Building a strong immunotherapy portfolio

Transgene 18 July 2017 Outlook
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Transgene

Building a strong immunotherapy portfolio

R&D update

Pharma & biotech

18 July 2017

Price

€3.18

Market cap

€180m

Cash and ST investments (€m) at end March 2017

50.7

Shares in issue

56.4m

Free float

34%

Code

TNG

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.6)

4.6

17.7

Rel (local)

(2.9)

0.9

(2.7)

52-week high/low

€3.4

€2.5

Business description

Transgene is a French drug discovery and development company focused on the treatment of cancer and infectious diseases with immunotherapies. The lead products are Pexa-Vec and TG4010.

Next events

Pexa-Vec + Opdivo in HCC trial start

H217

TG6002 glioblastoma trial start

H217

TG1050 Phase I data

H217

TG4001 + avelumab trial start

H217

First results from ICI combination trials

Q417

TG4010 +ICI in first-line NSCLC trial start

Q417

Analysts

Juan Pedro Serrate

+44 (0)20 3681 2534

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Transgene is a research client of Edison Investment Research Limited

Combinations with immunotherapies are key to Transgene’s strategy. The company is focused on combining its main assets, TG4010 (cancer vaccine) and Pexa-Vec (oncolytic virus), with immune checkpoint inhibitors (ICIs), ipilimumab (Yervoy) and nivolumab (Opdivo). ICIs as monotherapies have proven successful in patients; however, positive efficacy has been limited to certain cancers and long-term responses remain difficult. Combinations with other immunotherapies may improve both addressable population and long-term efficacy. To this end, Transgene is conducting Phase I and II trials in collaboration with academic institutions and pharmaceutical companies. The first read-outs are expected later this year. Our updated valuation is €208m.

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

9.9

(28.9)

(0.78)

0.0

N/A

N/A

12/16

10.3

(23.1)

(0.43)

0.0

N/A

N/A

12/17e

8.3

(35.0)

(0.62)

0.0

N/A

N/A

12/18e

8.6

(36.8)

(0.65)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Combination trials underway and planned

Lead assets TG4010 and Pexa-Vec are in two ongoing trials with nivolumab (second-line non-small cell lung cancer (NSCLC) in collaboration with Bristol-Myers Squibb (BMS) and UC Davis) and ipilimumab (solid tumours) respectively, with both expected to read out by year end. A Phase II trial of TG4010, in combination with nivolumab and chemotherapy (in collaboration with BMS), in first-line NSCLC patients with low or undetectable PD-L1 levels is due to start by end 2017 and read out in 2018. Pexa-Vec plus nivolumab will shortly start patient enrolment in a Phase II trial for patients with first-line hepatocellular carcinoma (HCC). A Phase I/II trial of TG4001 in combination with avelumab (PD-L1 ICI) in HPV-positive head and neck cancer (HNSCC) in collaboration with Merck and Pfizer will commence in H217.

Pexa-Vec in pivotal Phase III trial

The first European patient has been enrolled in the global PHOCUS Phase III study of Pexa-Vec. The study is testing Pexa-Vec in patients with advanced first-line HCC in combination with sorafenib (kinase inhibitor). The trial is being conducted by partner SillaJen under a special protocol assessment with the FDA. If data are positive in 2019 when the trial reads out, it should lead to approvals worldwide. Transgene retains rights in Europe.

Valuation: Updating rNPV to €208m or €3.7/share

We revise our valuation to €208m or €3.7/share (vs €204m or €3.6/share) as a result of updating the epidemiology data for HCC in the EU, rolling forward our model in time and updating cash numbers. Cash and equivalents at the end of Q117 were €50.7m. We introduce no further changes to our valuation assumptions and leave our financial forecasts unchanged.

Investment summary

Company description: Immunotherapy focus

Transgene is a drug discovery and development company that develops viral vector-based immunotherapies for the treatment of cancers and infections. The company has two platforms: therapeutic vaccines and oncolytic viruses. Its two lead clinical-stage programmes are Pexa-Vec, an oncolytic virus partnered with SillaJen undergoing a pivotal Phase III study in HCC; and TG4010, which has completed a Phase IIb study for NSCLC. Additionally, Transgene has ongoing and planned combination trials with ICIs such as nivolumab and/or ipilimumab for both Pexa-Vec and TG4010. Transgene is based near Strasbourg, France and was founded in 1979. It was listed on the Nouveau Marché (now Euronext) in 1998. Transgene is 60%-owned by Institut Mérieux.

