Destroying dangerous sexual viruses

Genticel 4 January 2016 Initiation

Genticel

Destroying dangerous sexual viruses

Initiation of coverage

Pharma & biotech

4 January 2016

Price

€6.68

Market cap

€104m

1.14 €/US$

Cash and equivalents (€m) at 30 September 2015

21.5

Shares in issue

15.52m

Free float

45%

Code

GTCL

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.7

4.4

19.1

Rel (local)

14.3

0.5

9.2

52-week high/low

€8.77

€5.68

Business description

Genticel is developing a therapeutic vaccine, GTL001, to treat early-stage, high-risk HPV 16 and 18 infections. Phase II data are due in Q116 and could lead to a deal. A multivalent therapeutic vaccine, GTL002 (using Vaxiclase technology), has shown proof of concept in late preclinical testing. Genticel is based in Toulouse and Paris.

Next events

Phase II data

Q116

FY15 results

March 2016

Analysts

John Savin PhD

+44 (0)20 3077 5735

Christian Glennie

+44 (0)20 3077 5727

Genticel is a research client of Edison Investment Research Limited

Genticel develops therapeutic vaccines to treat early-stage human papillomavirus 16 and 18 (HPV 16 and 18) infections. Currently, there are no therapeutic options for infected women who remain at risk of progressing to high-risk, pre-cancerous cervical lesions requiring surgery; HPV 16 and 18 cause about 70% of cervical cancer. GTL001 Phase II data are due in Q116. A statistically significant outcome could lead to a major deal. Genticel is funded into 2017, with Q315 cash of €21.5m.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

0.00

(10.66)

(77.0)

0.0

N/A

N/A

12/15e

0.09

(11.44)

(73.7)

0.0

N/A

N/A

12/16e

0.00

(8.96)

(57.7)

0.0

N/A

N/A

12/17e

0.00

(6.56)

(42.1)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. The IPO was in Q214.

Specifically targeting HPV

GTL001 (formerly ProCervix) uses CyA technology from Institut Pasteur. CyA is based on a whooping cough protein and aims to activate a specific T-Cell immune response to destroy cervical cells infected with either HPV 16 or 18. GTL001, when effective, is expected to give lasting immunity. A multivalent vaccine, GTL002, uses an improved proprietary CyA platform (Vaxiclase) to give wider HPV coverage. GTL002 could enter trials in 2017 and has reported good preclinical data.

GTL001 Phase II data due Q116; US trials underway

The double-blind, placebo-controlled Phase II study enrolled 239 patients ahead of schedule. Patients were over 25 with HPV 16 and 18 infections and no or low-risk cytology. The 12-month primary endpoint is viral clearance on molecular testing with a 40% relative rise in the clearance rate over the natural (placebo) rate (for example 70% vs 50%). Phase III is planned to be partner managed and funded. A US 20-patient safety Phase I for GTL001 started in October 2015.

Market need: Many infections, no therapeutic options

Genticel aims to treat and immunise the many infected women who missed teenage prophylactic HPV vaccination. Women over 35 with a persistent infection have a higher risk of cervical cancer. Screening of women aged 25+ for HPV 16 and 18 using molecular diagnostics (FDA-approved in 2014) will now detect twice as many HPV primary infections. Current prophylactic vaccination will gradually reduce the at-risk population, but take-up is variable between and within countries.

Valuation: Phase II data in Q116 could drive value

GTL001 sales might start from 2021 following a partnering deal signed from Q416 onwards; a 15% royalty is assumed. On a Phase II probability of 45%, we estimate a risk-adjusted indicative value of about €139m, or €8.93 per share before dilution (€8.19 fully diluted). If GTL001 progresses to a 65% Phase III probability in Q116, the value would rise to €198m, or about €12.80/share before dilution.

Investment summary

Company description: Gentle therapy, dangerous viruses

Genticel has two products: GTL001 and GTL002. GTL001 is in Phase II to treat HPV 16 or 18 infected women with either no or only low-grade cervical abnormalities. Infected women are at risk of progressing to high-risk, pre-cancerous cervical lesions requiring surgery. After GTL001 Phase II data (due in Q116), Genticel aims to find a partner to run the Phase III studies and market globally, potentially from 2021. GTL002, in preclinical, will expand the market by treating up to six HPV types including HPV 16 and 18. GTL001 was developed using CyA vaccine technology licensed from Institut Pasteur in 2002; GTL002 uses enhanced CyA technology (Vaxiclase). Genticel was founded by the CEO, Benedikt Timmerman in 2001. It is based in Toulouse in southern France, with offices in Paris. It completed its Euronext IPO in April 2014 at €7.90/share, raising €34.5m gross.

Valuation: Phase II data critical to value progression

On a Phase II probability of 45%, we estimate a risk-adjusted indicative value of about €139m, or €8.93 per share before dilution (€8.19 fully diluted). If GTL001 progresses to a 65% Phase III probability in Q116, the value would rise to €198m, or about €12.80/share before dilution or €11.70 if fully diluted by 1.4m options. Note that Phase III needs either a deal or funding to raise the required cash. Genticel has enough cash until 2017 before any partnering upfront fees. There is a royalty and deal fee share to the Pasteur, which is undisclosed and which we assume to be 5%. This valuation is based on the current two projects and a 2017 partnering deal (currently set by Edison at 60% probability). It is assumed that GTL002 is included in the deal with development funding.

Financials: French tax credits boost cash

On 30 September, cash was €21.5m. In H215, Genticel will receive a tax credit cash payment of €2.6m in respect of 2014; in France, companies get good tax refunds on R&D investments. Our forecast cash outflow in 2015 is about €12.2m. The expected 2015 tax credit of €3.5m cuts the forecast 2015 loss to about €11.4m, this credit will be received in 2016. Losses should reduce in 2016 as the GTL001 Phase II enters its follow-up phase. A partner is expected to fund the GTL001 Phase III studies from 2017. Genticel has previously benefited from subsidies and financial advances from government. Two advances totalling €1.73m are now being repaid up to 2017.

Sensitivities: Evolving markets and clinical risks

2014 prophylactic HPV vaccine sales were $2bn, showing the demand for treatments to manage HPV infections. GTL001 could develop a strong new market as an ‘active’ therapeutic vaccine that proves to be more socially acceptable than the prophylactic HPV vaccination of teenage girls. This could enable a premium price, depending on good clinical performance. GTL002 will expand the market further. The immediate sensitivity is the GTL001 Phase II outcome. A statistically significant result in Q116 would facilitate a good-quality, valuable deal. The risk comes from the uncertainties around the positive but limited Phase I viral clearance data and the placebo rate, thought to be up to 50%. The GTL001 Phase II uses a diagnostic-based viral clearance endpoint. The Phase III will use a clinical endpoint, probably based on reducing the incidence of higher-grade lesions. Phase II is therefore indicative of the Phase III outcome, but not necessarily predictive. This strategy is similar to the development route used to gain approval of prophylactic vaccines. The changing and dynamic market provides the other key uncertainty. The 25-29 age cohort is 12% of the 25-64 age range eligible for molecular testing, but accounts for 44% of HPV prevalence in this age range. The HPV prevalence in this cohort will gradually be reduced by prophylactic vaccination. Treatment guidelines after GTL001 approval will need revising and then adoption, which can take time.

Company description: Gentle therapies, risky viruses

Genticel develops therapeutic vaccines against high-risk HPV infections (types 16 and 18), Exhibit 1.1 These two viruses cause 70% of cervical cancer. Terminology is defined in Exhibit 2. The products are based on CyA technology exclusively licensed to Genticel from Institut Pasteur, a world-leading vaccine research centre. The lead product, GTL001, is in a large Phase II, due to report in Q116. The follow-on product, GTL002, uses an enhanced CyA technology (Vaxiclase) to extend the coverage to six HPV types to expand the potential market; these six viruses cause about 85% of cervical cancer cases. The products are targeted at patients who have either no observed cellular abnormalities on the cervix or only low-grade abnormalities.

In a very few cases, about 0.3%, no HPV is detected but this probably reflects diagnostic test problems.

Exhibit 1: Genticel’s product portfolio

Product

HPV types

Status

Potential launch

Other

GTL001

16 and 18

Phase II

2021

Partnering in 2017 assumed.

GTL002

16 and 18 and four other HPV types

Late preclinical

2026

Assume to be bundled with GTL001.

Source: Edison Investment Research based on Genticel announcements

Exhibit 2: Terminology for precancerous cervical abnormalities

Term: US
(European)

Definition and notes

Liquid-based cytology

LBC accounts for 90% of screening tests done in the US as it is easier and gives better results. In the US, it is often cited that 50m cytology tests are run every year.2 A brush is used to collect cells from the cervix. It replaced the old ‘pap’ smear test where the cervix was physically scraped. Results are reported as LSIL or HSIL. Analysis is done in centralised laboratories. It is often now combined with an HPV DNA test. A US study showed that LBC was more sensitive than the conventional pap test (Gibb and Martens 2011).

This figure is widely used without any source being cited. It appears to date from the 1990s.

