Eupraxia Pharmaceuticals has more upside to come, says Raymond James

After meeting with a key opinion leader in the rheumatology field, Raymond James analyst Rahul Sarugaser is feeling more confident about Canadian biotech company Eupraxia Pharmaceuticals (Eupraxia Pharaceuticals Stock Quote, Charts, News, Analysts, Financials TSX:EPRX), whose stock has vaulted ahead over the past half-year from around $1 to now above $4 per share. 

Sarugaser delivered a company update to clients on Thursday where he maintained an “Outperform” rating on EPRX while raising his target price from $9.00 to $11.00, saying he has increased the projected market penetration of Eupraxia’s lead asset, EP-104IAR.

Victoria, BC-based Eupraxia is developing locally-delivered, extended-release therapeutics and has EP-104IAR in two Phase 2 programs, for eosinophilic esophagitis (EoE) and for osteoarthritis (OA) of the knee. 

Sarugaser’s update comes after he recently had two “very positive” calls with Dr. Lee Simon, rheumatologist and former FDA Division Director with the Center for Drug Evaluation and Research (CDER), who has served for two terms on the Board of Directors of the American College of Rheumatology.

The two key takeaways from the calls, according to Sarugaser, were that EPRX’s Phase 2 trial in OA will need to show 12 weeks of pain relief in order to be an FDA-approvable product but 16 to 24 weeks to be a highly commercial product, according to Dr. Simon. Secondly, Dr. Simon said that EPRX’s strategy of using a powerful steroid (fluticasone) delivered by a well-designed biopolymer (PVA) is “something that may have significant benefit” for patients with OA.

Sarugaser noted that osteoarthritis is a massive indication, with a total addressable market of 27 million patients in the US alone, and Dr. Simon said that of the several interventions currently being used corticosteroids are still the standard of care, with fluticasone as one of the most powerful. 

Moreover, Dr. Simon said while conventional wisdom dictates that steroids cause cartilage damage (and thus should not be used more than once), the jury is actually still out on this topic; meanwhile, the possibility of delivering a treatment that offers long-term reduction of OA inflammation could be a structure-modifying treatment if it leads to long-term or permanent reduction or elimination of OA.

“This is speculation at the moment, but does present a significant opportunity for any company (i.e. EPRX) that is developing a drug that provides long-term suppression of OA inflammation,” Sarugaser wrote.

As a result of the conversations, Sarugaser has raised his projected market penetration estimates for OA to 12 per cent (was eight per cent) and for EoE to 30 per cent (was 25 per cent). Sarugaser noted that both of EPRX’s trials are due to read out data over the second quarter 2023.

At press time, Sarugaser’s new $11 target represented a projected one-year return of 163 per cent.