Valuation: Updated rNPV of €208m

Our rNPV-based valuation of Transgene is €208m, or €3.7 per share (vs previous €204m or €3.6 per share). We have updated the epidemiology data of HCC in the EU-28, rolled forward our model in time and updated net cash. The valuation includes the prospects for TG4010 in NSCLC in the US and Europe (combined peak potential sales of €2.5bn – up from €2.3bn due to updated FX); Pexa-Vec for HCC in Europe (€518m peak sales vs previous €424m); and TG1050 for hepatitis B in the US and Europe (peak potential sales of €2.1bn in both regions, unchanged). For TG4010, we assume a classical clinical development timeline, starting with the Phase I/II studies planned in combination ICIs. For Pexa-Vec, the Phase III PHOCUS study being conducted by SillaJen will potentially be sufficient to file for approval in Europe, assuming a positive study result. For TG1050, we assume Transgene develops it and a partner conducts Phase III trials, registration and marketing. We introduce no further changes to our assumptions.

Financials: Cash runway into 2018

Transgene had €50.7m in cash and investments at 31 March 2017. The company has access to a further €10m from the European Investment Bank (EIB) loan that can be drawn down before the end of 2017. During 2016, Transgene drew down the first tranche from the EIB loan and successfully completed a rights issue for €46.4m in gross proceeds. As a result, the company expects to have sufficient funds to conduct its pipeline development activities through 2017 and 2018 with a cash burn of €30m anticipated by the company in 2017. We leave our financial forecasts unchanged.

Sensitivities: Clinical development risk

Transgene is subject to the usual risks associated with drug development, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, and financing and commercial risks. The key sensitivities relate to the results of the ICI combination studies of TG4010, Pexa-Vec and TG4001. The outcome of the TG4010 combination studies in particular will have an impact on its partnership and/or the financing prospects for the programme. First results from these trials will be available later this year. The clinical performance of Pexa-Vec in the Phase III trial (data in 2019) is another key sensitivity. We note that the ICI combination trials are small, open label and non-controlled; therefore, it is not possible to ascertain the magnitude of the effect of each product separately and assess the actual synergistic effect.

Viral vector-based immunotherapies

Transgene has a pipeline of immunotherapies for the treatment of cancer and viral indications. The programmes utilise viral vector technology with the aim of killing infected or cancerous cells (directly or indirectly). The two lead programmes comprise Pexa-Vec and TG4010. Pexa-Vec is an oncolytic virus that targets fast-dividing cells with an active EGFR/Ras signalling pathway, causing those cells to lyse and stimulates a T-cell immune response against nearby cells. TG4010 is a therapeutic vaccine, MVA-MUC1-IL2, which induces an immune response against tumour cells that express the MUC1 protein while IL-2 stimulates the immune response. Exhibit 1 details Transgene’s clinical development pipeline.

The company’s strategy involves developing its pipeline assets in combination with other products, predominantly ICIs. The rationale is that therapeutic vaccines stimulate the immune response to kill cancer cells; oncolytic viruses directly attack tumour cells and boost the immune system. ICIs block a pathway that acts as a brake against the activated T-cells; hence combination regimes have the potential to provide a more effective treatment while preserving safety.

The combination of ICIs with other products, especially other immunotherapeutics, is becoming increasingly popular in the oncology space as there is room to improve the efficacy and safety of ICIs as single agent or in combination. At April 2017, Evaluate Pharma lists 765 clinical trials using PD-1 or PD-L1 inhibitors in combination with other products.

Exhibit 1: Transgene’s clinical pipeline

Compound

Combination compound

Indication

Phase

Collaborators

Trial start

Data read-out

TG4010

Opdivo (nivolumab)

Second-line NSCLC

II

University of California Davis Medical Centre

Ongoing

H217

TG4010

Opdivo and chemo

First-line NSCLC

II

N/A

Q417

2018

TG4010

N/A

Neoadjuvant NSCLC

Translational

University of Strasbourg (PI Pr Quoix)

YE17

N/A

Pexa-Vec

Sorafenib

First-line HCC

III

Conducted by partner SillaJen

Ongoing

2019

Pexa-Vec

Yervoy (ipilimumab)

Solid tumours

II

Centre Léon Bérard

H216

H217

Pexa-Vec

Opdivo (nivolumab)

First-line HCC

II

Nancy, France.