Bethesda system

This is the basis of clinical characterisation. It was adopted in 1991 and covers ASCUS, LSIL and HSIL. It replaced old CIN terminology, although CIN categories (I, 2 and 3) are still reported in relation to histology (microscopic) examination of biopsy samples.

Colposcopy

This is an outpatient procedure where the cervix is visually examined and samples taken of identified lesions. This can characterise LSIL, HSIL and ICC if found. However, it is a poor screening method. It can stage lesions to CIN 1, 2 and 3 grades.

ASCUS
(borderline)

Atypical squamous cells of undetermined significance. In other words, the squamous cells on the surface of the cervix are abnormal and might be a sign of a lesion. An initial cytology finding of ASCUS should be followed up as LSIL or HSIL might be diagnosed on further testing or colposcopy: in the 2001 ALTS trial, 5.1% of ASCUS cases were CIN3. In the US, there are stated to be 2m ASCUS diagnoses per year. Most clear naturally. Molecular testing can find more cases than LBC alone. In Europe, ASCUS is called borderline dyskaryosis.

LSIL
(mild)

Low-grade squamous intraepithelial lesion is the next disease stage after ASCUS. This includes CIN1. LSIL is different to ASCUS as the cells are abnormal and the lesion is growing into the cervix (‘intraepithelial’); In Europe, LSIL is called mild dyskaryosis. Cases with HPV 16 or 18 under US guidelines should be referred for colposcopy. Other cases are rescreened after a year under US guidelines.

HSIL
(moderate and severe)

High-grade squamous intraepithelial lesion covers CIN2 or CIN3 in the old terminology and is a clear and dangerous precancerous lesion growing into the cervix. CIN2 is hard to define as it looks worse than CIN1 but not yet CIN3. Depending on the clinical assessment by colposcopy, CIN3 lesions will be surgically removed. Surgery (localised) is curative and the rate of reoccurrence and progression to cervical cancer is similar to the general population. Surgery does carry some risks but more importantly can damage the cervix and, by weakening it, can lead to complications in pregnancy. In Europe, HSIL is defined as moderate (CIN2) or severe (CIN3) dyskaryosis.

Cervical Intraepithelial neoplasia (CIN)

Much literature on HPV progression uses the CIN terminology: an old three-stage categorisation system based on colposcopy and evaluation of biopsy samples. CIN1 is the lowest grade with a cited 12-16% chance of progression. The mid-grade of CIN2 is not clinically distinct from CIN3. CIN3 will normally be treated with surgery as there is a 20% chance of progression to cancer.

Molecular analysis

Molecular tests use a vaginal swab sample to detect HPV and can, depending on test type and cost, define the strain present. HPV is a double-stranded DNA virus so these tests are robust. The Roche cobas 4800 system is a leading system using PCR (polymerase chain reaction), a proven technology. In 2014, Roche gained the first FDA approval for primary screening for women over 25 on the basis of the ATHENA trial. Other tests (Hybrid Capture 2) have been approved since 2003 but only for co-testing after cytology. Prior to the ATHENA study, molecular tests were seen as a way to triage cytology tests like LBC. However, co-testing does not offer much diagnostic advantage in finding higher-grade lesions. ATHENA showed that molecular detection of HPV 16 and 18 from 25 years old finds 54% more, rare, CIN3 cases but doubles the number of colposcopies needed. These findings are still being debated and incorporated into interim guidelines. HPV testing in Europe is still inconsistent (Leeson et al 2013) with some counties (like Ireland) just introducing HPV triage.

Invasive cervical cancer (ICC)

This is outright cancer. If detected when still localised, it can be surgically removed but with possible fertility implications for younger women. It might, being an ‘invisible’ cancer, have metastasised. Most deaths from cervical cancer in western healthcare arise due to failure to participate in screening or early occurrence in young women who are not normally screened with late-stage detection.

Term: US
(European)

Liquid-based cytology

Bethesda system

Colposcopy

ASCUS
(borderline)

LSIL
(mild)

HSIL
(moderate and severe)

Cervical Intraepithelial neoplasia (CIN)

Molecular analysis

Invasive cervical cancer (ICC)

Definition and notes

LBC accounts for 90% of screening tests done in the US as it is easier and gives better results. In the US, it is often cited that 50m cytology tests are run every year.2 A brush is used to collect cells from the cervix. It replaced the old ‘pap’ smear test where the cervix was physically scraped. Results are reported as LSIL or HSIL. Analysis is done in centralised laboratories. It is often now combined with an HPV DNA test. A US study showed that LBC was more sensitive than the conventional pap test (Gibb and Martens 2011).

This figure is widely used without any source being cited. It appears to date from the 1990s.

This is the basis of clinical characterisation. It was adopted in 1991 and covers ASCUS, LSIL and HSIL. It replaced old CIN terminology, although CIN categories (I, 2 and 3) are still reported in relation to histology (microscopic) examination of biopsy samples.

This is an outpatient procedure where the cervix is visually examined and samples taken of identified lesions. This can characterise LSIL, HSIL and ICC if found. However, it is a poor screening method. It can stage lesions to CIN 1, 2 and 3 grades.

Atypical squamous cells of undetermined significance. In other words, the squamous cells on the surface of the cervix are abnormal and might be a sign of a lesion. An initial cytology finding of ASCUS should be followed up as LSIL or HSIL might be diagnosed on further testing or colposcopy: in the 2001 ALTS trial, 5.1% of ASCUS cases were CIN3. In the US, there are stated to be 2m ASCUS diagnoses per year. Most clear naturally. Molecular testing can find more cases than LBC alone. In Europe, ASCUS is called borderline dyskaryosis.

Low-grade squamous intraepithelial lesion is the next disease stage after ASCUS. This includes CIN1. LSIL is different to ASCUS as the cells are abnormal and the lesion is growing into the cervix (‘intraepithelial’); In Europe, LSIL is called mild dyskaryosis. Cases with HPV 16 or 18 under US guidelines should be referred for colposcopy. Other cases are rescreened after a year under US guidelines.

High-grade squamous intraepithelial lesion covers CIN2 or CIN3 in the old terminology and is a clear and dangerous precancerous lesion growing into the cervix. CIN2 is hard to define as it looks worse than CIN1 but not yet CIN3. Depending on the clinical assessment by colposcopy, CIN3 lesions will be surgically removed. Surgery (localised) is curative and the rate of reoccurrence and progression to cervical cancer is similar to the general population. Surgery does carry some risks but more importantly can damage the cervix and, by weakening it, can lead to complications in pregnancy. In Europe, HSIL is defined as moderate (CIN2) or severe (CIN3) dyskaryosis.

Much literature on HPV progression uses the CIN terminology: an old three-stage categorisation system based on colposcopy and evaluation of biopsy samples. CIN1 is the lowest grade with a cited 12-16% chance of progression. The mid-grade of CIN2 is not clinically distinct from CIN3. CIN3 will normally be treated with surgery as there is a 20% chance of progression to cancer.

Molecular tests use a vaginal swab sample to detect HPV and can, depending on test type and cost, define the strain present. HPV is a double-stranded DNA virus so these tests are robust. The Roche cobas 4800 system is a leading system using PCR (polymerase chain reaction), a proven technology. In 2014, Roche gained the first FDA approval for primary screening for women over 25 on the basis of the ATHENA trial. Other tests (Hybrid Capture 2) have been approved since 2003 but only for co-testing after cytology. Prior to the ATHENA study, molecular tests were seen as a way to triage cytology tests like LBC. However, co-testing does not offer much diagnostic advantage in finding higher-grade lesions. ATHENA showed that molecular detection of HPV 16 and 18 from 25 years old finds 54% more, rare, CIN3 cases but doubles the number of colposcopies needed. These findings are still being debated and incorporated into interim guidelines. HPV testing in Europe is still inconsistent (Leeson et al 2013) with some counties (like Ireland) just introducing HPV triage.

This is outright cancer. If detected when still localised, it can be surgically removed but with possible fertility implications for younger women. It might, being an ‘invisible’ cancer, have metastasised. Most deaths from cervical cancer in western healthcare arise due to failure to participate in screening or early occurrence in young women who are not normally screened with late-stage detection.

Source: Edison Investment Research

Human papillomavirus: HPV

All invasive cervical cancer (ICC) is caused by HPV, a sexually transmitted infection. The two HPV types causing 77% of cervical cancer in the US and 74% in the EU are HPV 16 (most dangerous, 55% US, 58% EU) and HPV 18 (22% US, 16% EU) see Bosch 2008 and CDC 2014. For the US, the SEER estimate is for 12,900 women diagnosed with cervical cancer and 4,092 deaths. The five-year survival rate is 67.8%. In the EU, the incidence is 33,335 with 12,996 deaths. Rates vary widely between EU members, see EUCAN. For example, in France, (66 million population) with its sophisticated healthcare, there were 2,862 cases and 1,167 deaths.

Studies (Rositch 2013) show that persistent high-risk HPV infections lead to a higher risk of developing precancerous cervical abnormalities (lesions) with a risk of ICC. In women aged 27 or under, the weighted median HPV 16 infection period was just under 12 months. Insinga (2011) found over 36 months that 9.3% of HPV 16 +ve cases developed high-risk CIN2/3 but 67% of women naturally cleared the virus, Exhibit 3. HPV 16 CIN1 cases had more persistent infections with a 27% 12-month clearance rate and 7% progression.

