Data from both lead trials due H120

Targovax 3 December 2019 Update
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Targovax

Data from both lead trials due H120

Company update

Pharma & biotech

3 December 2019

Price

NOK5.41

Market cap

NOK343m

Net cash (NOKm) at end Q319 (excludes government loans)

104.0

Shares in issue

63.4m

Free float

90%

Code

TRVX

Primary exchange

Oslo Stock Exchange

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.4

6.7

(36.6)

Rel (local)

13.4

4.4

(34.2)

52-week high/low

NOK11.04

NOK4.30

Business description

Targovax is an immunoncology company headquartered in Oslo, Norway, with an oncolytic virus platform, ONCOS. ONCOS-102 is prioritised in several indications including mesothelioma and melanoma. Targovax is also working on next-generation oncolytic viruses in its preclinical R&D pipeline.

Next events

Preclinical data on new oncolytic viruses

H219

ONCOS-102 mesothelioma Phase I data

January 2020

Cohort 2 data from Phase I melanoma

H120

Q419 results

11 March 2019

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

Targovax is a research client of Edison Investment Research Limited

Both lead clinical trials with ONCOS-102 are expected to deliver results over the next few months, which will make H120 one the most eventful periods in Targovax’s history. Data from Phase I/II trial in mesothelioma are expected in January 2020, whereas data from the Phase I melanoma study are expected in H120 or ‘before summer’, according to Targovax. Clinical data readouts should be supplemented by preclinical studies with the second-generation oncolytic viruses, which Targovax introduced for the first time in the Q319 results presentation. Our valuation is almost unchanged at NOK1.18bn or NOK18.7/share (vs NOK18.6/share previously).

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/17

0.0

(122.3)

(2.6)

0.0

N/A

N/A

12/18

0.0

(147.3)

(2.8)

0.0

N/A

N/A

12/19e

0.0

(136.2)

(2.4)

0.0

N/A

N/A

12/20e

0.0

(120.7)

(1.9)

0.0

N/A

N/A

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

More intensive dosing in Part 2 of melanoma trial

Interim results released in July 2019 from Part 1 of the Phase I trial with ONCOS-102 in melanoma were the hallmark event in Q319 (detailed analysis in our previous reports). The patients, who were previously treated with checkpoint inhibitors (CPIs) and then relapsed, were given three intratumoural injections of ONCOS-102 then received up to eight infusions of Keytruda. The key finding was that 3/9 patients demonstrated a clinical response, ie a 33% overall response rate, which compares well with similar studies. Such results were achieved after dosing with ONCOS-102 only three times before administering Keytruda. In Part 2 patients will continue to receive ONCOS-102 throughout treatment with Keytruda, which means they will receive a total of 12 ONCOS-102 injections rather than three. According to Targovax, results should be available ‘before summer’ 2020.

Data from Phase I/II mesothelioma trial due January

The randomised data from the Phase I/II study (n=31) in unresectable malignant pleural mesothelioma represent the nearest significant catalyst for the share price. According to the latest update, enrolment has completed and Targovax is on track to report data in January 2020. There is a clear unmet need in this indication, given the aggressive nature of the cancer and a lack of innovative treatment options. If the data are positive data, ONCOS-102 could be positioned as a front-line treatment with the potential for accelerated approval.

Valuation: NOK1.18bn or NOK18.7/share

Our Targovax valuation is virtually unchanged at NOK1.18bn or NOK18.7/share due to rolling our model forward, which is offset by a lower net cash position. All other assumptions in our rNPV model are unchanged. Both Phase I/II mesothelioma and Phase I melanoma trials are key catalysts in H120.

R&D update

Randomised data from Phase I/II mesothelioma trial expected in January 2020

The trial compares ONCOS-102 plus standard of care (pemetrexed/cisplatin) versus standard of care treatment in first- and second-line settings. The primary goal of the study is to evaluate the safety and tolerability of ONCOS-102, which is typical for this stage. Secondary endpoints will evaluate the initial efficacy of the treatment as well as overall response rate at six months, immune activation, progression-free survival and overall survival. According to the latest update, enrolment has completed and Targovax is on track to report data in January 2020. During the Q319 results presentation, management indicated (in the Q&A session) that an accelerated approval pathway is a possibility, although it is too early to confirm this.