H217

N/A

Pexa-Vec

Cyclophosphamide

Sarcoma and breast

II

Institut Bergonié

Ongoing

N/A

Pexa-Vec

N/A

Solid tumours

Translational

University of Leeds

Ongoing

N/A

TG4001

Avelumab

HPV+ HNSCC

II

Institut Curie (PI Pr Christopher Le Tourneau)

H217

N/A

TG1050

Standard of care antiviral

Chronic hepatitis B

I/Ib

N/A

Ongoing

H217

TG6002

N/A

Glioblastoma

I

Assist. Publ Hôpitaux, Paris (PI Pr Delattre); French NCI

H217

N/A

Source: Edison Investment Research, Transgene.

Furthermore, Transgene’s R&D efforts are focused on the new generation of oncolytic viruses. The company has generated ICI-expressing oncolytic viruses that have shown a durable anti-tumour effect in preclinical models. Preclinical data were presented at the American Association for Cancer Research (AACR) meeting in 2016. Transgene showed that its oncolytic virus constructs could express anti-PD-1 fragments and accumulate in tumours. The anti-tumour effect was similar as a combination of an anti-PD-1 antibody and an oncolytic virus and better than any of the single products in a preclinical model. Other preclinical work has focused on new techniques to improve the cytotoxic power of vaccinia vectors based on intracellular fragments that overcome cancer cell resistance; these experiments were presented at the International Meeting on Replicating Oncolytic Virus Therapeutics last year.

Transgene’s R&D capabilities have been at the centre of its recent business development activities. Transgene and Servier recently entered into a research collaboration for the application of Transgene’s viral vectorisation technology for the production of allogenic CAR-T cell therapies. The final objective is to achieve an allogenic CAR-T preparation method with better transgene integration yields and fewer steps. The research collaboration could generate €30m in revenues for Transgene..

Therapeutic vaccines

TG4010 in combination with Opdivo in lung cancer

The combination of TG4010 and Opdivo (nivolumab) is undergoing a Phase II clinical trial in collaboration with BMS and the University of California, Davis Medical Center. Transgene will fund the trial and BMS will provide Opdivo while UC Davis will conduct the trial under the supervision of Dr Karen Kelly, a world-renowned researcher in lung cancer. The multi-centre, single arm, open-label study plans to enrol up to 33 patients with advanced NSCLC who have failed first-line therapy. It will measure response (primary end point) and survival for up to two years. There will be an interim analysis when 3 out of 15 evaluable patients meet the pre-defined response criteria. If the criteria are met, enrolment will advance to 29 evaluable patients; if not, the trial will be stopped for futility. So far five patients have been recruited, as Dr Kelly mentioned at Transgene’s R&D day on 22 June. Preliminary data are expected later in 2017.

Additionally, the company recently announced another study of TG4010 in combination with Opdivo and chemotherapy in first-line NSCLC patients that express low or undetectable levels of PD-L1. As in the previous study, Transgene will sponsor the trial and BMS will provide Opdivo. The multi-centre, single-arm and open-label study will evaluate response and disease control along with safety and tolerability in up to 39 patients. It is expected to start by year’s end 2017 and release first data in 2018. The rationale is that a synergistic effect between TG4010 and Opdivo will increase responses. Moreover, the only immunotherapy approved in the first-line setting (Merck’s Keytruda) is indicated only for patients whose tumours have high PD-L1 expression, leaving a large number of patients unserved.

Currently, PD-1/PD-L1 inhibitors are administered to NSCLC patients previously treated with a platinum-containing chemotherapy. Across trials, one-year and two-year overall survival (OS) rates of PD-1/PD-L1 inhibitors are 42%-55% and 23%-40% respectively. Phase I trials of Opdivo and Keytruda report similar three-year OS rates of 18% and 19% (Brahmer, JR et al, AACR 2017; and Leighl NB et al, ASCO 2017). Although response and survival have improved with these new therapies, they still remain low and there is no cure, hence there is room for increasing efficacy via combinations.

Launched in September 2014 by BMS and Asian partner Ono Pharmaceuticals, global sales of Opdivo were $4.7bn in 2016 (source BMS) and forecast is for sales of $9.5bn in 2022, according to consensus estimates on Evaluate Pharma. Competitor Keytruda was first launched in September 2014; 2016 sales were $1.4bn and consensus on worldwide sales is c $9.5bn in 2022 (Evaluate Pharma).