Exhibit 3: HPV 16 infection progression in women 27 or younger

Source: Insinga et al (2011), Edison Investment Research

Screening and cancer risks

There are no external symptoms of either HPV infection or of precancerous lesions. Consequently, screening was introduced (over 50 years ago) and there is now extensive medical literature. As a benchmark, England spends about £150m/€200m per year on cervical screening and follow-up treatments. This funds just over 3m tests per year. The current method uses cytology, microscopic examination of cells harvested from the cervix mostly now using LBC, Exhibit 2. HPV molecular testing has been routinely available for about 15 years and can be used to triage cytological abnormalities (co-testing) by identifying high-risk types, specifically HPV 16, 18 or others.

Primary HPV DNA screening without cytology is FDA approved using the Roche Cobas 4800, with HPV 16 and 18 specifically detected. Primary HPV testing has a high sensitivity (it finds 54% more CIN3+ cytological cases) but a low specificity (there are many more false positives). Exhibit 4 shows the association between cytology status and HPV 16 and 18. DNA screening requires twice the colposcopy capacity and a major restructuring of screening systems. The extent of the transition is unknowable and likely, in our view, to be faster in the US than the EU.

The market is likely to shift slowly towards direct HPV DNA screening to find more, rare CIN3 cases and away from cytology screening. This move is crucially important for GTL001 as its market is much smaller if cytology screening remains.

Most published studies were done as molecular testing was being introduced and evaluated, so detailed longitudinal studies use cytology as a primary screen with follow-up HPV testing. The change to primary HPV direct testing will take time to be implemented in standard medical practice. ARTISTIC: a long-running English longitudinal study started in 2001, in which a cohort of women aged 20-64 was tracked over three screening rounds. Nearly 90% of UK cytology tests are negative and only 1.6% of these have HPV 16 or 18 infections, although 8.8% overall have an HPV infection. This is similar to other reported figures. Most of these infections clear naturally. A 2005 review found about 4-5% of women screened by cytology had ASCUS, 2.5-3% had LSIL and 0.3-0.6% had HSIL.

Exhibit 4: Relationship between HPV 16 and 18 prevalence and cervical abnormalities

Source: ARTISTIC study data

The primary HPV screening suggested by the Roche ATHENA study, accepted by the FDA in mid-2014, refers HPV 16 and 18 infections directly to colposcopy (Exhibit 2) to stage any CIN abnormalities. However, to do this routinely, the colposcopy capacity of the healthcare system needs to at least double, as many more women will be examined. A systematic 2015 review of screening strategies to give guidance (Huh et al) identifies the risk of progression. Basically, the possibility of a high-risk lesion or ICC if a women has no HPV infection and normal cytology is tiny. 3 Rescreening after a negative test is now recommended no sooner than three years later and five years for women over 50, although the three-year interval is well embedded in medical practice.

When there is a negative HPV result, then between 0.07% and 0.34% of women will develop CIN3 or worse within three years. The NCI puts the risk of cancer within three years at 11 women per 100,000 if they tested HPV negative. Cytology alone is a worse predictor (as it finds fewer CIN3+ lesions) with 0.19-0.78% of negative cases developing cancer. This is a major reason to add HPV as a high-sensitivity negative screen.

Historically, women in the US have been screened every one to two years (Sirovich 2004). The US guidelines have been in a state of flux and the latest recommendations (from 2012 and partly updated in 2015) are that cytology screening is done every three years or every five years for women over 30 at low risk.4 Women with early-stage disease and HPV infection should be tracked more frequently. Any identified high-risk lesions are resected (removed) by one of several simple surgical treatments; all of these are curative.5

In the US, screening should start at 21 and is every three years on cytology alone and five years for co-testing (HPV and cytology) if both are negative and the woman is over 30. However, annual screening is embedded in the US healthcare system and there is no national programme. European countries have introduced, or plan to introduce HPV testing. For example, the NHS is slowly introducing HPV co-testing in England (but not in Wales), screening starts at 25 and is cytology based every three years. Ireland has just started to do HPV co-tests. In this system, an HPV test may be done if a cytological abnormality is detected.

Surgery increases the risk of cervical complications in pregnancy by 1.7 times; these are still low risk events.

In Europe, the guidelines vary from possible screening from 20 years old in Germany to 30 in Finland. Some European countries, like England, have systematic national screening.

The risk of a women with no detectable HPV and no or minor cellular abnormalities progressing to late-stage precancerous disease (CIN3+) is less than 1% after five years (see ACS-ASCCP-ASCP Screening Guidelines). The US NCI notes that 86.7 % of women with a positive HPV test did not develop cervical cancer or related premalignant disease after more than a decade of follow-up. However, HPV 16 and 18 infections carry a high risk of progression, Exhibit 4. This means that, on ATHENA data, for every 1,000 women with HPV 16, 117 will develop high-risk precancerous lesions at some time, but only three HPV -ve women will do so. This is a nearly fortyfold increase in risk.

Exhibit 5: Risk of developing CIN3+ based on HPV status

HPV type

Kaiser Permanente data*

ATHENA data**

HPV 16

17.2%

11.7% Bas

HPV 18

13.6%

5.7%

Other high-risk types

3.0%

2.4%

No HPV

0.8%

0.3%***

Source FDA review. Note: *10-year cumulative risk on study entry. **Absolute risk (three-year trial) for women aged 30 or over who had negative cytology but were HPV positive on entry. ***No HPV or cytology on entry.

HPV prevalence and the impact of vaccination

As outlined in the document de référence 2014 (annual report), Genticel’s management calculates a prevalence of 12 million HPV 16 or 18 cases in mature markets (defined as North America, EU, Korea, Australia and NZ and Japan. These countries have about 330 million women in the 20-64 age cohorts. Genticel has used a flat rate, age-independent prevalence of 3.5%, which is within published ranges for 15-64 year olds.6 Prophylactic vaccination is expected by management, based in market research, to cut the prevalence by 33% to eight million.

Numbers might be higher: the Hariri 2011 study reported an overall US HPV 16 prevalence of 4.7%: 3.8 million cases, but this was a small survey with self-sampling by respondents.

We have used age-specific cohort prevalence rates and limited the ages used to 25-64, as these will be identified by HPV screening even if no cytology is present. The HPV rate on average is therefore lower, about 2.8%, than in the overall population: typically about 3.5%. In addition, only leading European countries have been included, which reduces the market by about 50% relative to the overall EU. This is because these core markets have good epidemiological data, effective screening and have implemented prophylactic therapy, so are also likely to use GTL001 immunotherapy. We then make a 20% addition for sales in other European countries, Australia, New Zealand and Asia.

HPV infection peaks in women in their early 20s, then declines. Prevalence is a balance between the infection and natural clearance rates. In young women, infection is higher than clearance, but this switches by age 24 so prevalence drops. Few counties, the US being an exception, screen before 25 (HPV over 25). Infections in the over 25s are weighted to the 25-34 group; within that group they are heavily weighted 63:37 to the age 25-29 vs 30-34 age cohorts, Exhibits 6 and 7. (Note that the histograms use a different y-axis range and the x-axis data categories differ.)

Exhibit 6: UK HPV % prevalence

Exhibit 7: Canadian % HPV prevalence

Source: ARTISTIC. Note: These are detailed data from a large longitudinal UK study.

Source: Ogilvie 2013. Note: As a small study (4,334 individuals), numbers have wide confidence intervals.

Exhibit 6: UK HPV % prevalence

Source: ARTISTIC. Note: These are detailed data from a large longitudinal UK study.

Exhibit 7: Canadian % HPV prevalence

Source: Ogilvie 2013. Note: As a small study (4,334 individuals), numbers have wide confidence intervals.

The HPV 16 infection rate falls to 0.7% in the 45-64 age group. Information on infection and clearance is limited, but one very small UK study reported that 15-20% of older women became infected (any HPV type) over a three-year period, with about 80% clearing an infection.

Applied to current US and EU country demographics, we calculate that there may be 2.2m HPV infections in the US and 2.8m in accessible European countries, Exhibit 8. National prophylactic vaccination rates are a significant factor in modelling GTL001 sales.7 In many countries, it is hard to get all three prophylactic doses administered. There are often higher rates for one and two doses and this gives protection in more than 80% of cases (Kreimer et al 2015).

A major innovation in preventing these cancers was the introduction of two vaccines against HPV in 2006. Gardasil from Merck, the leading vaccine, with over 90% of the market, protects against HPV 16 and 18. Gardasil also protects against HPV 6 and 11, which cause genital warts. The latest version of Gardasil protects against nine HPV types, Cervarix from GSK protects only against HPV 16 and 18 and has a small market share; the major market was the UK, but this programme has switched to Gardasil (the English like to haggle over price). On economic grounds, girls are vaccinated in early puberty with at least a 10-year protective effect. Vaccines can be given to older women and men. However, the economics of vaccinating men are very unfavourable, although this does happen, especially in the US: Gardasil also protects against genital warts.

