Defining data from lead assets by year-end

Transgene 27 March 2019 Update
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Transgene

Defining data from lead assets by year-end

FY18 results

Pharma & biotech

27 March 2019

Price

€2.84

Market cap

€177m

Gross cash and short-term investments (€m) at 31 December 2018

16.9

Shares in issue

62.3m

Free float

43%

Code

TNG

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.5

9.7

(3.1)

Rel (local)

1.5

(4.1)

(5.9)

52-week high/low

€3.3

€2.6

Business description

Transgene is a French drug discovery and development company focused on the treatment of cancer and infectious diseases with immunotherapies. Its products are Pexa-Vec, TG4010, TG4001, TG1050, TG6002 and TG4050.

Next events

Pexa-Vec Phase III (PHOCUS) futility analysis in first-line HCC

Mid-2019

TG4010 + nivolumab + chemo efficacy data in first-line NSCLC

H219

TG4001 updated data in HPV+ HNSCC

H219

Analysts

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Sean Conroy

+44 (0)20 3077 5700

Transgene is a research client of Edison Investment Research Limited

Key inflection points from lead assets Pexa-Vec, TG4010 and TG4001 by year-end will continue to inform the validity of Transgene’s IO strategy. Notably, a futility analysis expected mid-year for the Phase III trial with Pexa-Vec (+sorafenib) in first-line hepatocellular carcinoma (HCC) and efficacy data from the Phase II TG4010 (+nivolumab + chemotherapy) trial in first-line non-small cell lung cancer (NSCLC) will be key to driving value in 2019. Early-stage development continues with both the expansion of its Invir.IO collaboration with BioInvent and the announcement of the first product candidate (TG4050) from the company’s myvac platform (initiating clinical trials in H219). Net profit for FY18 was €8.0m, compared with a €32.3m loss in FY17, mainly as a result of the non-cash gain of €35.6m in FY18 from the allocation of Tasly shares. We value Transgene at €312m.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(€)

Yield
(%)

12/17

8.1

(35.0)

(0.53)

0.0

N/A

N/A

12/18

42.9

(36.8)

(0.45)

0.0

N/A

N/A

12/19e

9.2

(26.2)

(0.42)

0.0

N/A

N/A

12/20e

6.7

(28.7)

(0.46)

0.0

N/A

N/A

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

Myvac and Invir.IO progression highlights capabilities

Transgene has announced its plans to start clinical development (partnership with NEC Corporation) for new asset TG4050. TG4050 is based on Transgene’s personalised immunotherapy platform (myvac) and NEC’s neoantigen prediction system. Transgene will initiate two clinical studies in H219 focusing on second-line (following surgery and chemo) ovarian cancer and second-line (following surgery and radiation therapy) head and neck cancer patients. The trials are jointly funded by both parties. Transgene recently announced the expansion of its BioInvent collaboration to focus on new, unspecified multifunctional oncolytic viruses for the treatment of solid tumours. Transgene will provide its oncolytic virus expertise and technology (Invir.IO), while BioInvent will provide its antibody capabilities, including novel antibody sequences. Costs, revenue and royalties will be split 50:50.

FY18 results: Funded into 2020

Transgene reported cash and equivalents of €16.9m at 31 December 2018. Cash burn was €24.5m in FY18 (vs €28.1 in FY17) and the company expects this to rise to between €25m and €30m in FY19. Transgene has secured a €20m revolving credit facility with Natixis. The credit facility has a 30-month term, and Transgene will be able to draw and repay the facility at its discretion. Transgene has used its shares in Tasly Biopharmaceuticals as collateral. We forecast a cash reach into 2020, assuming a full drawdown of the Natixis facility.

Valuation: €312m (€5.02/share)

We value Transgene at €312m (€5.02/share) vs €290m (€4.68/share) previously, based on a risk-adjusted NPV model of TG4010, TG4001, TG1050, Pexa-Vec and TG6002. The increase in value is driven by rolling forward our model and more favourable exchange rates. In addition, we have updated current net cash.

