Combination trials start, FY16 results

Transgene 24 March 2017 Update
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Transgene

Combination trials start, FY16 results

Company update

Pharma & biotech

24 March 2017

Price

€2.62

Market cap

€148m

Cash and ST investments (€m) at end December 2016

56.2

Shares in issue at end December 2016

56.4m

Free float

34%

Code

TNG

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.0)

(2.2)

(4.1)

Rel (local)

(5.4)

(6.3)

(15.6)

52-week high/low

€3.2

€2.3

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

Q217

TG6002 glioblastoma trial start

Q217

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

Transgene has announced the initiation of two clinical trials of its main assets in combination with immune checkpoint inhibitors (ICIs). A Phase I trial of oncolytic virus Pexa-Vec in combination with Yervoy in solid tumours has started. Additionally, a Phase II study of the therapeutic vaccine TG4010 with Opdivo in second-line advanced lung cancer has started at UC Davis in collaboration with Bristol-Myers Squibb; initial results from both trials are expected later this year. Cash and equivalents at end 2016 amount to €56.2m. Our updated valuation is €204m or €3.6/share.

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

(22.8)

(0.42)

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.

Pexa-Vec plus Yervoy to boost the immune response

An open-label, investigator-sponsored Phase I trial of Pexa-Vec in combination with Yervoy (ipilimumab) in up to 60 patients with solid tumours has dosed the first patient at the Léon Bérard Cancer Centre. Endpoints include toxicities, response and survival. Initial data will be available later this year. This strategy is in line with the interest from industry in this approach, according to the increasing number of clinical trials of oncolytic viruses with ICIs. Moreover, Transgene is expanding further on this strategy by producing a new generation of ICI-expressing oncolytic immunotherapies that have shown a durable anti-tumour effect in preclinical models.

TG4010 plus Opdivo accelerate and release the brake

Transgene has also started a Phase II clinical trial of TG4010 in combination with Opdivo (nivolumab) in collaboration with Bristol-Myers Squibb (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. It is an open-label study that plans to enrol up to 33 patients with advanced non-small cell lung cancer (NSCLC) who have failed first-line therapy. It will measure response and survival for up to two years. Preliminary data are expected later in 2017. As with oncolytic viruses, combination trials of cancer vaccines with ICIs have gained traction recently. In H117 the company plans to initiate another study of TG4010 in combination with an undisclosed ICI in first-line NSCLC patients that express low or undetectable levels of PD-L1.

Valuation: rNPV of €204m

We update our valuation to €204m (from €161.5m), which uses a 12.5% discount rate. The increased valuation is a result of rolling forward our model in time and updating cash. The increased rNPV falls to €3.6/share (from €4.2/share) owing to the higher share count (56.4m from 38.5m) following the November 2016 €46.4m (gross proceeds) rights issue at €2.60/share.

Data expected across the pipeline in 2017

The company’s strategy involves developing its pipeline assets in combination with other products, predominantly ICIs. The combination of ICIs with other products, especially other immunotherapeutics, is becoming increasingly popular in the oncology space, as demonstrated by the number of studies currently underway in this area. At August 2016 there were 734 ongoing combination trials with 47 ICIs, according to Beacon Intelligence. In particular, there is increasing interest from the industry in combining ICIs with cancer vaccines or oncolytic viruses. Transgene currently has five product candidates that are in or being prepared for clinical trials (11 in total; six underway, five about to start or being prepared for) and we expect a number of them to read out or initiate by year end. Key news includes:

TG4010 (Phase II): results by year end in combination with nivolumab in NSCLC (second-line), in partnership with BMY.

TG4001 (Phase II): dosing of the first patient in combination with avelumab in-HPV positive cancers (in partnership with Merck & Pfizer).

TG1050 (Phase I): first results in combination with antiviral treatment in chronic Hepatitis B in H217.

Pexa-Vec (Phase I): first data in combination with ipilimumab in solid tumours by year end.

Pexa-Vec (Phase II): dosing of the first hepatocellular carcinoma patients (first-line) in combination with nivolumab by Q217.

TG6002 (Phase I): dosing of the first glioblastoma patient by Q217.

Given Transgene’s forecast cash reach to end 2018, we expect these trials to be key short-term drivers to the value of Transgene and data from these trials will be crucial in the search for future partnerships.

Financials and valuation

We have updated our forecasts to reflect the recent results. Transgene reported R&D expenses of €26.4m in FY16 vs €32.1 in FY15. This decrease was mainly due to the continuation of the restructuring activities initiated in 2015, which resulted in a reduction of the workforce. This was close to our 2016 estimate of €27.5m. Transgene will have seven clinical trials active at different points during the 2017-18 period, hence we expect an uptick in R&D expenses to €35.4m in 2017, which includes a delayed $4m milestone payment to SillaJen on initiation of the Phase III PHOCUS study in Europe. This is an increase with respect to our previous 2017 forecast of €33.0. G&A expenses were €6.2m in FY16, vs €5.8m in FY15, above our estimate of €4.3m. We expect G&A costs to remain broadly stable, hence we have increased G&A costs to €6.4m in 2017 and €6.6m in 2018 from the higher than expected 2016 base.