Exhibit 8: HPV 16 and 18 infections by patient and age in US and key European states

Source: ARTISTIC data, Eurostat and US census data, Edison Investment Research

The current European national positions vary. After a slow start, a European Centre for Disease Prevention and Control survey found 2012 vaccination rates of 50-84%, but only the UK and Portugal achieved ±80% with three doses, the recommended full schedule (the UK vaccinates girls at school); Germany was 49% at three doses plus 11% with one or two despite free, on-demand vaccination; France achieves 39% for the full course with 58% getting at least one dose (45% of the cost is paid by the individual); and Italy is at about 50%. Our population-weighted average calculation indicates that more than 60% of girls now receive at least one dose at the present time.

The US started vaccinating in 2006 and by 2010 coverage of the full three-dose vaccine course was reported as 32%. In 2014, Centre for Disease Control data showed that 60% of girls received at least one dose, with about 40% getting all three. The US also vaccinates 21% of boys.

Vaccination is also being implemented in women who missed initial prophylactic vaccination as they enter screening. Rates for this are not clear as only 10 EU states have such programmes in place, but Denmark, as a leader, is reported to have achieved an 81% coverage.

The commercially crucial 25-34 age cohort is 12% of the EU and US target age range and accounts for 42% of HPV infections. From 2020, this age cohort will be increasingly protected by vaccination. For example, in the UK about 80% of girls are vaccinated at 12-13 years old; a 2013 report showed a fall in HPV prevalence from 19.1% to 6.5% once 65% of young women had been vaccinated.

We have developed a simple model of vaccination levels by year and age cohort. This indicates that in 2021, about 7% of women aged 25-29 might have been vaccinated in their early teens. The rate of 25-29 cohort vaccination rises to 60% by 2029. Vaccination has impacts in the next cohort, 30-34 years of age, from 2024 at 1% increasing to 58% by the end of the 2032 when the detailed US forecast period ends. Vaccinated women enter the 35-39 age cohort from 2029. The maximum vaccination rate assumed is 60% of any age cohort. The model additionally takes account of women vaccinated by GTL001 as it is assumed that this gives lasting protection. It also assumed that catch-up vaccination does not become widespread.

CyA Technology

Genticel’s core CyA technology arises from research at the French CNRS 8 and the Institut Pasteur into the bacteria (Bordetella pertussis) that causes whooping cough, Exhibit 9. There is an undisclosed royalty rate to Institut Pasteur. We assume this to be 5% [company asked to at least state not unhappy] running until 2030 on the basis of 10 years from market entry.

Centre National de Recherche Scientifique.

Exhibit 9: CyA technology briefing

Aspect

Comments

What is CyA?

Bordetella pertussis protects itself from destruction by the immune system by producing a toxin: adenylate cyclase (CyA). This is secreted into lung fluid where it binds to a protein (integrin) on the surface of white immune cells. Once bound, CyA inserts directly into the cell, effectively it ‘wriggles’ in through the oily cell membrane. The process of cell entry is very fast and happens within minutes.

What does CyA do?

Inside the cell, the bacterial CyA toxin is activated by a common white cell signalling protein (calmodulin), where it disrupts the energy metabolism of the cell thereby killing it. As calmodulin is not found in bacteria, this means that CyA is not toxic to Bordetella pertussis.

How does CyA toxin kill cells?

Adenylate cyclase enzymes break down the chemical energy source in the cell: Adenosine triphosphate (ATP), ATP is converted to cyclic Adenosine monophosphate (cAMP). Cells require a high level of ATP to function so this is very disruptive. Cyclic AMP is also a tightly regulated messenger so CyA may also disrupt normal cell functionality.

Why is engineered CyA safe?

The toxic enzyme activity is completely removed in the engineered form of CyA, which is only used to deliver antigens. Immune cells are unharmed by the engineered protein. CyA is an excellent delivery vehicle as it enters cells quickly and without damaging them.

How are antigens delivered?

Clever protein engineering has enabled Genticel and its research collaborators to remove the toxic enzyme activity of CyA and replace it with a 100 amino acid section of the oncogenic E7 protein from human papillomavirus. This means the Genticel product is not toxic but is capable of rapidly delivering the E7 antigen to white cells. Antigens are delivered to the cell cytosol, which enables T-cell activation.

What antigens are given in GTL001

The E7 proteins in HPV 16 and HPV 18, the two common types of oncogenic viral infection, have different amino acid sequences. As CyA can only take one version, GTL001 contains separate CyA versions for HPV 16 and HPV 18; that is one dose contains two different proteins.

What are E7 proteins?

All HPV types produce a form of protein E7, which binds to the human cell cycle regulatory protein Retinoblastoma (Rb). This enables the virus to replicate itself. In the oncolytic strains HPV 16 and HPV 18, the E7 proteins are more dangerous as they bind very tightly to Rb. When the Rb growth control system is disabled by E7 (and by another protein E6), cervical cells can mutate to become precancerous and transform into cancer tissue. Fortunately, the transformation into cancer can take decades, although in some rare but very tragic cases, the process seems to occur very rapidly; such women are usually too young to have been screened so might be diagnosed with late-stage ICC

How is Vaxiclase technology different?

Vaxiclase is a new technology that overcomes the limitation of current CyA that only one antigen per CyA protein can be delivered. More variants of CyA could be produced but that is expensive. Vaxiclase uses a next-generation CyA protein to enable three 100 amino acid peptides to be incorporated. In a vaccine with two CyA variants, this, in preclinical, allows six HPV types to be targeted.

Why does CyA have a major advantage?

The aim of GTL001 is to stimulate the natural T-cell immune response to enable the immune system to recognise, target and destroy HPV-infected cells. CyA delivers E7 fragments to the cytosol of immune system antigen presenting cells. These cells then ‘programme’ new killer T-cells to recognise E7 proteins. The Major Histocompatibility Complex I (MHCI) displays fragments of proteins found within the cell including any viral ones if infected. Cervical cells infected by HPV display E7 protein fragments in MHCI so should be destroyed. In most women, this process happens naturally and the infection is cleared. However, the immune system can adapt to tolerate such abnormal proteins and treat then as ‘self’; this is the general, common problem that all immune therapies aim to overcome.

Patents and agreements

A co-patent covering GLT001 is jointly owned with Institut Pasteur with a priority date of 2004. It is granted in Europe and runs to 2042, although a patent extension could be applied for. The US filing date was September 2006; this patent, US 8,628,779 B2 was granted in 2014 and expires in 2028 (including a 1,147-day extension). In 2002, Genticel acquired the exclusive licence to CyA technology from Institut Pasteur, this agreement was extended in 2008 and again in 2010 and covers five technology patent families plus the co-patent on GTL001. A royalty (undisclosed) is payable on deal payments and on sales or royalties received. The agreement runs for longer of:

either the expiry of the last patent in the last country where it remained in force (2027, management statements based on GLT001); or

10 years after the first marketing country by country – for a 2021 launch, this would be late 2030-31.

Further patents filed exclusively by Genticel are still at the application stage in the EU and US, among other countries.

The patent on the Vaxiclase platform used for GTL002 is owned by Genticel and was filed in 2012. It is in process and not yet granted.

How is CyA different to other vaccines?

Many vaccine strategies, like the prophylactic vaccines, deliver antigens by endocytosis so they are processed inside sealed compartments for MHCII display. This route is good for generating an antibody response. This is excellent at preventing infection, but no good at destroying infected cervical cells. CyA can also generate an immune memory, but the extent needs to be clinically determined.

Aspect

What is CyA?

What does CyA do?

How does CyA toxin kill cells?

Why is engineered CyA safe?

How are antigens delivered?

What antigens are given in GTL001

What are E7 proteins?

How is Vaxiclase technology different?

Why does CyA have a major advantage?

Patents and agreements

How is CyA different to other vaccines?

Comments

Bordetella pertussis protects itself from destruction by the immune system by producing a toxin: adenylate cyclase (CyA). This is secreted into lung fluid where it binds to a protein (integrin) on the surface of white immune cells. Once bound, CyA inserts directly into the cell, effectively it ‘wriggles’ in through the oily cell membrane. The process of cell entry is very fast and happens within minutes.

Inside the cell, the bacterial CyA toxin is activated by a common white cell signalling protein (calmodulin), where it disrupts the energy metabolism of the cell thereby killing it. As calmodulin is not found in bacteria, this means that CyA is not toxic to Bordetella pertussis.

Adenylate cyclase enzymes break down the chemical energy source in the cell: Adenosine triphosphate (ATP), ATP is converted to cyclic Adenosine monophosphate (cAMP). Cells require a high level of ATP to function so this is very disruptive. Cyclic AMP is also a tightly regulated messenger so CyA may also disrupt normal cell functionality.

The toxic enzyme activity is completely removed in the engineered form of CyA, which is only used to deliver antigens. Immune cells are unharmed by the engineered protein. CyA is an excellent delivery vehicle as it enters cells quickly and without damaging them.

Clever protein engineering has enabled Genticel and its research collaborators to remove the toxic enzyme activity of CyA and replace it with a 100 amino acid section of the oncogenic E7 protein from human papillomavirus. This means the Genticel product is not toxic but is capable of rapidly delivering the E7 antigen to white cells. Antigens are delivered to the cell cytosol, which enables T-cell activation.

