerated approval for GDC-0084 would increase our valuation for Kazia to A$146m (previously A$139m) or A$2.34/share (undiluted).

Kazia had A$5.4m cash at 31 December 2018 and has subsequently raised A$2.4m (before costs) through the sale of its shareholding in Noxopharm. We expect the available funds to be sufficient to support operations into H2 CY19, by which time preliminary efficacy data from the GDC-0084 Phase IIa studies are expected to read out. However, if is there is any slippage on the timelines, funds may need to be raised in H2 CY19 before the GDC-0084 Phase IIa trial reads out. We estimate that Kazia will need additional funds of A$15–20m to finance the GDC-0084 Phase IIb GBM study.

We have revised our FY19 financial forecasts to account for the ~A$2m loss on the sale of the Noxopharm shareholding for A$2.4m (gross) vs its valuation of A$4.3m at the end of FY18.