Encouraging data from novel preclinical projects

OSE Immunotherapeutics 8 July 2020 Update
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OSE Immunotherapeutics

Encouraging data from novel preclinical projects

R&D update

Pharma & biotech

8 July 2020

Price

€5.92

Market cap

€89m

Gross cash (€m) at end-FY19 (government debt not included)

25.8

Shares in issue

15.0m

Free float

25%

Code

OSE

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.1

39.3

73.1

Rel (local)

5.3

22.5

92.0

52-week high/low

€7.48

€2.99

Business description

OSE Immunotherapeutics is an immunotherapy company based in Nantes and Paris, France, and listed on the Euronext Paris exchange. It is developing immunotherapies for the treatment of solid tumours and autoimmune diseases and has established several partnerships with large pharma companies.

Next events

Update on Tedopi development/ partnering

2020

Initiation of Phase II trials with OSE-127

2020

Update on BiCKI platform

2020

Update on COVID-19 project

2020

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

OSE Immunotherapeutics is a research client of Edison Investment Research Limited

OSE has a well-balanced R&D pipeline in terms of technology and asset stage (from discovery to Phase III). At the American Association of Cancer Research (AACR) Virtual Annual Meeting II in late June, OSE announced new data from its two more interesting preclinical programmes. C-type lectin receptor (CLEC-1) is a newly disclosed myeloid checkpoint target that tumour cells use to inhibit myeloid cells phagocytosis, a ‘don’t eat me’ signal. Anti-CLEC-1 antibodies restored the phagocytosis function of macrophages and dendritic cells (a similar effect to SIRPα/CD47 axis inhibition). New data from OSE’s bispecifics platform BiCKI were also presented, including with its first drug candidate BiCKI IL-7, an anti-PD-1 antibody fused with IL-7 interleukin. Our valuation is €230m or €15.3/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

24.5

4.8

0.38

0.0

15.6

N/A

12/19

26.0

(1.2)

(0.30)

0.0

N/A

N/A

12/20e

0.0

(22.9)

(1.53)

0.0

N/A

N/A

12/21e

0.0

(23.1)

(1.55)

0.0

N/A

N/A

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

CLEC-1: Novel myeloid checkpoint target for cancer

With its academic collaborators OSE found that CLEC-1 acts as a myeloid checkpoint. Myeloid checkpoint inhibitors (CPIs) are believed to work in a similar way to T-cell CPIs, but instead they inhibit the checkpoints between tumour cells and myeloid cells. Anti-CLEC-1 antibodies developed by OSE restored the phagocytosis function of macrophages and dendritic cells, which recognise the cancer cells as foreign, then attack and digest cancer cells leading to presentation of cancer antigens on the surface, which stimulates the immune system. This effect is similar to SIRPα/CD47 axis inhibition. OSE already has a SIRPα antagonist in Phase I, OSE-172, which is licensed to Boehringer Ingelheim (BI) for up to €1.1bn in potential milestones plus royalties.

BiCKI: Data with first drug candidate

Another major new data presentation at the AACR was from OSE’s Bispecific Antibody Checkpoint Inhibitor (BiCKI) platform. CPIs have become a standard of care in many cancers, but resistance remains a significant issue. With its first drug candidate from this platform, a proprietary Anti-PD-1 antibody fused with IL-7 mutein, OSE expects to address the primary and secondary resistance to CPIs seen in many patients, which limits the use of CPIs.

Valuation: €230m or €15.3/share

Our valuation of OSE is unchanged at €230m or €15.3/share. We do not yet include any assets from BiCKI platform, as the research is still at an early, preclinical stage. However, OSE is developing this platform relatively quickly, so we will review potential assets once the platform has matured. In May 2020, OSE signed a €7m loan agreement with a consortium of banks, 90% guaranteed by the French government. This has extended the cash runway until Q321.

Novel myeloid checkpoint target for cancer immunotherapy discovered

OSE’s new preclinical data describing the discovery of a novel myeloid immune checkpoint target for cancer immunotherapy were accepted for poster and oral presentations at AACR Virtual Annual Meeting II, 22–24 June 2020. In collaboration with researchers at the Center for Research in Transplantation and Immunology, Nantes University Hospital, OSE found that CLEC-1 acts as myeloid checkpoint.