The E7 proteins in HPV 16 and HPV 18, the two common types of oncogenic viral infection, have different amino acid sequences. As CyA can only take one version, GTL001 contains separate CyA versions for HPV 16 and HPV 18; that is one dose contains two different proteins.

All HPV types produce a form of protein E7, which binds to the human cell cycle regulatory protein Retinoblastoma (Rb). This enables the virus to replicate itself. In the oncolytic strains HPV 16 and HPV 18, the E7 proteins are more dangerous as they bind very tightly to Rb. When the Rb growth control system is disabled by E7 (and by another protein E6), cervical cells can mutate to become precancerous and transform into cancer tissue. Fortunately, the transformation into cancer can take decades, although in some rare but very tragic cases, the process seems to occur very rapidly; such women are usually too young to have been screened so might be diagnosed with late-stage ICC

Vaxiclase is a new technology that overcomes the limitation of current CyA that only one antigen per CyA protein can be delivered. More variants of CyA could be produced but that is expensive. Vaxiclase uses a next-generation CyA protein to enable three 100 amino acid peptides to be incorporated. In a vaccine with two CyA variants, this, in preclinical, allows six HPV types to be targeted.

The aim of GTL001 is to stimulate the natural T-cell immune response to enable the immune system to recognise, target and destroy HPV-infected cells. CyA delivers E7 fragments to the cytosol of immune system antigen presenting cells. These cells then ‘programme’ new killer T-cells to recognise E7 proteins. The Major Histocompatibility Complex I (MHCI) displays fragments of proteins found within the cell including any viral ones if infected. Cervical cells infected by HPV display E7 protein fragments in MHCI so should be destroyed. In most women, this process happens naturally and the infection is cleared. However, the immune system can adapt to tolerate such abnormal proteins and treat then as ‘self’; this is the general, common problem that all immune therapies aim to overcome.

A co-patent covering GLT001 is jointly owned with Institut Pasteur with a priority date of 2004. It is granted in Europe and runs to 2042, although a patent extension could be applied for. The US filing date was September 2006; this patent, US 8,628,779 B2 was granted in 2014 and expires in 2028 (including a 1,147-day extension). In 2002, Genticel acquired the exclusive licence to CyA technology from Institut Pasteur, this agreement was extended in 2008 and again in 2010 and covers five technology patent families plus the co-patent on GTL001. A royalty (undisclosed) is payable on deal payments and on sales or royalties received. The agreement runs for longer of:

either the expiry of the last patent in the last country where it remained in force (2027, management statements based on GLT001); or

10 years after the first marketing country by country – for a 2021 launch, this would be late 2030-31.

Further patents filed exclusively by Genticel are still at the application stage in the EU and US, among other countries.

The patent on the Vaxiclase platform used for GTL002 is owned by Genticel and was filed in 2012. It is in process and not yet granted.

Many vaccine strategies, like the prophylactic vaccines, deliver antigens by endocytosis so they are processed inside sealed compartments for MHCII display. This route is good for generating an antibody response. This is excellent at preventing infection, but no good at destroying infected cervical cells. CyA can also generate an immune memory, but the extent needs to be clinically determined.

Source: Edison Investment Research based on Genticel disclosures and general background science sources

GTL001 – developing the product

GLT001 consists of two recombinant adenylate cyclase (CyaA) proteins, CyaA-HPV 16E7 and CyaA-HPV 18E7 in a 50/50 ratio. GTL001 is given with a cream containing 5% imiquimod as an adjuvant rubbed onto the injection site.9 The Phase I, reported in October 2012, Exhibit 10. The GTL001 Phase II study (NCT01957878) completed recruitment four months ahead of schedule in November 2014. The trial recruited 239 patients across through 39 centres in seven countries; this is expected to give 100+ patients per arm. Enrolled subjects are healthy women between 25 and 50 who have HPV 16 and/or HPV 18 infection. They either have normal cytology, ASCUS or LSIL. Patients received two injections of GTL001 or placebo eight weeks apart plus imiquimod cream. Management reports that compliance with this dosing regimen was very high.

Imiquimod is a generic small molecule used in its own right to stimulate T-cells (Schön 2007). It was approved in 1997 to treat genital warts. One brand name is Aldara. Imiquimod potentiates the immune response to the vaccine. In the Phase I, it was rubbed onto the injection site 15 minutes and 24 hours after the GTL001 injection.

Exhibit 10: Phase I design and data

Aspect

Comments

Size and design

This was a 47-patient, safety study.

Safety cohorts

The initial 100µg dose in five patients was increased to 600µg in a further five (open label). There was no dose-limiting toxicity noted.

Dose

The 600µg dose was given double blind to 28 patients randomised to one treated (14) and two control groups (seven each). This tested GTL001 and placebo with and without the imiquimod adjuvant over 17 months. There was an additional double-dose, nine-patient, open-label group.

Clearance rate

Across all groups, Genticel found evidence of viral clearance only if imiquimod was used. After 17 months across both the open-label and double-blind groups (cohorts 1,2 and 3), Cohort 1 was a low dose so using this as evidence of efficacy is tentative. Cohort 2 was also open label. It was observed that 74% of the treated patients (presumably 17/23 assessed) cleared virus relative to three (43%) of the seven patients in a placebo plus imiquimod group. This was not designed to show any statistical efficacy.10 Patients were aged between 18 and 45 so may have included younger women than in the current Phase II. A US Phase I safety study is planned to start in H215.

The two open-label cohorts and the double-blind group contained 38 patients, of whom 37 were presumably followed for 17 months. Of this entire group, 20 cleared virus (54%, 20/37) of which 17 had received GLT001 (including five at the low 100mcg dose tested) plus imiquimod. Presumably, none of the seven patients given GLT001 without imiquimod cleared virus, probably a small number chance effect but odd. It is also curious that the specific data set for the placebo-controlled group only has not been disclosed.

Aspect

Size and design

Safety cohorts

Dose

Clearance rate

Comments

This was a 47-patient, safety study.

The initial 100µg dose in five patients was increased to 600µg in a further five (open label). There was no dose-limiting toxicity noted.

The 600µg dose was given double blind to 28 patients randomised to one treated (14) and two control groups (seven each). This tested GTL001 and placebo with and without the imiquimod adjuvant over 17 months. There was an additional double-dose, nine-patient, open-label group.

Across all groups, Genticel found evidence of viral clearance only if imiquimod was used. After 17 months across both the open-label and double-blind groups (cohorts 1,2 and 3), Cohort 1 was a low dose so using this as evidence of efficacy is tentative. Cohort 2 was also open label. It was observed that 74% of the treated patients (presumably 17/23 assessed) cleared virus relative to three (43%) of the seven patients in a placebo plus imiquimod group. This was not designed to show any statistical efficacy.10 Patients were aged between 18 and 45 so may have included younger women than in the current Phase II. A US Phase I safety study is planned to start in H215.

The two open-label cohorts and the double-blind group contained 38 patients, of whom 37 were presumably followed for 17 months. Of this entire group, 20 cleared virus (54%, 20/37) of which 17 had received GLT001 (including five at the low 100mcg dose tested) plus imiquimod. Presumably, none of the seven patients given GLT001 without imiquimod cleared virus, probably a small number chance effect but odd. It is also curious that the specific data set for the placebo-controlled group only has not been disclosed.

Source: Edison Investment Research summary of Genticel reports

The engineered CyA protein has the potential to deliver a very focused and powerful immune stimulus against virally infected normal tissues through an effective T-cell response. This is clearly shown in the preclinical data, which we have reviewed. However, because HPV infections progress over time and because the surface of the cervix is not well vascularised, it is currently thought by Genticel that the CyA approach will be most effective in the early stages of infection.

Genticel exclusively licensed the technology in 2002 and the core patent runs until 2027. Patent lifetimes can be extended to compensate for delays in clinical trials and regulatory review. In the US, up to a further five years can be obtained (to a maximum of 14-year market exclusivity).

More important, as a biological product, GTL001 and Vaxiclase would individually be eligible for biological protection for 12 years in the US from the date of FDA approval and for 10 years in the EU. This protection could easily last longer than any extended patent protection. Consequently, our model extends to 2032 for GTL001.11

It is based on half the time in clinical trials from the date a US Investigational New Drug (IND) status is granted to regulatory filing plus the time taken for FDA review. Genticel has indicated that it plans to obtain an IND authorisation for a Phase I safety study in 2015 that would trigger this. The delay was caused by a patent issue over the use of imiquimod.

Vaxiclase: Extending the concept

GTL001 is only able to carry one 100 amino acid fragment of E7 into cells. For GTL002, further protein engineering has created a form of CyA able to carry three different fragments. This gives the scope to develop therapeutic vaccines with broader specificity. An announcement in June 2015 showed that GTL002 in preclinical testing eradicated the six most oncogenic HPV types; there are two different Vaxiclase-based CyA constructs in each dose. Genticel management estimates that this could extend, worldwide, the number of women that might benefit from therapy from 93 million using only GTL001 to 158 million with GTL002. Based on similarities to GTL001, a high Phase I probability of 20% has been used in our valuation.

