Raymond James analyst Rahul Sarugaser is holding steady on biotech company Eupraxia Pharmaceuticals (Eupraxia Pharmaceuticals Stock Quote, Charts, News, Analysts, Financials TSX:EPRX) after the company posted an update related to its osteoarthritis clinical trial. Sarugaser delivered a report to clients on Tuesday on Eupraxia where he reiterated an “Outperform 2” rating on EPRX, saying the potential market for its lead clinical candidate is huge.
Eupraxia is a Victoria, BC-based biotechnology firm with a focus on developing locally-delivered, extended-release alternatives to currently utilized drug delivery mechanisms, with the aim of producing targeted, long-lasting therapeutic results with fewer side effects. The company’s lead candidate, currently in Phase 2 trials, is EP-104IAR, which uses Eupraxia’s proprietary formulation technology that allows for the controlled diffusion of a drug across a polymer-based membrane, resulting in a steady, long-term drug release with low early burst release and low polymer content compared to currently available drug vehicles.
Eupraxia delivered an update on Tuesday on its Phase 2 trial with EP-104IAR on knee osteoarthritis, saying the trial has successfully completed its Data Safety Monitoring Board (DSMB) reviews with no drug-related Serious Adverse Events noted and a clean safety profile. In turn, Eupraxia said it will be broadening the clinical trial population for the study to include patients with diabetes, a group with high incidence of osteoarthritis, and it has added MRI to the trial protocol to support the study’s findings. The company said top-line data from the study is now expected in the second quarter of 2023 as opposed to the earlier assumption of the first quarter.
“A clean safety review from our Data Safety Monitoring Board has increased our confidence in EP-104IAR’s potential as a treatment for OA of the knee and has allowed us to expand the scope of our Phase 2 trial,” said Dr. James Helliwell, CEO of Eupraxia.
“The updates we are announcing today have the potential to generate more robust data that could support a stronger Phase 3 trial for EP-104IAR and further differentiate the product candidate’s commercial profile in the longer-term. In addition, we believe that these updates increase EP-104IAR’s opportunity to become an effective chronic treatment for a chronic disease,” Helliwell said.
Commenting on the update was Sarugaser who had initiated coverage of Eupraxia in June, with the analyst giving a “net neutral” impact rating to the new information. On the DSMB review, Sarugaser said the company’s Phase 1 data had already given indication of strong confidence in EP-104IAR’s safety. On the inclusion of MRI in 50 patients of the trial, Sarugaser said it’s likely a move to help with designing the upcoming Phase 3 trial but at the moment not a game-changer.
“[The MRI inclusion] signals EPRX’s ambition to prove EP-104IAR’s cartilage-sparing capacity to the FDA, which would make for an outstanding drug label—but, for the moment, given that MRI has yet to be established as standard modality with the FDA in determining cartilage-sparing efficacy, plus, this small Phase 2 cohort is unlikely to yield statistically significant data, so we remain conservative on the possible outcomes provided by MRI analysis,” Sarugaser wrote.
On the inclusion of diabetic patients to the trial, Sarugaser said that’s a positive, while the one-quarter delay in FDA clinical trial read-out is more of a rounding error than anything to be worried about.
Sarugaser said his thesis on Eupraxia remains unchanged: as the total addressable market in the United States alone for osteoarthritis of the knee is about 18 million diagnosed patients, this company and stock come with tons of potential.
“While the Phase 2 top-line data readout in 2Q23 is a relatively binary event (and highly predictive of its Phase 3 outcome), we value EPRX closer to $150 million today on a risk-adjusted basis, given the very large scale of its potential market,” he wrote.
“This valuation could escalate to $1 billion on positive top-line data in 2025 from its planned Phase 3 trial, so we continue to see EPRX’s $50 million market cap representing an attractive risk/reward profile, and reiterate our Outperform rating,” Sarugaser said.
Eupraxia, which had its IPO in March, 2021, hit a low of $1.00 in July but the stock has since rebounded and is currently trading around the $2.30 mark.