Hematopoietic stem cells are able to differentiate into cells of two primary lineages, lymphoid and myeloid. Cells of the lymphoid lineage include B cells, T cells and natural killer cells. Cells of the myeloid lineage include megakaryocytes, erythrocytes, granulocytes, dendritic cells and macrophages. Although the research is still early, myeloid CPIs are believed to work in a similar way as T cell CPIs, but instead of T cells such drugs inhibit the checkpoints between tumour cells and myeloid cells.

With its collaborators OSE found that tumour cells inhibit myeloid cell phagocytosis through CLEC-1. In other words, CLEC-1 acts as a ‘don’t eat me’ signal. Anti-CLEC-1 antibodies developed by OSE restored the phagocytosis function of macrophages and dendritic cells, which recognise the cancer cells as foreign then attack and digest them. This leads to the presentation of cancer antigens on the cell surface, which stimulates the immune system. Mice that were genetically engineered to be CLEC-1 deficient were able to eradicate tumour cells more effectively. A synergy with chemotherapy in CLEC-1-deficient mice was also observed.

OSE already has an asset in Phase I stage, OSE-172, which is a first-in-class signal regulatory peptide alpha (SIRPα) antagonist. OSE-172 binds to SIRPα on myeloid cells, which inhibits the SIRPα/CD47 interaction (CD47 is found on the surface of cancer cells). CD47 also acts as ‘a don't eat me’ signal to macrophages of the immune system. When the SIRPα/CD47 axis is blocked, the expectation is, as with CLEC-1, the myeloid cells recognise the cancer cells as foreign so they attack and digest them. Phagocytosis leads to cancer-antigen presentation on the cell surface, which stimulates the cancer-specific immune system. OSE licensed OSE-172 to BI in April 2018; this is the company’s largest deal with €1.1bn potential development, regulatory and sales milestones plus low double-digit royalties.

No myeloid checkpoint inhibitors have been approved yet. Most advanced projects are in early- to mid-clinical stages and target the SIRPα/CD47 axis, primarily CD47 (present in tumour cells). In our initiation report (December 2018), we identified US-based biotech Forty Seven as the leader in the myeloid CPI space with the anti-CD47 antibody magrolimab targeting myelodysplastic syndrome (MDS), acute myeloid leukaemia (AML) and diffuse large B-cell lymphoma. As reported in March 2020, Gilead Sciences agreed to acquire Forty Seven for $4.9bn and completed this in April. Promising results from just a Phase Ib study with magrolimab in MDS and AML patients were sufficient to convince Gilead to pay the hefty premium (92% to share price before the deal).

So, myeloid checkpoint inhibition is increasingly attracting attention after T-cell CPIs became the mainstay treatment in many oncological indications. OSE has now identified a second potential myeloid checkpoint target. Although the data presented at the AACR are still early, it is cutting-edge research enabled by OSE’s extended network with academic research groups.

BiCKI: Bispecific platform update at AACR

Another major new data presentation at the AACR was from OSE’s BiCKI platform. OSE revealed the platform in March 2019 and we reviewed it in our September 2019 report. At the AACR last month, OSE presented two posters: one focusing on the development of the platform itself, and a second on with new preclinical data with the first potential asset from this platform.

BiCKI is a bispecific/fusion antibody platform (Exhibit 1A) that consists of:

A humanised high-affinity anti-PD-1 monoclonal antibody. OSE has developed its own anti-PD-1 antibody that forms the ‘backbone’ of the bispecifics. This is an IgG antibody (OSE-279) in that it has a normal structure with heavy and light chains, where the Fab region binds to the PD-1 receptor on T-cells. OSE chose it due to its good yield in terms of manufacturing and productivity.

Engineered proteins attached to the Fc region. The silent Fc region of the antibody (the base of the heavy chains) is the effector part of the molecule. It determines what effect the antibody has once it has bound to the antigen, which is usually an immune response. OSE plans to engineer different proteins for the Fc region, eg IL-7, through protein fusion to target novel receptors.