Longer term, Genticel management speculates that Vaxiclase technology might generate products that could target other viruses such as hepatitis B and C, cytomegalovirus (CMV). As with HPV, infection is common, but most individuals generate an immune response. Vaxiclase technology might be used to target early-stage solid tumours such as prostate and colorectal.

As an indication of the potential importance of Vaxiclase, the Serum Institute of India (SIIL) licensed the technology (as of February 2015) to evaluate Vaxiclase in vaccines containing, ironically, pertussis whooping cough) antigens. SIIL is one the world’s leading vaccine producers, particularly providing effective, low-cost vaccines to developing countries. This preclinical-stage licence agreement enables Genticel up to $57m in upfront and milestone payments plus single-digit royalties on net sales

The Phase II is scheduled to report in Q116 with 12 months’ virus clearance data (ie 44 weeks after the second dose) using a sensitive and quantitative HPV PCR assay as the primary endpoint.12 The trial will run until late 2016 to assess secondary endpoints and give two-year data.

The test is developed and run by the company AML in Belgium where it is certified. This test can detect one copy of the virus in 10,000 cells, making it 500 times more sensitive than commercial tests.

The Phase II trial will give a statistically significant result if it shows a 40% improvement in HPV clearance rate relative to placebo. It is expected from the natural history of HPV 16 and 18 infections that up to 50% should clear naturally, Exhibit 3. If the placebo clearance rate is 50% and the GTL001 clearance rate is 70% or more, the endpoint is met. If the placebo rate is significantly over 50%, thought by management to be unlikely, the trial might be underpowered.13 The Phase I met this endpoint at 17 months, but only by combining the open-label and double-blinded data sets. An upper Phase II probability of reaching the market of 45% has been used for valuation purposes.

Genticel document de référence 2014. Table section 6.8.5.2.

Forecasting the GTL001 market

Genticel’s investment case is that all HPV 16 and 18 infected women either with no cytology or ASCUS/LSIL are eligible for treatment. A positive HPV DNA test leads to automatic GTL001 vaccination plus a referral to colposcopy to check for HSIL. The number of infections detected each year is governed by the rate of vaccination (active and prophylactic) and the screening frequency.

We make an assumption that a lower use rate occurs in younger age cohorts. This is because there is a high natural clearance rate and because a 40% relative increase in clearance carries a high quality of life year cost in low risk, younger age cohorts. However, use in women over 35 is assumed to be higher since persistent infection carries a higher HSIL+ risk.

Exhibits 11 and 12 show the model output calculations for leading European countries14 and the US for the third year after launch, probably 2024-25 as an example. Linked yearly models have been built for each year until 2032. Exhibit 13 describes the model structure.

In Europe, only the largest counties (France, Italy, Germany, UK and Spain) are included plus Belgium, Ireland, the Nordic area and Switzerland. Other countries are still developing their screening capabilities and may not have budgets for earlier-stage vaccination unless prices are cut.

Longer-term projections for Europe and then US are shown in Exhibits 14 and 15. Because of a high rate of treatment, assumed direct HPV detection and a shorter screening interval, the US market peaks and then falls. In Europe, the lower frequency of testing masks the same effect.

Exhibit 11: European market model launch +3 years (possibly 2024)

Age Cohort

25-29

30-34

35-39

40-49

50-64

Totals

Prophylactic vaccination rate

21%

Percentage of normal treated

45%

Cases

Normal cytology

570,588

265,843

149,660

62,550

197,000

1,245,642

ASCUS/LSIL

143,942

124,807

121,645

65,930

58,641

514,964

Normal

Percentage treated

30%

30%

45%

45%

45%

Sales normal

21,825

10,767

9,092

3,589

6,383

51,655

ASCUS/LSIL

Share

36%

36%

54%

54%

54%

Sales units

16,313

14,977

21,896

11,208

5,630

70,024

Total sales units

38,138

25,743

30,988

14,797

12,012

121,679

Source: Edison Investment Research

Exhibit 12: US market model launch + three years (possibly 2024)

25-29

30-34

35-39

40-49

50-64

Totals

Prophylatic vaccination rate

21%

Percentage of normal treated

80%

Cases

Normal cytology

536,632

210,775

117,656

42,336

124,012

1,031,410

ASCUS/LSIL

139,807

93,024

89,631

44,568

41,846

408,875

Normal

Percentage treated

30%

30%

45%

45%

45%

Sales normal

55,380

21,752

18,213

6,401

13,572

115,319

ASCUS/LSIL

Share

36%

36%

54%

54%

54%

Sales units

21,642

14,400

20,812

10,108

6,869

73,832

Total sales units

77,022

36,152

39,025

16,509

20,441

189,150

Source: Edison Investment Research

Exhibit 13: Edison model parameters

Parameter

Commentary

Prophylactic vaccination rate

For each year, a prophylactic vaccination rate is applied. This rises from 7% at launch as only three of the five age cohorts might be vaccinated and the vaccine was just being introduced to 60% from 2029. This value reduced the number of new infections entering the model at age 25 in each year, the base value will in reality vary slightly with demography but is assumed to be fixed as a simplifying assumption. The number of ‘cases’ appears higher in the US due to the shorter screening interval, although demographically the US is smaller.

Percentage of normal treated

If primary HPV DNA screening is used, women with normal cytology can be detected and so become eligible for GTL001 (and eventually GTL002) therapy. It is assumed that this is standard practice by 2021. In countries where cytology remains the main screen, this market segment will not be accessible. A key parameter is the extent to which women with an infection but no cytology are treated with GTL001 or GTL002. We assume this is a moderate 45% in the EU but 80% in the US.

HP 16 and 18 prevalence by age cohort

The model estimates the HPV prevalence segmented by age cohort and cytological status. The prevalence in each year is reduced by the number of GTL001 vaccinations done previously and the prophylactic vaccination rate. The number of infections is based on the cohort size and prevalence rate. For infections with cytology, this number is also adjusted for previous year’s patients as cytology is associated with multi-year infection; the aim is to avoid double treating patients, especially in the more mature age cohorts with low rates of de novo infection.

Percentage cytology negative treated

We assume in Europe that 45% of cytology-negative cases are identified. This is only feasible if there is a primary HPV screen in place. We assume this is less likely in Europe than in the US where an 80% figure is used. In Europe, watchful waiting may be deemed more cost-effective in some countries, although these assumptions may change so a 45% value is used.

Percentage ASCUS/LSIL treated

The percentage treated is assumed to be higher as these women are at higher risk. A 25% higher share figure is used in year three (54%), giving 5,412 treatments. The case number is lower than for negative cytology as there are fewer cases. These women can be identified using cytology alone or by a primary HPV screen, although if identified by cytology, they need an HPV co-test. The percentage treated rises each year to a maximum of 80%.

Sales units

This is the sum of the cytology-negative and ASCUS/LSIL values, for the 40-49 European case 12,026. In the US, because of shorter screening times and more primary HPV screening, mores cases are found. However, as the number of vaccinated women rises over the years, the number of eligible cases decreases.

Parameter

Prophylactic vaccination rate

Percentage of normal treated

HP 16 and 18 prevalence by age cohort

Percentage cytology negative treated

Percentage ASCUS/LSIL treated

Sales units

Commentary

For each year, a prophylactic vaccination rate is applied. This rises from 7% at launch as only three of the five age cohorts might be vaccinated and the vaccine was just being introduced to 60% from 2029. This value reduced the number of new infections entering the model at age 25 in each year, the base value will in reality vary slightly with demography but is assumed to be fixed as a simplifying assumption. The number of ‘cases’ appears higher in the US due to the shorter screening interval, although demographically the US is smaller.

If primary HPV DNA screening is used, women with normal cytology can be detected and so become eligible for GTL001 (and eventually GTL002) therapy. It is assumed that this is standard practice by 2021. In countries where cytology remains the main screen, this market segment will not be accessible. A key parameter is the extent to which women with an infection but no cytology are treated with GTL001 or GTL002. We assume this is a moderate 45% in the EU but 80% in the US.

The model estimates the HPV prevalence segmented by age cohort and cytological status. The prevalence in each year is reduced by the number of GTL001 vaccinations done previously and the prophylactic vaccination rate. The number of infections is based on the cohort size and prevalence rate. For infections with cytology, this number is also adjusted for previous year’s patients as cytology is associated with multi-year infection; the aim is to avoid double treating patients, especially in the more mature age cohorts with low rates of de novo infection.

We assume in Europe that 45% of cytology-negative cases are identified. This is only feasible if there is a primary HPV screen in place. We assume this is less likely in Europe than in the US where an 80% figure is used. In Europe, watchful waiting may be deemed more cost-effective in some countries, although these assumptions may change so a 45% value is used.

The percentage treated is assumed to be higher as these women are at higher risk. A 25% higher share figure is used in year three (54%), giving 5,412 treatments. The case number is lower than for negative cytology as there are fewer cases. These women can be identified using cytology alone or by a primary HPV screen, although if identified by cytology, they need an HPV co-test. The percentage treated rises each year to a maximum of 80%.

This is the sum of the cytology-negative and ASCUS/LSIL values, for the 40-49 European case 12,026. In the US, because of shorter screening times and more primary HPV screening, mores cases are found. However, as the number of vaccinated women rises over the years, the number of eligible cases decreases.

