Biotech name Eupraxia has a huge upside, says Raymond James

The potential is huge for Eupraxia Pharmaceuticals (Eupraxia Pharmaceuticals Stock Quote, Charts, News, Analysts, Financials TSX:EPRX), according to Raymond James analyst Rahul Sarugaser, who delivered an update on the company on Thursday. Sarugaser reiterated an “Outperform” rating on Eupraxia after reviewing the company’s latest quarterly report.

Clinical-stage biotech company Eupraxia focuses on developing locally-delivered, extended-release therapeutic candidates, with its lead clinical candidate being EP-1041AR, which is currently in Phase 2 development for the treatment of osteoarthritis of the knee. EP-1041AR involves a highly potent corticosteroid (fluticasone propinate) held within a thin polymer membrane for slow release of the steroid over a period of up to six months. Eupraxia also has a pipeline of candidates including a post-surgical pain candidate and one for post-surgical infection, both of which are designed to improve the activity and tolerability of already approved drugs.

The Victoria, BC-based company reported its second quarter 2022 financials on August 12 where it said enrolment in the Phase 2 trial for EP-1041AR is proceeding as anticipated, with a timeline for data readout during the first quarter of 2023. Patients are currently being enrolled at sites in Poland and the Czech Republic and it has opened additional sites in Denmark to advance patient screening.

Over the quarter, Eupraxia also completed a capital raise for gross proceeds of $14.7 million and the company ended the Q2 with cash and short-term investments of $35.5 million. Eupraxia said its current cash will be able to fund the business through to the fourth quarter of 2023.

“We significantly strengthened our financial position in the quarter by completing a financing for gross proceeds of $14.7 million. We believe we are well capitalized going forward to continue executing our Phase 2 clinical trial, while focussing on the diversification of our innovative drug delivery technology platform into other targeted therapeutic areas,” Eupraxia CEO Dr. James Helliwell said in a press release.

Eupraxia completed its IPO in March, 2021, offering 5.125 million units (one common share and half of a warrant) at $8.00 per unit for proceeds of $41 million. The stock has since been on mostly a downhill slide, touching below $1.00 in August before rising to now around $1.40-$1.50. 

But Sarugaser sees a lot to be positive about with the name and has along with his “Outperform” rating has reiterated a $7.00 target price, which at the time of publication represented a projected one-year return of 369.8 per cent.

On the potential in Eupraxia’s lead candidate, Sarugaser wrote, “In our view, if EP-1041AR shows statistically significant pain relief for at least ~18 weeks (superior to standard-of-care’s ~12 weeks), this would, as we calculate it, merit a ~3x inflection in the company’s intrinsic value. Should EPRX then demonstrate safe repeat-dosing with at least 12 months of pain-relief through its anticipated Phase 3 clinical trial (top-line data ~1H25), we would anticipate a material value inflection toward >$1 billion.”

For his valuation, Sarugaser uses a sum-of-the-parts risk-adjusted net present value (rNPV) of Eupraxia’s clinical assets, with its knee osteoarthritis asset being the only one ascribed any value currently. By his approach, EPRX’s rNPV is $148.0 million or $6.92 per share, which he has rounded up to a $7.00 target. Importantly, on completion of a Phase 3 trial with EP-1041AR, the rNPV runs to about $842.5 million, translating into about $24.00 per share. He sees that number increasing to about $1.7 billion or $48 per share upon FDA clearance.