Baird has initiated coverage of TRACON Pharmaceuticals (NASDAQ:TCON) Inc with an 'outperform' rating and a $10 price target.
In a note to clients, Baird's analysts said: “We see a high 70% probability of success for envafolimab, which is currently in a pivotal trial, and could be the first subcutaneously delivered PD-1 inhibitor approved in the US. We also see value in the other pipeline agents (including a CTLA-4 antibody in phase 1, and a DNA repair inhibitor in phase 2 in collaboration with the National Cancer Institute.”
Shares of the drug research company are currently trading at $2.34.
READ: TRACON says National Cancer Institute initiates randomized Phase 2 trial of TRC102 for stage III non-squamous non-small cell lung cancer
Low research and development costs of approximately $3 million per quarter due to in-house clinical trial expertise further support the investment thesis, Baird's analysts said, noting that the key upcoming catalyst is the first interim efficacy analysis of the pivotal trial of subcutaneous PD-1 inhibitor envafolimab, which is expected in the second half of 2022.
“We anticipate this analysis will be successful because the bar for success is low in the target indication of the UPS and MFS subtypes of sarcoma, given the high unmet need and lack of any approved PD-1 inhibitors for this setting; clinical studies of other PD-1 inhibitors in this setting have shown good efficacy, which adds to our confidence that envafolimab will have good efficacy in this setting as well; and responses have already been demonstrated for envafolimab in this setting, at a lower dose level,” the analysts said.
In-house drug development expertise, combined with in-licensing of agents, provides for multiple low-cost shots on goal, they added, noting that TRACON has in-house clinical drug development expertise and runs its own clinical trials without a CRO (Contract Research Organisation).
The analysts pointed out that this allows TRACON to develop drugs at a lower cost. In the Baird analysts’ opinion, TRACON may potentially spend as little as $20 million in total R&D expenses to develop a successful drug, and at a faster pace.
They noted that a randomized phase 2 trial of TRC101 in lung cancer sponsored by the National Cancer Institute was initiated this month.
“We view this as another meaningful low-cost shot on goal that is not yet in the stock price; 78 stage 3 NSCLC patients will be enrolled, the primary endpoint is PFS, and results are anticipated in 2024," the analysts said.
They noted that TRACON's $24.1 million in cash as at the end of 2021 provides a runway into 2023, and the potential to receive a payment of $9 million appears likely to add to this.
TRACON is eligible to receive a $9 million option fee from I-Mab after the completion of the phase 1 development pf TJ004309, and I-Mab has already communicated to the company its interest in exercising this option, the analysts added.
Contact Ritika at ritika@proactiveinvestors.com