Evolving SOCs present opportunities and challenges

Transgene’s strategy involves the development of its immunotherapies for the treatment of cancer and viral indications, notably in combination with other approved therapies like PD-(L)1 ICIs. Key to determining the success of Transgene’s combination strategy will be efficacy readouts in 2019 from the Phase II TG4010 (+nivolumab + chemotherapy) trial in first-line NSCLC and the Phase III Pexa-Vec (+sorafenib) trial (PHOCUS) in first-line hepatocellular carcinoma (trial conducted by partner SillaJen). If the PHOCUS trial is clinically successful (i.e meets primary endpoint of statistical improvement in overall survival), it could enable the first commercial launch of a Transgene-developed product. However, we note that in the rapidly changing treatment landscape of oncology, clinical programme success and subsequent regulatory approvals alone do not guarantee successful commercialisation. Transgene currently has five ongoing company-sponsored studies across 4 products (Exhibit 1), with three new studies expected to begin patient enrolment in 2019.

Immunotherapies have dramatically altered the standard of care (SOC) for many cancers and continue to do so. However, the speed of change can also present substantial challenges to trial design and execution. This was evidenced recently by the cessation of Transgene’s second-line NSCLC trial as PD-(L)1 naïve patients (per the original inclusion criteria) were unable to be recruited as first-line treatment had rapidly advanced to include PD-(L)1 inhibitors.

First-line NSCLC treatment continues to advance with two significant approvals in the last six months for Keytruda plus chemotherapy and Tecentriq plus Avastin plus chemotherapy. Transgene’s first-line TG4010 NSCLC trial will need to demonstrate a comparable or improved ORR (Keytruda combo ORR: 48%. 95% CI: 43–45% and Tecentriq triple combo ORR: 55%. 95% CI: 49–60%) in similar patient populations to be considered for future development. We also note changes in the HCC treatment landscape that could affect Pexa-Vec’s clinical and commercial potential. In the past, approvals have predominately focused on second-line HCC (Cabometyx approval and Keytruda approval). However, first-line approvals for lenvantinib and numerous ongoing ICI clinical trials continue to advance the SOC. Across the pipeline, Transgene’s assets have the potential to change the SOC for many diseases, although significant challenges remain in a fast-moving sector.

Exhibit 1: Transgene sponsored clinical pipeline

Compound/phase

Combination compound

Indication

Collaborators

Trial status

Data readout

Notes

TG4010/ Phase II

Opdivo (nivolumab) & chemo

First-line NSCLC

N/A

Ongoing

H219

ORR data expected in H219 on a total of 35 patients.

Pexa-Vec/ Phase III

Nexavar (sorafenib)

First-line HCC

Conducted by partner SillaJen

Ongoing

Mid-2019

Global study with expected complete enrolment of 600 patients (300 per arm). Futility analysis expected mid-2019 with first efficacy readout in 2020.

Pexa-Vec/ Phase I/II

Opdivo (nivolumab)

First-line HCC

Nancy, France

Ongoing

H219

Recent safety review was positive and trials proceed as planned. Interim analysis on ORR (overall response rate) expected in 15 patients in H219.

TG4001/ Phase I/II

Avelumab

HPV+ (human papilloma virus) head and neck squamous cell carcinoma

Institut Curie (PI Pr Christophe Le Tourneau)

Ongoing

H219

Phase II enrolment is ongoing with additional sites being activated in Europe. Data expected in H219.

TG6002/ Phase I/II

N/A

Advanced gastrointestinal adenocarcinoma

Prof Philippe Cassier, Centre Léon Bérard, Lyon

Ongoing

H219

50 patients expected to be enrolled. Primary endpoint for Phase I is dose-limiting toxicity, for Phase II it is ORR.

TG6002/ Phase I

N/A

Metastatic colon cancer (liver metastasis)

Adel Samson, St James’s Hospital, Leeds (UK)

Planning

N/A

Multi-centre trial in UK; INDs submitted. First patient expected to be treated in Q419.

TG4050/ Phase I

N/A

Ovarian cancer (after 1st line surgery & adjuvant therapy)

N/A

Planning

N/A

Co-financed by Transgene and NEC. First patient exp Q419. Trial will be conducted in the US & France.