Based on epidemiology data from the US National Cancer Institute and GLOBOCAN for Europe there will be c 537k new NSCLC patients in both regions in 2017. We forecast EU/US peak sales for TG4010 of €2.5bn in this indication.

Building on previous data

Data from the Phase IIb TIME trial compared chemotherapy plus TG4010 to chemotherapy plus placebo in patients with advanced NSCLC (n=222). The overall response rate (ORR) and duration of response (DR) data are supportive of the potential of TG4010: for the total population (squamous and non-squamous NSCLC), those patients receiving TG4010 benefited compared to the placebo arm (ORR: 39.6% vs 28.8%; DR: 30.1 vs 18.7 weeks). The benefit was greatest in those patients with non-squamous NSCLC and low TrPAL biomarker (triple positive activated lymphocytes, ORR: 39.3% vs 30.3%; DR: 43.1 vs 18.1 weeks).

Importantly, in post-hoc analysis of all non-squamous NSCLC patients there was a similar level of PFS and OS benefit in the 97 patients with low levels of PD-L1 expression (<5%) to that observed with all non-squamous NSCLC patients. In various studies, it has been shown that non-squamous NSCLC patients with low levels of PD-L1 will not benefit as much from ICIs targeting PD-L1 and PD-1 as those with high levels of PD-L1 expression. This suggests that TG4010 could potentially become a valuable treatment in those non-squamous patients less likely to benefit from treatment with PD-1 or PD-L1 inhibitors, in addition to the potential synergistic approach discussed previously.

TG4010 was well tolerated; the most frequent TG4010-related adverse events were mild to moderate injection site reactions. These data support the potential of TG4010 as any improvement of safety over ICI treatments would be openly welcomed if efficacy was comparable. To date, over 350 patients have been treated with TG4010.

Phase I/II study of TG4001 in combination with avelumab

Transgene has a collaboration agreement with Pfizer and Merck to combine TG4001 and avelumab, an anti-PD-L1 antibody in a Phase I/II study in second-line HPV-positive HNSCC. The trial will be funded by Transgene and is currently in preparation to start in H217. Pfizer and Merck will provide avelumab and co-design the Phase I and II cohorts of the study, which will be open label and enrol up to 50 patients; end points will include response rate and DR. Details on the trial design, financial terms, IP rights or other aspects of the agreement have not been disclosed. Avelumab is approved in merkel cell carcinoma in the US.

TG4001 is a therapeutic vaccine based on a modified vaccinia virus Ankara (MVA) vector engineered to express HPV 16 antigens E6 and E7 with adjuvant interleukin-2 (IL-2). Clinical data from 206 female patients with CIN2/3 Intraepithelial Cervical Neoplasia showed a 38% (20/52) clearance rate in HPV 16 mono-infected patients compared with 9% for placebo (2/23) (p value = 0.009) with a favourable safety profile.

Avelumab is undergoing a Phase I trial in patients with locally advanced HNSCC in combination with radiotherapy and cetuximab (expected n=10) with potential read-out in Q317. A Phase II trial is recruiting patients with nasopharyngeal cancer, a form of HNSCC with potential readout in H219.

Head and neck cancer is a heterogeneous group of cancers in the oral cavity, oropharynx, larynx, nasal cavity and salivary glands that affect 500,000 people annually worldwide. Over 90% of cases are squamous cell carcinomas (HNSCC). Annual incidences of oropharyngeal squamous cell cancers have risen to 6.2 per 100,000 men and 1.4 per 100,000 women in the US and 73% of these tumours are HPV-positive (data from 2004-08 period). The current treatments include surgery, chemotherapy and/or radiation, and are aggressive, with significant toxicities. In first-line HNSCC, ORR for chemo is 30%-40% and median OS is 6-9 months. Second-line treatments are Opdivo or Keytruda, with ORR 16%-19% and median OS 7-8 months.

TG1050: First patient in Phase Ib multiple dose cohort

In November 2016, the first patient was randomised in the multiple dose cohort of the ongoing Phase I/Ib trial of TG1050 with standard of care in patients with chronic hepatitis B infection. TG1050 is a therapeutic vaccine for the treatment of chronic hepatitis B that expresses three antigens of the hepatitis B virus (HBV). The clinical trial is an international, randomised, double-blind, placebo-controlled safety and dose-finding study evaluating single and multiple doses of TG1050 in patients who are currently being treated for chronic HBV infection with standard-of-care antiviral therapy (n=48). Secondary objectives include the antiviral activity of, and immune responses to, TG1050. Data are expected in H217.