Source: Edison Investment Research

As a benchmark, we have taken a price estimate from Bridgehead Technologies, a report commissioned by Genticel and partly disclosed. This estimates a potential price of US$3,000 (document de référence 2014, page 61 Section 6.6.5.9); our model uses €2,250 in the US. In Europe, an average price of €1,500 is assumed as Europe tends to be more price-sensitive.15

The prophylactic vaccine Gardasil costs about €370 per three-dose course in France; about $450 in the US. Countries with national programmes, like England, bulk buy with high discounts. The cost of a colposcopy in the US is about $300 with extra laboratory charges for each biopsy sample, perhaps $300. This would be covered by many insurers but often with co-pay. For surgical treatment of lesions, the cost in the US starts at $500, but could be higher, and it will be much higher if an anaesthetic is used. The difference to GTL001 currently is that a surgical procedure will ‘cure’ any lesions and confirm this by histology, whereas a GTL001 course may take more than 12 months and may not be guaranteed to cure, depending on Phase II and III data. Note that catch-up prophylactic therapy.is occurring in some countries, like Denmark, in women as they present for screening. If it becomes widespread, it will erode the market faster. However, prophylactic vaccination does not clear existing infections – only GTL001, potentially, can do that.

As GTL002 covers more oncolytic HPV types, it will naturally supersede GTL001 in the market. These extra HPV types cause 25-30% of cervical cancers in total, but they are individually small. The greater coverage expands the potential infection market by about 50% as these types are more prevalent in younger women, although more easily cleared and more often cytology negative. GTL002 also has a longer product life cycle: assuming a 2026 launch it could have US protection as a biological until 2037-38. Exhibit 16 shows forecast sales (not risk-adjusted) for both products assuming a substitution effect. Finally, a 20% addition is made to account for additional markets such as Asia and Brazil. This could be conservative, but use of GTL001 depends on a developed screening infrastructure with molecular testing and the ability to fund treatment.

Exhibit 14: Forecast leading European markets by unit sales and cellular status (non-risk adjusted)

Exhibit 15: Forecast US market by unit sales and cellular status (non-risk adjusted)

Source: Edison Investment Research Markets

Source: Edison Investment Research

Exhibit 16: Non-risk adjusted sales scenario showing GTL002 substitution for GTL001

Source: Edison Investment Research. Note: All figures are estimates and risk-adjusted for valuation purposes.

The only possible direct competitor identified is a photodynamic therapy and device, Cevira, with Phase III designation being developed by Photocure. Cevira might clear any HPV infection, but would not directly confer any immunity to a repeat infection. It is an alternative to surgery for LSIL.

Sensitivities

2014 prophylactic HPV vaccine sales were $2bn, showing the demand for treatments to manage HPV infections. GTL001 could develop a strong new market as an ‘active’ therapeutic vaccine that proves to be more socially acceptable than the prophylactic HPV vaccination of teenage girls. This could enable a premium price, depending on good clinical performance. GTL002 will expand the market further. The immediate sensitivity is the GTL001 Phase II outcome. A statistically significant result in Q116 would facilitate a good-quality, valuable deal. The risk comes from the uncertainties around the positive but limited Phase I viral clearance data and the placebo rate, thought to be up to 50%. The GTL001 Phase II uses a diagnostic-based viral clearance endpoint. The Phase III will use a clinical endpoint, probably based on reducing the incidence of higher-grade lesions. Phase II is therefore indicative of the Phase III outcome, but not necessarily predictive. This strategy is similar to the development route used to gain approval of prophylactic vaccines. The changing and dynamic market provides the other key uncertainty. The 25-29 age cohort is 12% of the 25-64 age range eligible for molecular testing, but accounts for 44% of HPV prevalence in this age range. The HPV prevalence in this cohort will gradually be reduced by prophylactic vaccination. Treatment guidelines after GTL001 approval will need revising and then adoption, which can take time.

Valuation

Our valuation is based on the current two projects and a 2017 deal. Genticel aims to develop other projects targeting other viruses and cancer (a patent was granted in H115), but these are not included in the NPV as they are early preclinical. Hence, only a basic cost level is assumed after the potential deal in 2017. In reality, Genticel will have admin and R&D costs on other projects, but these expenses are not included as no revenues are attributed. The forecasts and valuation run to 2037 when GTL002 exclusivity expires. Our key assumptions are summarised in Exhibit 17.

Exhibit 17: Key valuation parameters

Product

Probability

% treated

Price € (US$)

Yearly intervals between screening

Royalty

Peak share

Expanded indication

GTL001

45%

US

80%

US

2,250

US

2*

15%

80%

EU

45%

EU

1,500

EU

3**

GTL002

20%

As for GTL001

15%

80%

50%

Source: Edison Investment Research. Notes: * = three years when over 50, ** = five years when over 50.

The valuation, based on the numbers and sales projected above at a 12.5% discount rate, is shown in Exhibit 18. The value is heavily affected by French corporate tax (33.3%), but this might be reclaimed by investment in new projects. There are repayments of financial advances from French government agencies totalling €1.7m, paid in instalments up to 2017; these are cash items and discounted at 2.5%. Our financial forecast is summarised in Exhibit 20.

Exhibit 18: Valuation

NPV @ 12.5%

Value (€m)

GTL001

128.9

GTL002

20.4

RoW

46.9

Total royalty NPV

196.2

Deal value NPV

35.5

Institute Pasteur royalty

-10.9

NPV GTL001 costs

-38.5

Debt (2.5% discount rate)

-1.7

Tax @ 24%

42.0

Total DCF value

138.6

Shares

15.5

Value/share

€8.94

Warrants

1.44

Diluted

€8.19

NPV @ 12.5%

Value (€m)

GTL001

GTL002

RoW

Total royalty NPV

Deal value NPV

Institute Pasteur royalty

NPV GTL001 costs

Debt (2.5% discount rate)

Tax @ 24%

Total DCF value

Shares

Value/share

Warrants

Diluted

128.9

20.4

46.9

196.2

35.5

-10.9

-38.5

-1.7

42.0

138.6

15.5

€8.94

1.44

€8.19

Source: Edison Investment Research

On a Phase II probability of 45%, we estimate a risk-adjusted indicative value of about €139m or €8.93 per share before dilution (€8.19 fully diluted). As of 30 September, there was also €1.38 per share of cash to fund operations. If GTL001 progresses to a 65% Phase III probability in Q116, the value would rise to €198m or about €12.80/share before dilution or €11.70 if fully diluted by 1.4m options. Genticel has enough cash until 2017. There is a royalty and deal fee share to the Institut Pasteur, which is undisclosed and which we assume is 5%. This valuation indication is based on the current two projects and a 2017 partnering deal (currently set by Edison at 60% probability).

Financials

P&L

In the interim accounts to 30 June 2015, there was a licensing payment of €88k (US$100k) from the SIIL licensing deal in February 2015. Genticel has a low-cost operation with H1 administration of €1.5m (including a €0.5m non-cash, share-based payment charge) and R&D costs of €6.1m. There are only minor depreciation and amortisation charges. The interest line includes recognition of accumulating interest from bonds and term deposits of €5m each, €10m excluding interest in total. Interest was €132k in H1, so about 2.5% annually, assumed to be received in 2017 on redemption. We forecast the annualised loss at about €11.5m after tax credits; in France, smaller companies get good tax refunds on R&D investments. The expected 2015 tax credit of €3.5m cuts the forecast 2015 loss to about €11.5m, this credit will be received in 2016. Losses should reduce in 2016 as the GTL001 Phase II enters its follow-up phase. A partner is expected to fund GTL001 Phase III trials.

The loss should reduce in 2016 and 2017 as the main Phase II study enters its two-year, follow-up phase and a partner might take over development funding. However, preclinical work on GTL002 might intensify and other development projects, for example in cancer, are ongoing.

Cash flow

The anticipated 2015 tax credit of €3.5m is received in 2016. In the 9M to Q3, this delay largely accounted for an operating cash outflow of €11m. However, in Q415, Genticel will receive a tax credit cash payment of €2.6m in respect of 2014. We forecast cash outflow in 2015 (including repayable advances to French government) to be about €12.2m dropping to €8.4m in 2016. The repayments in H215 will be €307k. These rise to €634k in 2016. There is an ongoing project (Magenta see below), which might bring in further funding but this is not forecast. Between 8 October and 25 November, Mr Timmerman (CEO) exercised 23,200 options (awarded in 2005) at €2.90 adding €67,280 to cash. These were sold at an average of €6.53/share.

Balance sheet

The balance sheet shows limited intangible and property assets. There is a large item of €10.3m relating largely to financial investments, of which €5m was committed to 2017 in a cash deposit account and another €5m was invested on 18 August 2014 in a Natixis bond. The bond pays 2.25% until at least 31 December 2015 and can be redeemed from August 2017 without penalty.16 Overall, non-current assets as of 30 June were €10.3m.

Before August 2017, penalties are payable of 1.5% (to August 2016) or 1% (before August 2017).