Cash burn for FY16 was €30.6m. Excluding c €5m net cash outflows linked to the restructuring plan, cash burn reduced to €27.6m, which was in line with our €26m forecast. Transgene’s end-2016 gross cash and equivalents position was €56.2m vs €31.7m in FY15. The increase largely reflects the net proceeds of €45m from the rights issue at €2.60 per share, which completed in November 2016, and from the first tranche of €10m from the €20m loan from the European Investment Bank (EIB). In line with our forecasts, Transgene expects to burn €30m in 2017.

We update our valuation to €204m or €3.6 per share (vs €161.5m or €4.2/share), with a 12.5% discount rate. The increased valuation is a result of rolling forward our model and updating cash. Additionally, we have updated the number of shares, from 38.5m to 56.4m to reflect the recent capital increase, resulting in a decrease in our per share valuation.

Exhibit 1: Financial summary

€'000s

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

11,099

9,949

10,311

8,253

8,618

Cost of Sales

0

0

0

0

0

Gross Profit

11,099

9,949

10,311

8,253

8,618

R&D expenses

(41,731)

(32,138)

(26,419)

(35,441)

(37,019)

G&A expenses

(7,578)

(5,798)

(6,236)

(6,423)

(6,616)

EBITDA

 

 

(35,171)

(25.671)

(20,077)

(32,026)

(33,607)

Operating Profit (before GW and except)

 

(37,845)

(27.957)

(22,194)

(33,484)

(34,922)

Intangible Amortisation

(365)

(350)

(150)

(127)

(95)

Exceptionals (restructuring costs/discontinued operations)

(8,722)

(15,965)

(1,344)

0

0

Operating Profit

(46,932)

(44,272)

(23,688)

(33,611)

(35,017)

Other

0

0

0

0

0

Net Interest

(801)

(930)

(602)

(1,564)

(1,864)

Profit Before Tax (norm)

 

 

(38,646)

(28,887)

(22,796)

(35,048)

(36,786)

Profit Before Tax (IFRS)

 

 

(47,733)

(45,202)

(24,290)

(35,175)

(36,881)

Tax

0

0

0

0

0

Minority interest

(823)

(1,172)

(917)

0

0

Profit After Tax (norm)

(39,469)

(30,059)

(23,713)

(35,048)

(36,786)

Profit After Tax (IFRS)

(48,556)

(46,374)

(25,207)

(35,175)

(36,881)

Average Number of Shares Outstanding (m)

38.5

38.5

56.0

56.4

56.4

EPS - normalised (c)

 

 

(102.52)

(78.08)

(42.33)

(62.11)

(65.19)

EPS - IFRS (c)

 

 

(126.12)

(120.45)

(45.00)

(62.33)

(65.36)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

61,715

49,841

48,895

47,359

45,999

Intangible Assets

1,056

485

423

317

243

Tangible Assets

23,641

16,559

14,580

13,150

11,865

Other

37,018

32,797

33,892

33,892

33,892

Current Assets

 

 

79,238

51,028

74,055

57,030

27,539

Stocks

1,149

1,164

221

221

221

Debtors

1,540

1,784

2,385

452

472

Cash

65,935

31,650

56,207

41,115

11,603

Other

10,614

16,430

15,242

15,242

15,242

Current Liabilities

 

 

(21,563)

(26,725)

(19,919)

(20,613)

(18,815)

Creditors

(8,296)

(6,521)

(4,504)

(7,088)

(7,404)

Short term borrowings

0

0

0

0

0

Short term leases

(8,992)

(9,396)

(10,198)

(8,308)

(6,194)

Other

(4,275)

(10,808)

(5,217)

(5,217)

(5,217)

Long Term Liabilities

 

 

(47,551)

(47,597)

(56,528)

(65,892)

(65,286)

Long term borrowings

0

0

(10,000)

(20,000)

(20,000)

Long term leases

(43,199)

(44,401)

(42,803)

(42,167)

(41,561)

Other long term liabilities

(4,352)

(3,196)

(3,725)

(3,725)

(3,725)

Net Assets

 

 

71,839

26,547

46,503

17,884

(10,563)

CASH FLOW

Operating Cash Flow

 

 

(55,037)

(46,082)

(34,187)

(28,799)

(34,893)

Net Interest

801

930

602

(1,890)

(2,114)

Tax

0

0

0

0

0

Capex

(2,602)

(1,527)

(47)

(49)

(51)

Acquisitions/disposals

0

0

0

0

0

Financing

62,735

477

45,080

0

0

Dividends

0

0

0

0

0

Other

12,527

12,975

4,561

6,282

8,151

Net Cash Flow

18,424

(33,227)

16,009

(24,456)

(28,906)

Opening net debt/(cash)

 

 

1,756

(13,744)

22,147

6,794

29,360

HP finance leases initiated

(3,191)

(2,646)

(427)

1,890

2,114

Other

267

(18)

(229)

0

0

Closing net debt/(cash)

 

 

(13,744)

22,147

6,794

29,360

56,152

Source: Transgene, Edison Investment Research

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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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