There are currently limited treatments for HBV. The cure rate from nucleotide analogues such as tenofovir (Viread) and entecavir (Baraclude) or pegylated interferon-α is only 3-5%, so that patients normally need long-term antiviral therapy to control their infection. Around 240 million people have chronic HBV infection, according to the World Health Organization (WHO). Transgene will look to partner TG1050 once it has proof-of-concept data from this study. We forecast peak sales of €2.1bn for TG1050 in HBV.

Oncolytic viruses: Pexa-Vec and new generation

First European patient recruited in PHOCUS Phase III study

The first European patient was enrolled in the PHOCUS Phase III study conducted by partner SillaJen in first-line HCC. This triggered a $4m milestone payment from Transgene to SillaJen. The PHOCUS study is an international randomised (1:1), open-label study comparing Pexa-Vec followed by Bayer’s sorafenib (anti-BRAF/VEGFR/PDGFR tyrosine kinase inhibitor) and versus sorafenib alone in patients with advanced HCC who have not received prior systemic therapy (n=600). Pexa-Vec will be administered as three bi-weekly intratumoral injections at day one and weeks two and four, followed by sorafenib at week six; the comparator arm will receive sorafenib 400mg twice daily starting on day one. The primary end point is OS; secondary end points include time to progression, progression-free survival, ORR and disease control rate. Initial OS data are expected in 2019. SillaJen has responsibility for conducting and funding the study and worldwide rights. Transgene retains development and commercialisation rights in Europe.

Pexa-Vec combinations enter the clinic

An open-label, investigator-sponsored Phase I/II trial of Pexa-Vec in combination with Yervoy in up to 60 patients with solid tumours is ongoing at the Léon Bérard Cancer Centre. End points include toxicities, response and survival. Initial data will be available later this year. Additionally, a Phase I/IIa trial of Pexa-Vec in combination with Opdivo in first-line HCC patients is expected to start in France in July or August 2017. In the Phase I part, safety and efficacy will be assessed in six patients. In the Phase IIa part, safety and efficacy will be further assessed in 29 evaluable patients.

The mechanistic rationale is that an oncolytic vaccinia poxvirus, like Pexa-Vec, is able to overcome the immunosuppressive effect of the tumour microenvironment (Sharp et al, Biomedicines 2016); this would be further boosted by the addition of an ICI that would counter the inhibitory effect of tumour cells in the immune system. This strategy is in line with the interest from industry in this approach, as demonstrated by the increasing number of clinical trials of oncolytic viruses with ICIs. The most notable example is Amgen’s Imlygic (talimogene laherparepvec), which was approved in the EU and US in late 2015. Imlygic is being tested in a number of clinical trials in combination with ICIs, in particular Keytruda and Opdivo. Imlygic generated $27m revenue in 2016 and Evaluate Pharma consensus forecast is $250m sales in 2022.

In April 2017, Transgene started the Phase II part of the METROmaJX trial. This Phase I/II study evaluates the combination of Pexa-Vec with metronomic cyclophosphamide (repetitive, low doses; shown to potentiate the activity of other immunotherapies) in patients with advanced soft tissue sarcoma and HER2 negative breast cancer and it will measure the maximum tolerated dose of the first cycle of the combination and antitumour activity. The trial is sponsored by the Bergonié Institute. The primary completion date is September 2018.

Based on updated epidemiology data from Cancer Research UK, there were c 64k new HCC patients in 2012 in the EU-28. We forecast EU peak sales for Pexa-Vec of €518m in HCC.

Summary of Pexa-Vec data

Pexa-Vec has been evaluated in more than 10 trials in a number of tumour types; it has been well-tolerated in all trials. In the Phase II dose-finding study in HCC patients (n=30; 80% first-line), those receiving high-dose Pexa-Vec (intratumoural delivery) had a median OS of 14.1 months compared to 6.7 months for those on a low dose (HR: 0.39; p=0.02; Exhibit 2). However, the subsequent Phase IIb TRAVERSE study in second-line HCC was terminated early in 2013, as data from the first 80 events showed no evidence of OS benefit associated with Pexa-Vec.

