Pharma companies are generally riskier than most normal companies, but with this risk comes a huge reward, like the one that Oppenheimer sees in Tokai Pharmaceuticals Inc. (NASDAQ: TKAI). The brokerage firm sees an upside of about triple Tokai’s current price, based on what it has coming out in its pipeline.
For some quick background on Tokai: this clinical stage biopharmaceutical company focuses on developing novel proprietary therapies for the treatment of prostate cancer and other hormonally driven diseases in the United States. The company has only been public since the fall of 2014.
One of the key takeaways in Oppenheimer’s report is that the Phase 3 trial has high probability of success. The brokerage firm projects a 75% probability of success based on clear mechanism of action, promising efficacy seen in ARMOR2 trial, and Xtandi’s lack of efficacy in AR-V7+ mCRPC patients.
The firm initiated coverage of Tokai with an Outperform rating and a price target of $38, implying upside of 270% from current prices. Oppenheimer’s analyst Ling Wang explained in the report in the report:
Tokai’s flagship compound galeterone initially addresses a clear unmet medical need in prostate cancer, i.e. castration-resistant prostate cancer (CRPR) patients with tumor-expressing androgen receptor (AR) split variants (AR-V7) for whom recently approved novel agents such as Zytiga and Xtandi are not expected to be effective. We view Tokai shares as having significant upside potential (phase 3 start in the first half of 2015, pivotal data in the second half of 2015), given a clear/favorable regulatory pathway, a high probability of phase 3 success, sizeable market opportunity (addressing a key resistance mechanism to novel therapies) and no foreseeable competition.
A few other key points included in the report were:
- Galeterone targets a clear unmet need. Emerging data strongly suggest AR spliced variants may render primary resistance to novel Ar-targeting therapies such as Zytiga and Xtandi. Galeterone showed efficacy in the C-terminal loss/AR-V7 patients where Zytiga and Xtandi are not effective.
- Novel multi-mechanisms of action offer key advantages. As compared to Zytiga, galeterone does not require concurrent use of steroid, thereby sparing steroid-associated AEs. As compared to Xtandi, galeterone should not have the risk of causing seizures since it is not a GABA receptor antagonist.
- Galeterone addresses a large market. AR-V7+ prevalence tends to increase following subsequent treatment lines (25%, 51% and 67% in post-Zytiga, post-Xtandi and post both treatments, respectively). The analysts believe galeterone has significant potential in the resistant subset and project U.S. peak sales of about 1.4 billion by 2025.
Shares of Tokai were up 6.6% to $10.97 Tuesday afternoon. The stock has a consensus analyst price target of $27.50 and a post-IPO trading range of $9.67 to $30.00.
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