Current assets include tax credits of €4.5m, of which €2.6 is due for payment in H215. Genticel keeps most cash in term deposits (€12.6m) with €2.4m in cash. With tax credits, this should be sufficient to manage 2016 without drawing down the non-current deposits. Total cash and deposits on 30 September 2015 were €21.5m. If a partnering deal with an upfront of at least €25m is concluded by mid-2017, there may be no need for any funding before Phase III GTL001 data.

Repayable advances (government loans)

Genticel has benefited from subsidies and loans from the regional government and has three current advances from bpifrance, a French innovation public bank initiative (formerly run by OSEO), Exhibit 19.17 .Some advances have royalties attached to IP items developed using the funding.

An earlier advance, OSEO 1 has been repaid. OSEO 2 funded GTL001 development. OSEO 3 supported the GTL001 Phase I study. OSEO 4 is a consortium project possibly worth up to €3.6m to Genticel to develop an anti-HIV vaccine. Only €320k has been drawn down, but the project runs until 2018. It might be repaid in five annual tranches starting in June 2019 if the project is successful plus some additional payments of €2.2m.

Exhibit 19: Repayable advances

€m

PV

Cash payable

H215

2016

2017

2018

2019

OSEO 2

961.4

1,000.0

250.0

500.0

250.0

0

0

OSEO 4

690.6

735.2

57.4

133.8

191.2

233.8

119.0

OSEO 4 MAGENTA

320.5

328.9

≈73

Total

1,971.4

2,064.1

307.4

633.8

441.2

233.8

200.0

Source: Edison Investment Research, Genticel DDR 2014

Liquidity

In April 2014, Genticel signed a liquidity contract with Bank Oddo & Cie to trade Genticel shares to stimulate the liquidity and regular listing of its shares and avoid share price discrepancies not justified by market trends. The cash deposit made in 2014 was €200k. As of 30 June 2015, the arrangement had acquired 13,601 Genticel treasury shares, with €117k remaining on deposit.

Exhibit 20: Financial summary

€000

2013

2014

2015e

2016e

2017e

Year End December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

0

0

88

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

0

0

88

0

0

EBITDA

(5,999)

(10,736)

(11,543)

(9,063)

(6,663)

Operating Profit (before amort. and except.)

(6,042)

(10,764)

(11,593)

(9,113)

(6,713)

Intangible Amortisation

(6)

(8)

(4)

(4)

(4)

Exceptionals

0

0

0

0

0

Other

0

0

0

0

0

Operating Profit

(6,049)

(10,771)

(11,596)

(9,117)

(6,717)

Net Interest

86

105

156

156

156

Profit Before Tax (norm)

(5,957)

(10,659)

(11,437)

(8,957)

(6,557)

Profit Before Tax (FRS 3)

(5,963)

(10,667)

(11,440)

(8,961)

(6,561)

Tax

0

0

0

0

0

Profit After Tax (norm)

(5,914)

(10,631)

(11,387)

(8,907)

(6,507)

Profit After Tax (FRS 3)

(5,963)

(10,667)

(11,440)

(8,961)

(6,561)

Average Number of Shares Outstanding (m)

9.4

13.8

15.4

15.4

15.4

EPS - normalised (c)

(62.7)

(77.0)

(73.7)

(57.7)

(42.1)

EPS - normalised and fully diluted (c)

(56.7)

(69.7)

(68.3)

(53.4)

(39.0)

EPS - (IFRS) ©)

(63.2)

(77.3)

(74.1)

(58.0)

(42.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

85

228

293

339

386

Intangible Assets

27

19

14

10

7

Tangible Assets

49

95

145

195

245

Fixed term investments

0

10,076

10,301

10,526

0

Other

9

114

134

134

134

Current Assets

6,435

25,911

14,732

5,866

9,593

Stocks

44

31

60

60

60

Debtors

254

552

600

600

600

Cash

3,839

22,727

10,572

2,206

6,433

Other

2,298

2,600

3,500

3,000

2,500

Current Liabilities

(2,816)

(4,000)

(4,032)

(3,840)

(3,632)

Creditors

(2,533)

(3,488)

(3,382)

(3,382)

(3,382)

Short term borrowings

(283)

(512)

(650)

(457)

(250)

Long Term Liabilities

(1,682)

(2,026)

(1,392)

(950)

(717)

Long term borrowings

(1,431)

(1,646)

(1,012)

(571)

(337)

Other long term liabilities

(251)

(380)

(380)

(380)

(380)

Net Assets

2,022

20,113

9,601

1,415

5,630

CASH FLOW

Operating Cash Flow

(6,058)

(9,952)

(11,850)

(7,788)

(5,388)

Net Interest

86

105

156

156

156

Tax

0

0

0

0

0

Capex

(11)

(73)

(100)

(100)

(100)

Acquisitions/disposals

0

0

0

0

0

Financing

8,267

38,752

(429)

(634)

(441)

Dividends

0

0

0

0

0

Net Cash Flow

2,283

28,831

(12,223)

(8,366)

(5,773)

Opening net debt/(cash)

158

(2,125)

(30,645)

(19,211)

(11,704)

HP finance leases initiated

0

0

0

0

0

Other (inc repaid advances)

0

(311)

788

859

(85)

Closing net debt/(cash)

(2,125)

(30,645)

(19,211)

(11,704)

(5,845)

Source: Genticel accounts, Edison Investment Research forecasts

Contact details

Revenue by geography

516 Rue Pierre et Marie Curie
Prologue Biotech
31670 Labège

France
+33 (0)1 53 67 36 77
http://www.genticel-bourse.com/en/

N/A

Contact details

516 Rue Pierre et Marie Curie
Prologue Biotech
31670 Labège

France
+33 (0)1 53 67 36 77
http://www.genticel-bourse.com/en/

Revenue by geography

N/A

Management team

Chief executive officer: Dr Benedikt Timmerman,

Chief financial officer: Martin Koch

PhD University of Ghent, Belgium & MBA, INSEAD, France. 20-year international career in life science companies. Previously senior director R&D of Novartis Seeds (1994-2000), member of EU Executive Committee (1995-2000) and member of Novartis Agribusiness (now Syngenta) global licensing and acquisitions team (1997–2000).

Engineer, INAPG, France and MBA, INSEAD, France. 20-year international career in financial and operational management. Previously sales director, oncology, Cephalon Pharma, France (2006-07), and controlling and FD functions at Elan & Zeneus Pharma, UK (2001-05).

Chief medical officer: Dr Sophie Olivier

Chief scientific officer: Dr Marie-Christine Bissery

MD, gynaecologist-obstetrician, University Aix-Marseille; master in reproductive biology; master in sciences and statistics, University Pierre et Marie Curie, Paris VI, France. Clinical practice: three years as clinical obstetrician-gynaecologist at CHU Aix-Marseille, France. Previously, scientific co-ordinator in paediatrics at the European Medicines Agency, UK (2009-14) and senior director, worldwide clinical development, women's health and bone repair, Wyeth Research and Development, Pennsylvania, US (2005-09).

PhD and Pharm. D Paris and Washington University, US. Academia: seven years, Washington University, Michigan Cancer Foundation, Wayne State University Medical School, US. Previously international director of oncology (2007-08) and deputy head of oncology (2005-07), Sanofi-Aventis, France; senior director, experimental therapeutics and translational research, Aventis Pharma, France (2000-04).

Management team

Chief executive officer: Dr Benedikt Timmerman,

PhD University of Ghent, Belgium & MBA, INSEAD, France. 20-year international career in life science companies. Previously senior director R&D of Novartis Seeds (1994-2000), member of EU Executive Committee (1995-2000) and member of Novartis Agribusiness (now Syngenta) global licensing and acquisitions team (1997–2000).

Chief financial officer: Martin Koch

Engineer, INAPG, France and MBA, INSEAD, France. 20-year international career in financial and operational management. Previously sales director, oncology, Cephalon Pharma, France (2006-07), and controlling and FD functions at Elan & Zeneus Pharma, UK (2001-05).

Chief medical officer: Dr Sophie Olivier

MD, gynaecologist-obstetrician, University Aix-Marseille; master in reproductive biology; master in sciences and statistics, University Pierre et Marie Curie, Paris VI, France. Clinical practice: three years as clinical obstetrician-gynaecologist at CHU Aix-Marseille, France. Previously, scientific co-ordinator in paediatrics at the European Medicines Agency, UK (2009-14) and senior director, worldwide clinical development, women's health and bone repair, Wyeth Research and Development, Pennsylvania, US (2005-09).

Chief scientific officer: Dr Marie-Christine Bissery

PhD and Pharm. D Paris and Washington University, US. Academia: seven years, Washington University, Michigan Cancer Foundation, Wayne State University Medical School, US. Previously international director of oncology (2007-08) and deputy head of oncology (2005-07), Sanofi-Aventis, France; senior director, experimental therapeutics and translational research, Aventis Pharma, France (2000-04).

Principal shareholders (30 November 2015)

(%)

Edmond de Rothschild Investment

14.6

IDInvest

14.0

Wellington Partners

10.4

Bpifrance (Innobio)

10.1

Management

6.2

Companies named in this report

Photocure, Merck, GSK, Roche Diagnostics

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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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

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New Zealand

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