The decision to continue development of Pexa-Vec was based on the detailed analysis of TRAVERSE and the prior Phase I/II trials with data from over 300 patients in total. The Phase III trial is in patients with first-line HCC, for which Pexa-Vec has previously shown promising data. This is also supported by the concept that immunotherapies are thought to be most effective when the tumour burden is low (ie less advanced) and in patients with functioning immune systems.

Exhibit 2: Results of Phase II study in HCC with Pexa-Vec

Source: Transgene

Next-generation TG6002

TG6002 is a viral vector derived from vaccinia virus expressing the FCU1 gene. The FCU1 gene encodes a protein that catalyses the transformation of the nontoxic pro-drug flucytosine (5-FC), into 5-FU and 5-fluorouridine monophosphate (5-FUMP) a widely used chemotherapy. Its expression is restricted to tumours, thereby reducing toxicity to normal tissues. The company has conducted numerous in vitro and in vivo experiments to establish its mechanism of action.

A Phase I trial in glioblastoma with Assistance Publique Hôpitaux de Paris (principal investigator Prof Delattre) and support from French National Cancer Institute is expected to commence in H217.

Sensitivities

Transgene is subject to the usual risks associated with drug development, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, and financing and commercial risks. The key sensitivities relate to the clinical performance of Pexa-Vec in the Phase III trial (initial data expected in 2019), the results of the ICI combination studies of TG4010, Pexa-Vec and TG4001, and Transgene’s ability to secure a partner/funding to enable the continued development of its pipeline. The outcome of the TG4010 combination studies in particular will have an impact on its partnership and/or fresh financing prospects for the programme. First results will be available in H217. Due to the uncontrolled nature of the ICI combination trials it will be difficult to determine the effect that corresponds to each product independently and assess the actual synergistic effect.

Financials

Transgene’s reported cash, cash equivalents and financial assets of €50.7m as of 31 March 2017. The company has access to a further €10m from the EIB loan that can be drawn down before the end of 2017. The EIB loan is for five years, with the principal and accumulated interest reimbursable only from the fourth year. During 2016, Transgene strengthened its cash position by withdrawing the first tranche from the EIB loan in June 2016. Additionally, Transgene successfully completed a rights issue for gross proceeds of €46.4m in November 2016. As a result, the company expects to have sufficient funds to conduct its pipeline development activities through 2017 and 2018 with a cash burn of €30m anticipated by the company in 2017 (company reported cash burn for FY16 was €30.6m). We leave our financial forecasts unchanged.

During 2016, Transgene continued its restructuring activities initiated in 2015 that resulted in a reduction of the workforce. This resulted in R&D expenses of €26.4m in FY16 vs €32.1 in FY15. Transgene will have eleven clinical trials active at different points during 2017-18; hence, we expect an uptick in R&D expenses to €35.4m in 2017, which includes the $4m milestone payment to SillaJen on initiation of the Phase III PHOCUS study in Europe. G&A expenses were €6.2m in FY16, vs €5.8m in FY15. We expect G&A costs to remain broadly stable; therefore, we forecast G&A costs to be €6.4m in 2017 and €6.6m in 2018 from the higher than expected 2016 base.

Valuation

Our rNPV valuation of Transgene is €208m, or €3.7/share (vs €204m or €3.6/share). Our key inputs and assumptions are summarised in Exhibit 3 below.

Our key assumptions on TG4010 and Pexa-Vec are the following:

TG4010: we model a classical clinical development timeline for the project, starting with the Phase I/II studies planned in combination ICIs, and use NSCLC as a proxy for this opportunity. As such, there could be considerable upside should the company go for accelerated filing, and/or development is expanded into other cancer indications. Our peak sales estimate for the US has moved slightly (from 1.3bn to 1.4bn) due to the updated €/$ exchange rate.

Pexa-Vec: we have assumed that the Phase III PHOCUS study, which plans to include EU trial sites, will be sufficient to file for approval in Europe, assuming a positive study result. Under the deal with SillaJen, Transgene will be responsible for funding, compiling and submitting the regulatory application in Europe. We slightly increase peak sales from €424m to €518m as a result of updated epidemiology data (63.5k patients vs previous 52k as of 2012).

TG1050: our valuation includes the EU and US market and we have assumed that TG1050 will be out-licensed on completion of a successful Phase II proof-of-concept study. Partner will fund Phase III trials, registration and commercial launch.