TG4050/ Phase I

N/A

HPV-negative head & neck cancer (after surgery and adjuvant therapy)

N/A

Planning

N/A

Co-financed by Transgene and NEC. First patient exp Q419 Trial will be conducted in the UK & France

Source: Edison Investment Research, Transgene

FY18 financials

Transgene reported FY18 revenue of €42.9m (FY17: €8.1m). This was driven by the €35.6m sale of TG1050 rights to Tasly Biopharmaceuticals in the form of shares (27.4m). Transgene has sold the Greater China rights for TG6002 and TG1050 to Tasly and holds approximately 2.53% of Tasly Biopharmaceuticals shares. Using these shares as capital, Transgene has secured a €20m revolving credit facility with Natixis (a French corporate and investment bank). The credit facility has a 30-month term, and Transgene will be able to draw and repay the facility at its discretion. Tasly intended to float on the Hong Kong Stock Exchange before year-end 2018. However, this did not occur and we have no visibility on if or when it will. Transgene has a 12-month, post-IPO lock-up on its shares in Tasly.

In additional support of the industrialisation of the myvac platform, the NEOVIVA project was awarded a €5.2m grant from Bpifrance’s ‘Investments for the Future’ programme. Transgene will receive €2.6m of the grant. The NEOVIVA project is across four companies, and aims to develop and validate manufacturing approaches for individualised therapies. The two TG4050 trials will provide proof of concept.

R&D expenses decreased in FY18 to €27.3m (vs €30.4m in FY17) as a result of a reduced IP expense and licensing costs to €0.9m (vs €4.8m in FY17). The increased costs in FY17 were due to a €3.8m milestone payment to SillaJen on enrolment of the first patient in the PHOCUS study. The majority of R&D expenditure continues to be driven by payroll costs (as R&D staff costs are accounted for in R&D expenditure) and external expenses for clinical projects. Payroll costs were €11.2m vs €11.1m in FY17 and external expenses for clinical projects increased slightly to €7.9m (FY17: €7.0m). We forecast that FY19 R&D will decrease slightly to €24.6m as numerous clinical trials were completed or terminated in 2018 (TG4010 in second-line NSCLC, TG1050 in hepatitis B and Pexa-Vec in both breast and solid tumours) and we expected reduced ongoing costs.

G&A costs increased to €7.0m in FY18 from €5.7m in FY17. This was predominately driven by an increase in fees and admin expenses to €2.8m (vs €1.6m in FY17) as a result of the Tasly transaction. We forecast a slight increase in FY19 G&A to €7.1m.

Net interest generated a loss of €2.0m in FY18 (vs €2.3m in FY17). We note accrued interest on the EIB loan (€10m) that was drawn down in June 2016 is repayable in June 2019 with the capital repayable in 2021.

Net profit for FY18 was €8.0m, compared with a €32.3m loss in FY17, as a result of the non-cash gain of €41.4m in FY18 from the allocation of Tasly shares. We forecast a net loss in FY19 of €26.3m.

Cash burn was €24.5m in FY18 (vs €28.1 in FY17) and Transgene expects this to rise in FY20 to between €25m and €30m. Transgene reported cash, cash equivalents and financial assets of €16.9m at 31 December 2018 (compared to €41.4m at 31 December 2018). Our model predicts the full drawdown of the €20m credit facility with Natixis to enable cash reach until mid-2020. In addition, we model illustrative debt of €30m in 2020 to ensure continued operations.

Valuation: €312m (€5.02/share)

We value Transgene at €312m (€5.02/share) vs €290m (€4.68/share) previously. Our valuation is based on a risk-adjusted NPV model of TG4010, TG4001, TG1050, Pexa-Vec and TG6002. The increase in value is driven by rolling forward our model and more favourable exchange rates; our operational updates remain unchanged. We do not value TG6002 in gastrointestinal adenocarcinomas, and will address this as the trial progresses and the exact patient population becomes clear. Additionally, we do not currently value new asset TG4050, but will reassess this once the clinical programme initiates. For a full overview of our valuation, please see our report Near-term data to define long-term strategy.