Exhibit 1: BiCKI platform (A) and BiCKI IL-7 mechanism of action (B)

Source: OSE

CPIs have become a standard of care for many cancers. Although in some patients CPIs are remarkably effective, a significant percentage (depending on the cancer type) of patients either do not respond to treatment (primary resistance) or develop resistance after an initial period or response (secondary resistance). OSE hopes that anti-PD-1 bispecifics will help overcome the resistance (primary and secondary) to anti-PD-1 drugs by selecting targets that are involved in different stages of the immunity cycle. In particular, OSE is looking for targets that have synergistic potential.

BiCKI IL-7: First potential bispecific drug candidate

Persisting antigenic stimulation, such as in chronic infections and cancer, can lead to T cell exhaustion, a state of functional impairment, high expression of inhibitory receptors including Programmed Death-1 (PD-1) and defective immune memory (Wherry and Kurachi, 2015). This dampens the immune response. Blocking the PD-1:PD-L1 pathway can reinvigorate exhausted CD8+ T cells, improving viral and tumour control. This strategy has now been proven with the advent of CPIs; however, the primary and secondary resistance rates are high, as mentioned above.

OSE’s first candidate based on this platform is BiCKI IL-7 (Exhibit 1B). IL-7 is a cytokine that controls the proliferation, apoptosis and activation of CD4+ and CD8+ T cells in humans. IL-7 receptor expression is reduced in exhausted T cells. In an in vitro chronic antigenic stimulation model, OSE has demonstrated that BiCKI IL-7 reinvigorated exhausted T cells (Exhibit 2A).

Another reason why OSE chose the combination of BiCKI and IL-7 was that IL-7 is a good target for stimulating effector (CD8+, CD4+) T cell function over regulatory T cells (Tregs). Tregs are known to contribute to the dampening of the anti-tumour immune response. This is because effector T cells express high levels of IL-7 receptors, while Tregs express low levels. As a result, BiCKI IL-7 tilts the balance towards effector T-cells over Tregs (Exhibit 2B).

OSE also showed that the advantage of the bispecific drug (over a combination of two drugs, anti-PD-1 with IL-7) is that BiCKI IL-7 synergistically increases T-cell receptor signalling and hence antigen-specific T cell responses.

Exhibit 2: BiCKI IL-7 reinvigorates exhausted T cells (A) and tilts balance towards effector T-cells over Tregs (B)

Source: OSE.

Large biotech/pharma are getting in early on bispecifics

The bispecifics field is a relatively new area but is receiving growing attention. Three bispecific antibodies have been approved (they do not target checkpoint receptors): Blincyto (blinatumomab, Amgen), Hemlibra (emicizumab, Roche) and Removab (catumaxomab, Fresenius, now withdrawn) but there are many more in clinical stages. There are a few companies trying to use bispecifics to target multiple checkpoints with the aim of further reducing any T-cell inhibition by tumour cells and promoting T-cell activation.

Most of the programmes are still early to mid-stage so existing deals involve bispecific platforms or very early-stage assets (Exhibit 3). These deals achieved between $45–150m in upfront payments and $180–1,700m in milestone payments (for the platform plus existing programmes), depending on the number of candidates included in the deal. As there is an appetite for bispecifics platforms and bispecific candidates from pharma, OSE’s decision to invest in BiCKI seems well founded.

Exhibit 3: Selected bispecifics deals

Date

Licensor

Licensee

Product

Pharmacological class / Target

Indications included

Upfront ($m)

Milestones ($m)

08/03/2019

Xencor

Genentech (Roche)

XmAb24306

IL-15 and IL-15 receptor alpha (IL-15RA) bispecific MAb

Autoimmune disease and cancer

120

160

11/02/2019

TeneoOne

AbbVie

TNB-383B

Anti-B cell maturation antigen (BCMA) and CD3 bispecific MAb

Multiple myeloma

90

N/A

20/12/2018

Agenus

Gilead Sciences

AGEN1423 + option on four other programmes

Undisclosed bispecific MAb mechanism

Cancer indications

150 (including 30 equity)

1,700

27/11/2018

Zymeworks

BeiGene

ZW25, ZW49

HER2

Cancer indications

40

390

27/11/2018

Zymeworks

BeiGene

Azymetric and EFECT platforms

Bispecific platform

Cancer indications

20

702

23/10/2018

Zymeworks

LEO Pharma

Azymetric and EFECT platforms (two assets)