We currently do not ascribe any value to the pre-clinical asset TG6002 or Phase I asset TG4001, as they are early stage and no clinical data have been released so far.

Exhibit 3: Transgene valuation model and key assumptions

Product

Status

Market launch

NPV (€m)

Peak sales (€m)

Probability of success

Royalty estimate

rNPV (€m)

rNPV/ share (€)

Key assumptions

TG4010 – NSCLC (EU)

Phase I/II

2025

88.5

1,062

40%

17.5%

43.4

0.77

c 313k annual EU-28 incidence of lung cancer; 85% NSCLC; 75% MUC1 +ve; 66% normal NK cells; 20% peak penetration; €30k treatment price; €30m upfront on Phase IIb completion.

TG4010 – NSCLC (US)

Phase I/II

2025

78.8

1,429

40%

17.5%

35.5

0.63

c 222k annual US incidence of lung cancer; 85% NSCLC; 75% MUC1 +ve; 66% normal NK cells; 20% peak penetration; $50k treatment price

Pexa-Vec – HCC (EU)

Phase III

2020

99.4

518

50%

25.0%

66.2

1.17

c 64k annual EU incidence of liver cancer; 80% HCC; 25% peak penetration; €30k treatment price

TG1050 – HepB (EU+US)

Phase I

2025

190.5

2,054

15%

20.0%

22.4

0.40

c 5.4m chronic HepB prevalence in EU + US; 66% diagnosis rate; 33% require treatment; 5% peak penetration; €35k treatment price

Net cash (31 March 2017)

40.7

0.72

Total

208.2

3.69

Source: Edison Investment Research. Note: Peak sales represent the largest one-year sales that occur over the projected product lifespan. Spot rate $1.13/€.

Exhibit 4: Financial summary

€000s

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

9,949

10,311

8,253

8,618

Cost of sales

0

0

0

0

Gross profit

9,949

10,311

8,253

8,618

R&D expenses

(32,138)

(26,419)

(35,441)

(37,019)

G&A expenses

(5,798)

(6,236)

(6,423)

(6,616)

EBITDA

 

 

(25,671)

(20,397)

(32,026)

(33,607)

Operating profit (before GW and except)

 

(27,957)

(22,514)

(33,484)

(34,922)

Intangible amortisation

(350)

(150)

(127)

(95)

Exceptionals (restructuring costs / discontinued operations)

(15,965)

(1,024)

0

0

Operating profit

(44,272)

(23,688)

(33,611)

(35,017)

Other

0

0

0

0

Net interest

(930)

(602)

(1,564)

(1,864)

Profit before tax (norm)

 

 

(28,887)

(23,116)

(35,048)

(36,786)

Profit before tax (IFRS)

 

 

(45,202)

(24,290)

(35,175)

(36,881)

Tax

0

0

0

0

Minority interest

(1,172)

(917)

0

0

Profit after tax (norm)

(30,059)

(24,033)

(35,048)

(36,786)

Profit after tax (IFRS)

(46,374)

(25,207)

(35,175)

(36,881)

Average number of shares outstanding (m)

38.5

56.0

56.4

56.4

EPS – normalised (€)

 

 

(0.78)

(0.43)

(0.62)

(0.65)

EPS – IFRS (€)

 

 

(1.20)

(0.45)

(0.62)

(0.65)

Dividend per share (€)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

49,841

48,895

47,359

45,999

Intangible assets

485

423

317

243

Tangible assets

16,559

14,580

13,150

11,865

Other

32,797

33,892

33,892

33,892

Current assets

 

 

51,028

74,055

57,030

27,539

Stocks

1,164

221

221

221

Debtors

1,784

2,385

452

472

Cash

31,650

56,207

41,115

11,603

Other

16,430

15,242

15,242

15,242

Current liabilities

 

 

(26,725)

(19,919)

(20,613)

(18,815)

Creditors

(6,521)

(4,504)

(7,088)

(7,404)

Short-term borrowings

0

0

0

0

Short-term leases

(9,396)

(10,198)

(8,308)

(6,194)

Other

(10,808)

(5,217)

(5,217)

(5,217)

Long-term liabilities

 

 

(47,597)

(56,528)

(65,892)

(65,286)

Long-term borrowings

0

(10,000)

(20,000)

(20,000)

Long-term leases

(44,401)

(42,803)

(42,167)