Exhibit 2: Financial summary

€'000s

2016

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

10,311

8,144

42,919

9,246

6,712

Cost of Sales

0

0

0

0

0

Gross Profit

10,311

8,144

42,919

9,246

6,712

R&D expenses

(26,419)

(30,359)

(27,349)

(24,614)

(24,860)

G&A expenses

(6,236)

(5,674)

(6,991)

(7,061)

(7,132)

EBITDA

 

 

(20,397)

(26,352)

9,101

(21,054)

(23,896)

Operating Profit (before amort. and except).

 

(22,514)

(28,043)

7,368

(22,375)

(25,228)

Intangible Amortisation

(150)

0

0

(54)

(52)

Exceptionals (restructuring costs/discontinued operations)

(1,024)

0

0

0

0

Operating Profit

(23,688)

(28,043)

7,368

(22,429)

(25,279)

Other

0

0

0

0

0

Net Interest

(602)

(2,287)

(2,017)

(3,860)

(3,475)

Profit Before Tax (norm)

 

 

(23,116)

(35,048)

(36,786)

(26,235)

(28,703)

Profit Before Tax (IFRS)

 

 

(24,290)

(30,330)

5,351

(26,289)

(28,754)

Tax

0

0

0

0

0

Minority interest

(917)

(1,944)

2,675

0

0

Profit After Tax (norm)

(25,616)

(32,961)

(27,809)

(26,235)

(28,703)

Profit After Tax (IFRS)

(25,207)

(32,274)

8,026

(26,289)

(28,754)

Average Number of Shares Outstanding (m)

56.0

62.1

62.3

62.3

62.3

EPS - normalised (c)

 

 

(45.7)

(53.1)

(44.7)

(42.1)

(0.46)

EPS - IFRS (€)

 

 

(0.45)

(0.52)

0.13

(0.42)

(0.46)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

48,895

42,137

78,789

78,887

79,049

Intangible Assets

423

250

180

172

168

Tangible Assets

14,580

13,604

13,217

13,322

13,488

Other

33,892

28,283

65,392

65,392

65,392

Current Assets

 

 

74,055

58,736

29,754

22,382

26,241

Stocks

221

270

443

443

443

Debtors

2,385

2,564

784

3,546

2,575

Cash

56,207

41,405

16,900

6,766

11,596

Other

15,242

14,497

11,627

11,627

11,627

Current Liabilities

 

 

(19,919)

(16,866)

(19,537)

(13,037)

(9,327)

Creditors

(4,504)

(2,868)

(4,791)

(2,461)

(2,486)

Short term borrowings

0

0

0

0

0

Short term leases

(10,198)

(10,283)

(11,207)

(7,037)

(3,302)

Other

(5,217)

(3,715)

(3,539)

(3,539)

(3,539)

Long Term Liabilities

 

 

(56,528)

(55,918)

(52,305)

(71,590)

(100,934)

Long term borrowings

0

0

(10,000)

(20,000)

(50,000)

Long term leases

(52,803)

(51,717)

(38,369)

(47,654)

(46,998)

Other long term liabilities

(3,725)

(4,201)

(3,936)

(3,936)

(3,936)

Net Assets

 

 

46,503

28,089

36,701

16,642

(4,971)

CASH FLOW

Operating Cash Flow

 

 

(34,187)

(37,657)

(30,398)

(29,524)

(25,879)

Net Interest

602

2,287

2,017

(4,170)

(3,735)

Tax

0

0

0

0

0

Capex

(47)

(462)

(1,404)

(1,473)

(1,546)

Acquisitions/disposals

0

0

0

0

0

Financing

45,080

13,272

0

0

0

Dividends

0

0

0

0

0

Other

4,561

8,935

5,702

5,749

6,646

Net Cash Flow

16,009

(13,625)

(24,083)

(29,419)

(24,513)

Opening net debt/(cash)

 

 

22,147

6,794

20,595

42,676

67,925

HP finance leases initiated

(427)

(120)

2,033

4,170

3,735

Other

(229)

(56)

(31)

(0)

0

Closing net debt/(cash)

 

 

6,794

20,595

42,676

67,925

88,704

Source: Transgene accounts, Edison Investment Research

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This report has been commissioned by Transgene and prepared and issued by Edison, in consideration of a fee payable by Transgene. 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.

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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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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