BUY (OTCQX: CKPT, $10.75)
Early in the Clinic, But Drugging Proven Targets Reduces Risk and Hastens Pace of Development: Initiating BUY/$18 TP
May 18, 2017
Jonathan Aschoff, Ph.D.
We are initiating coverage of Checkpoint Pharmaceuticals, Inc. with a Buy rating and 12 month target price of $18. Checkpoint’s lead candidate, CK-101, is a 3rd-generation covalent EGFR inhibitor initially in development for non-small cell lung cancer (NSCLC) and currently in Phase 1. Checkpoint’s other assets are preclinical and include PARP inhibitor CK-102, anti-PD-L1 antibody CK-301, anti-GITR antibody CK-302, BET inhibitor CK-103, and an anti-CAIX antibody. To be conservative, given the portfolio’s early stage, our valuation is based solely upon projected future revenue to Checkpoint from our projected US co-promotion revenue and EU royalties from CK-101 in NSCLC, CK-102 in breast and ovarian cancer, and CK-301 in NSCLC, with success elsewhere (CK-103, CK- 302, and anti-CAIX antibody) serving as potential upside to our valuation.
The most important investment catalysts for Checkpoint, for the time being, are its future clinical data readouts. Phase 1 CK- 101 results in NSCLC are expected in 2H17 such that Phase 2 can begin by YE17, and we note the absence of any Phase 1 safety concerns thus far. If CK-101 shows strong efficacy early in Phase 2, we would expect Checkpoint to design and submit a straightforward Phase 3 protocol while finishing Phase 2, such that Phase 3 could potentially start by YE18. Streamlining clinical development is facilitated by drugging proven targets with which the FDA is already familiar, as the agency is more likely to allow Phase 3 to begin after success in a single Phase 1/2 trial. Preclinically, CK-101 shows a competitive selectivity for mutant EGFR over wild-type EGFR and a reduced selectivity in this regard with other 3rd-generation EGFR TKI’s has led to the termination of several would-be competitors.
Checkpoint is addressing multiple large market opportunities with a broad array of drug candidates. The multiple indications for drugs targeting PD-L1 and PD-1 currently amounts to about $5B in sales, with a projected CAGR of over 20% through 2025, clearly a large market in which a mere 1% market share amounts to about $300M in revenue in 2025. The current market for CK-101 can be approximated by the roughly 40,000 mutant EGFR NSCLC patients that competitor Tagrisso could potentially treat, which amounts to a $5B opportunity at Tagrisso’s price. The over $1B CK-102 market opportunity in the US in BRCA positive ovarian cancer is currently addressed by 3 other PARP inhibitors, Lynparza, Rubraca, and Zejula. The is also an over $2B CK-102 market opportunity in the US in BRCA positive breast cancer.
We project the US launches for CK-101, CK-102 and CK-301 to occur in 2021, 2022, and 2022, respectively, and for the EU launches of same to occur in 2022, 2023, and 2023, respectively. Our financial projections and timing of launches take into account the more rapid clinical pace we expect of drugs directed at known targets and about a 20% WAC price discounting to peer drugs, conservatively assuming that Checkpoint’s drugs do not necessarily demonstrate a Phase 3 clinical advantage to their closest peers. A main competitive strategy for Checkpoint is to develop its own combination therapies, such that it can win in the marketplace on price compared to drugs sold individually by competitors and potentially better efficacy.
Checkpoint had about $32M in cash at the end of 1Q17, sufficient to support its activities through 2018, by our projections.
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