Cytokine-receptor pathways

Dermatology

5

475

13/11/2017

Zymeworks

J&J

Azymetric and EFECT platforms

Bispecific platform

Not disclosed

50

282 R&D
1,120 commercial

03/10/2017

CytomX Therapeutics

Amgen

CytomX Probody T-cell engaging bispecific

Anti-EGFR and CD3 bispecific MAb

Cancer indications

60 (including 20 equity)

455

+ up to three additional undisclosed targets

N/A

Not disclosed

Up to 950 in additional upfront and milestones

04/06/2017

F-star

Merck KGaA

FS118 + option on 4 other programmes

Anti-LAG 3 and PD-1 bispecific MAb

Cancer indications

€115

€1,000

28/06/2016

Xencor

Novartis

XmAb14045

Anti-CD3 and IL-3 alpha/CD123 bispecific MAb

Acute myeloid leukaemia

150

N/A

XmAb 13676

Anti-CD3 and CD20 bispecific MAb

B-cell malignancies

16/09/2015

Xencor

Amgen

AMG 424 + 5 other programs

Anti-CD3 and CD38 bispecific MAb

Multiple myeloma + other cancer /immune disorders

45

1,700

Source: Edison Investment Research, EvaluatePharma, company press releases.

Clinical programme update and upcoming newsflow

Our up-to-date review of the developments with OSE’s clinical-stage assets can be found in the reports published in March and April 2020.

Tedopi neoepitope vaccine. On 1 April 2020, OSE announced the primary endpoint was met in the predefined step one analysis of the Phase III Atalante 1 trial with its cancer vaccine Tedopi in HLA-A2 positive, non-small cell lung cancer (NSCLC) patients after they failed CPIs (anti-PD-1 or anti-PD-L1). The patients (n=99) were randomised and received treatment at least 12 months before step one analysis. The 12-month survival rate in the Tedopi arm was 46% (29 out of 63; CI 33–59%), well above the predefined futility threshold of 25%, so a statistically strong result. Due to the COVID-19 pandemic, OSE has decided to terminate enrolment into step two of the trial, as NSCLC patients are vulnerable to coronavirus infections and there was therefore a substantial risk of data loss. OSE will focus on regulatory interactions and partnering discussions given the availability of new data. An investigator-led Phase II trial in pancreatic cancer is ongoing.

BI 765063, antagonist of SIRP. A Phase I study in solid tumours is ongoing in partnership with BI. First results are expected in H121. OSE has received a total of €30m in licence payments from BI. Up to €1.1bn is still potentially due plus royalties on sales.

OSE-127, anti-IL-7Rα antibody. Following a positive Phase I in Q419, two Phase II trials with OSE-127 are planned to start in 2020 in ulcerative colitis (sponsored by OSE) and Sjögren’s syndrome (sponsored by Servier), although the ongoing pandemic may affect the start dates. A €5m milestone payment from partner Servier is expected as soon as the first patient is recruited to the Phase II trial. OSE has a two-step option agreement with Servier. So far, the company has received in total €20.3m. Up to €252m in milestone payments is still potentially due plus royalties.

FR104, CD28 antagonist. Phase II-ready asset for autoimmune diseases or transplantation.

CoVepiT. This new project was announced in May 2020, with a potentially prophylactic vaccine against the pandemic virus SARS-CoV-2. OSE is using its expertise in the selection and optimisation of peptides and their GMP formulation. Specifically, OSE is using its Memopi optimisation technology (Phase III stage Tedopi vaccine, a combination of antitumor neo-epitopes). After scanning of thousands of potential neo-epitopes, OSE selected four major proteins of coronaviruses with high potential for immunogenicity. First preclinical results from the CoVepiT project are expected in H220. If positive, it could allow the start of a clinical trial by end-2020.

Exhibit 4: OSE’s R&D pipeline

Source: OSE

Valuation

Our valuation of OSE is unchanged at €230m or €15.3/share. OSE will report H120 financial results in September 2020. In May 2020, OSE signed a €7m loan agreement with a consortium of banks, 90% guaranteed by the French government as support during the ongoing COVID-19 pandemic. According to OSE, this has extended the cash runway until Q321. The initial maturity period is 12 months, which OSE can extend for another five years.

We do not yet include any assets from the BiCKI platform, as the research is at an early, preclinical stage. However, OSE is developing this platform relatively quickly, so we will review potential assets once the platform has matured.