(41,561)

Other long-term liabilities

(3,196)

(3,725)

(3,725)

(3,725)

Net assets

 

 

26,547

46,503

17,884

(10,563)

CASH FLOW

Operating cash flow

 

 

(46,082)

(34,187)

(28,799)

(34,893)

Net interest

930

602

(1,890)

(2,114)

Tax

0

0

0

0

Capex

(1,527)

(47)

(49)

(51)

Acquisitions/disposals

0

0

0

0

Financing

477

45,080

0

0

Dividends

0

0

0

0

Other

12,975

4,561

6,282

8,151

Net cash flow

(33,227)

16,009

(24,456)

(28,906)

Opening net debt/(cash)

 

 

(13,744)

22,147

6,794

29,360

HP finance leases initiated

(2,646)

(427)

1,890

2,114

Other

(18)

(229)

0

0

Closing net debt/(cash)

 

 

22,147

6,794

29,360

56,152

Source: Transgene, Edison Investment Research

Contact details

Revenue by geography

Boulevard Gonthier d’Andernach

Parc d’Innovation – CS80166

F-67405 Illkirch-Graffenstaden

France

+33 (0)3 88 27 91 00

www.transgene.fr

N/A

Contact details

Boulevard Gonthier d’Andernach

Parc d’Innovation – CS80166

F-67405 Illkirch-Graffenstaden

France

+33 (0)3 88 27 91 00

www.transgene.fr

Revenue by geography

N/A

Management team

Chairman & CEO: Philippe Archinard

EVP, Research & Development: Eric Quéméneur

Philippe Archinard became CEO in 2004. From 2000 to 2004, he was CEO of Innogenetics and previously he was at bioMérieux, where he held various positions including CEO of its US operations. He has a PhD in biochemistry from Lyon University.

Eric Quéméneur joined Transgene in 2014. Prior to this, he spent over 20 years at the CEA (Atomic Energy Commission) where he was director of research programs and industrial partnerships in the life science division. He has a PhD in biochemistry from the Claude Bernard University in Lyon.

VP, Finance: Jean-Philippe Del

CMO: Dr Maud Brandely

Jean-Philippe Del became VP, finance at Transgene in 2014, previously serving as finance senior director. He has previously worked at Mazars and Kronenbourg Breweries. He has a post-graduate degree in accounting and finance and a master’s degree from the University of Strasbourg.

Dr Maud Brandely joined Transgene in March 2016. She was previously director of clinical development at Pierre Fabre Oncologie until February 2016 where she was responsible for all clinical trials from Phase I to Phase III trials. She previously worked at Rhone-Poulenc (now Sanofi) and at Hoescht-Roussel-Uclaf (now Sanofi). Dr Brandely has an MD and PhD in immunology from the University of Paris VI.

Management team

Chairman & CEO: Philippe Archinard

Philippe Archinard became CEO in 2004. From 2000 to 2004, he was CEO of Innogenetics and previously he was at bioMérieux, where he held various positions including CEO of its US operations. He has a PhD in biochemistry from Lyon University.

EVP, Research & Development: Eric Quéméneur

Eric Quéméneur joined Transgene in 2014. Prior to this, he spent over 20 years at the CEA (Atomic Energy Commission) where he was director of research programs and industrial partnerships in the life science division. He has a PhD in biochemistry from the Claude Bernard University in Lyon.

VP, Finance: Jean-Philippe Del

Jean-Philippe Del became VP, finance at Transgene in 2014, previously serving as finance senior director. He has previously worked at Mazars and Kronenbourg Breweries. He has a post-graduate degree in accounting and finance and a master’s degree from the University of Strasbourg.

CMO: Dr Maud Brandely

Dr Maud Brandely joined Transgene in March 2016. She was previously director of clinical development at Pierre Fabre Oncologie until February 2016 where she was responsible for all clinical trials from Phase I to Phase III trials. She previously worked at Rhone-Poulenc (now Sanofi) and at Hoescht-Roussel-Uclaf (now Sanofi). Dr Brandely has an MD and PhD in immunology from the University of Paris VI.

Principal shareholders

(%)

Institut Mérieux

60.05

Dassault Belgique Aviation   4.93

Companies named in this report

Bayer (BAYN); Bristol-Myers Squibb (BMY); Merck & Co (MRK), Merck Group (MRK), Pfizer (PFE)

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Transgene and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Transgene and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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