Exhibit 1: Phase I/II mesothelioma study design

Source: Targovax

In February 2018, Targovax announced results from the safety lead-in (n=6) part of the study. No concerns were raised over safety. Where available, the data demonstrated an increase in systemic cytokines (in 3/3 analysed patients), which indicates activation of innate immune response. There was also an increase in the relative level of tumour infiltrating CD8+ T-cells (in 2/2 patients analysed), which indicates activation of the adaptive immune system. The activation of both the innate and adaptive immune response is consistent with the goal to make the cancer ‘visible’ to the immune system.

Targovax chose mesothelioma as one of the lead indications for its oncolytic virus treatment due to a combination of positive preclinical findings in in vivo models (Kuryk et al., 2018) and because treatment of mesothelioma remains one the largest unmet needs.

It is a rare cancer with c 3,000 cases diagnosed in the US annually. Most often the location of mesothelioma is the pleural mesothelium, a double-layer sheet that covers the lungs and the inside of the pleural cavity, forming a pleural space. Incidence of mesothelioma ranges from about seven to 40 per 1,000,000 in industrialised Western countries, depending on the amount of asbestos exposure in the past, which is a major risk factor. The five-year survival rate is only around 8%. Surgery, radiation therapy and chemotherapy with cisplatin and pemetrexed are the main treatment options, as there are no novel drugs proven to be efficacious.

Pemetrexed (Alimta, Eli Lilly; folate antimetabolite) was approved by the FDA for the treatment of malignant pleural mesothelioma in 2004, with patents starting to expire in 2022 (although they are challenged). In 2018, Alimta brought in $237m in sales in the mesothelioma indication (it is also approved for non-small cell lung cancer). There is a clear unmet need in this indication, given the aggressive nature of the cancer and lack of innovative treatment options.

New oncolytic viruses

With its Q319 results Targovax released new preclinical data for the first time, revealing details about its next-generation oncolytic viruses. The lead, ONCOS-102, is based on the common cold adenovirus serotype 5, which was genetically engineered in three ways:

To increase the virus’s ability to infect cancer cells, a knob domain from the surface of adenovirus 3 has been added, which improves viral adhesion to cancer cell surface.

A 24bp deletion in the E1A region enhances selective viral replication in actively dividing cells.

A transgene encoding a well-known immune stimulator granulocyte macrophage colony stimulating factor (GM-CSF) was also added. Once the virus starts replicating in the cancer cells, the GM-CSF is released, which stimulates tumour antigen processing by antigen presenting cells.

In the second-generation ONCOS viruses, Targovax was able to add a second transgene. The company has released in vitro and in vitro data from three new viruses. Depending on the second transgene, these viruses have different properties (Exhibit 2).

Targovax also presented some in vivo data from its studies with the ONCOS-210 and 212 viruses. The results indicate that two transgenes seem more potent than one and have synergistic activity in various cancer mouse models. We expect much more data from studies with all second-generation oncolytic viruses, including more details about positioning in the clinic and which indications will be prioritised.

Exhibit 2: Next generation of ONCOS viruses with double transgenes

Mode of action

Target cancers types

ONCOS 210 and 212

Inhibition of tumour growth and vascularisation

Interfere with tumour’s ability to break down surrounding tissue

Induce cell cycle arrest

Inhibit angiogenesis

Highly invasive or metabolic tumours

ONCOS 211

Counteract immune suppressive tumour microenvironment

Decrease inhibitory factors from tumour microenvironment

Activate T-cells

‘Cold’ tumours

ONCOS 214

Enhanced cell-killing properties

Induce immunogenic cell death

Extend cell killing ability to neighbouring non-infected cells

High stroma tumours (eg, epithelial malignant tumours with poor prognosis)

Source: Targovax

Financials and valuation

Targovax reported immaterial revenues and an operating loss of NOK26.7m in Q319, which was substantially lower than NOK33.7m in Q318 and NOK44.6m in Q219. It implemented a cost-cutting programme this summer, which was the main reason behind lower spending (number of full-time employees reduced by one-third). Targovax had cash and cash equivalents of NOK104m at the end of Q319. We fine-tuned our estimates, with 2019 operating expenses now totalling NOK136m (from NOK140m previously). As before, our model suggests a cash reach well into 2020.