Exhibit 5: Sum-of-the-parts OSE valuation

Product

Launch

Peak sales
($m)

Unrisked NPV (€m)

Unrisked NPV/share (€)

Probability
(%)

rNPV
(€m)

rNPV/share
(€)

Tedopi – NSCLC

2023

657

291.9

19.5

25%

69.4

4.6

OSE-127 - ulcerative colitis

2027

843

184.0

12.3

15%

37.3

2.5

OSE-172 - multiple cancer indications (TNBC)

2027

1,801

273.1

18.2

10%

38.7

2.6

FR104 - rheumatoid arthritis

2026

1,056

242.9

16.2

15%

58.5

3.9

FY19e cash*

25.8

1.7

100%

25.8

1.7

Valuation

1,017.7

67.8

229.7

15.3

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. Note: *OSE’s debt, not shown above, consists of government loans, which are typically repayable on commercial success only.

Exhibit 6: Financial summary

€'000s

2018

2019

2020e

2021e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

24,456

25,952

0

0

Cost of Sales

0

0

0

0

Gross Profit

24,456

25,952

0

0

Research and development

(15,057)

(21,655)

(17,000)

(17,000)

EBITDA

 

 

4,963

(897)

(22,838)

(23,026)

Operating Profit (before amort. and except.)

 

 

4,847

(1,220)

(22,939)

(23,117)

Intangible Amortisation

0

(251)

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

4,847

(1,471)

(22,939)

(23,117)

Net Interest

0

8

(6)

(12)

Profit Before Tax (norm)

 

 

4,847

(1,212)

(22,945)

(23,129)

Profit Before Tax (reported)

 

 

4,847

(1,463)

(22,945)

(23,129)

Tax

783

(3,188)

0

0

Profit After Tax (norm)

5,630

(4,400)

(22,945)

(23,129)

Profit After Tax (reported)

5,630

(4,651)

(22,945)

(23,129)

Average Number of Shares Outstanding (m)

14.6

14.9

15.0

15.0

EPS - normalised (€)

 

 

0.38

(0.30)

(1.53)

(1.55)

EPS - normalised fully diluted (€)

 

 

0.36

(0.30)

(1.53)

(1.55)

EPS - reported (€)

 

 

0.38

(0.31)

(1.53)

(1.55)

Dividend per share (€)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

N/A

N/A

EBITDA Margin (%)

20.3

N/A

N/A

N/A

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

19.8

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

53,879

55,871

55,770

55,679

Intangible Assets

52,600

52,600

52,600

52,600

Tangible Assets

904

1,009

908

817

Investments

375

2,262

2,262

2,262

Current Assets

 

 

14,687

26,589

12,256

2,747

Stocks

0

0

0

0

Debtors

2,253

747

747

747

Cash

9,573

25,842

11,509

2,000

Other

2,861

0

0

0

Current Liabilities

 

 

(9,075)

(14,330)

(14,330)

(14,330)

Creditors

(8,447)

(13,782)

(13,782)

(13,782)

Short term borrowings

(628)

(548)

(548)

(548)

Long Term Liabilities

 

 

(6,075)

(16,067)

(23,067)

(35,085)

Long term borrowings

(3,832)

(9,211)

(16,211)

(28,229)

Other long term liabilities

(2,243)

(6,856)

(6,856)

(6,856)

Net Assets

 

 

53,416

52,063

30,629

9,011

CASH FLOW

Operating Cash Flow

 

 

1,860

5,989

(21,327)

(21,515)

Net Interest

0

0

(6)

(12)

Tax

(783)

3,148

0

0

Capex

(593)

0

0

0

Acquisitions/disposals

0

0

0

0

Financing

(37)

0

0

0

Other

(95)

2,288

0

0

Dividends

0

0

0

0

Net Cash Flow

352

11,425

(21,333)

(21,527)

Opening net debt/(cash)

 

 

(4,761)

(5,113)

(16,083)

5,250

HP finance leases initiated

0

0

0

0

Other

(0)

(455)

0

0

Closing net debt/(cash)

 

 

(5,113)

(16,083)

5,250

26,777

Source: Company data, Edison Investment Research


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Australia

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New Zealand

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United Kingdom

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United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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