Our valuation is virtually unchanged at NOK1.18bn or NOK18.7/share (versus NOK18.6/share previously), which is based on a risk-adjusted NPV analysis using a 12.5% discount rate, including NOK104m net cash. We continue to exclude other long-term debt of NOK55.6m in Finnish government grants from our valuation, as repayment is only required if the products are sold or launched. Our financial forecasts are unchanged.

Exhibit 3: Sum-of-the-parts Targovax valuation

Product

Launch

Peak sales
($m)

Unrisked NPV (NOKm)

Unrisked NPV/share (NOK)

Probability (%)

rNPV
(NOKm)

rNPV/share (NOK)

ONCOS-102 – advanced melanoma

2025

590

2,704.3

42.7

15%

669.5

10.6

ONCOS-102 – mesothelioma

2026

424

2,149.4

33.9

10%

409.0

6.5

Net cash, last reported

104.0

1.6

100%

104.0

1.6

Valuation

4,957.8

78.2

1,182.6

18.7

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. Excludes conditional government long-term loans.

Exhibit 4: Targovax R&D pipeline and expected newsflow

Source: Targovax

Exhibit 5: Financial summary

NOK'000s

2017

2018

2019e

2020e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

37

27

0

0

Cost of Sales

0

0

0

0

Gross Profit

37

27

0

0

Research and development

(45,571)

(64,006)

(67,567)

(50,103)

EBITDA

 

 

(119,630)

(145,804)

(135,856)

(120,449)

Operating Profit (before amort. and except.)

 

 

(119,926)

(146,100)

(136,152)

(120,745)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(119,926)

(146,100)

(136,152)

(120,745)

Net Interest

(2,347)

(1,249)

0

0

Profit Before Tax (norm)

 

 

(122,273)

(147,349)

(136,152)

(120,745)

Profit Before Tax (reported)

 

 

(122,273)

(147,349)

(136,152)

(120,745)

Tax

328

334

0

0

Profit After Tax (norm)

(121,945)

(147,015)

(136,152)

(120,745)

Profit After Tax (reported)

(121,945)

(147,015)

(136,152)

(120,745)

Average Number of Shares Outstanding (m)

47.3

52.6

58.0

63.3

EPS - normalised (NOK)

 

 

(2.58)

(2.79)

(2.35)

(1.91)

EPS - normalised fully diluted (NOK)

 

 

(2.58)

(2.79)

(2.35)

(1.91)

EPS - reported (NOK)

 

 

(2.58)

(2.79)

(2.35)

(1.91)

Dividend per share (NOK)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

367,415

371,129

376,788

376,521

Intangible Assets

366,250

370,240

370,240

370,240

Tangible Assets

1,165

889

604

337

Investments

0

0

5,944

5,944

Current Assets

 

 

276,193

166,509

93,224

16,320

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

261,573

151,189

77,904

1,000

Other

14,620

15,320

15,320

15,320

Current Liabilities

 

 

(28,295)

(59,377)

(45,913)

(46,371)

Creditors

(28,295)

(50,250)

(33,024)

(33,482)

Short term borrowings

0

(9,127)

(12,889)

(12,889)

Long Term Liabilities

 

 

(108,156)

(103,565)

(105,805)

(136,958)

Long term borrowings

(48,806)

(43,933)

(46,173)

(77,326)

Other long term liabilities

(59,350)

(59,632)

(59,632)

(59,632)

Net Assets

 

 

507,157

374,696

318,294

209,512

CASH FLOW

Operating Cash Flow

 

 

(111,093)

(112,816)

(141,041)

(108,028)

Net Interest

2,347

1,249

0

0

Tax

0

0

0

0

Capex

(56)

0

(31)

(29)

Acquisitions/disposals

0

0

0

0

Financing

194,407

(30)

67,785

0

Other

(4,753)

(3,041)

1

0

Dividends

0

0

0

0

Net Cash Flow

80,852

(114,638)

(73,285)

(108,057)

Opening net debt/(cash)

 

 

(131,915)

(212,767)

(98,129)

(18,842)

HP finance leases initiated

0

0

0

0

Other

0

0

(6,002)

0

Closing net debt/(cash)

 

 

(212,767)

(98,129)

(18,842)

89,215

Source: Targovax accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Targovax and prepared and issued by Edison, in consideration of a fee payable by Targovax. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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60325 Frankfurt

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London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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General disclaimer and copyright

This report has been commissioned by Targovax and prepared and issued by Edison, in consideration of a fee payable by Targovax. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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