Multiple data readouts over next 12 months

Targovax 4 September 2019 Update
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Targovax

Multiple data readouts over next 12 months

Q219 update

Pharma & biotech

4 September 2019

Price

NOK5.10

Market cap

NOK323m

Net cash (NOKm) at end Q219

129.8

Shares in issue

63.4m

Free float

90%

Code

TRVX

Primary exchange

Oslo Stock Exchange

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(13.3)

(5.6)

(56.9)

Rel (local)

(12.3)

(3.0)

(51.3)

52-week high/low

NOK11.4

NOK4.3

Business description

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

Next events

Preclinical data on new oncolytic viruses

H219

ONCOS-102 mesothelioma Phase I data

Q120

Cohort 2 data from Phase I melanoma

H120

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Alice Nettleton

+44 (0)20 3077 5700

Targovax is a research client of Edison Investment Research Limited

Two ONCOS-102 readouts are expected in the next 12 months: mesothelioma Phase I/II data around new year 2020, and data from the Phase I melanoma study in H120. Targovax is also conducting preclinical trials with its new oncolytic viruses, with first results likely to be released in H219. This will support its move to becoming a focused oncolytic virus company. In addition, it provided an update on the Phase I/II trial with ONCOS-102 + Imfinzi (durvalumab) in patients with advanced peritoneal malignancies in collaboration with the Ludwig Institute for Cancer Research, where the expansion part has now started. Our Targovax valuation is virtually unchanged at NOK1.18bn or NOK18.6/share (vs NOK18.9/share previously).

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/17

0.0

(122.3)

(2.6)

0.0

N/A

N/A

12/18

0.0

(147.3)

(2.8)

0.0

N/A

N/A

12/19e

0.0

(140.2)

(2.4)

0.0

N/A

N/A

12/20e

0.0

(137.2)

(2.2)

0.0

N/A

N/A

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

Preclinical data on new viruses expected H219

The highlight of the quarter was the announced overall response rate (33%) and immune activation data from Part 1 of the Phase I study with ONCOS-102 in patients with advanced, unresectable, anti-PD1 refractory melanoma (n=9). We discussed this in detail in our previous update. The other ONCOS-102 trial in mesothelioma is progressing according to plan and Targovax expects to report results around new year 2020. Targovax’s preclinical pipeline is also maturing, with three new oncolytic viruses in in vivo testing. Patents have been filed on these viruses but not yet published, so little information about the mechanism of action has been disclosed at the moment. Preclinical data will be announced in H219 and will help guide Targovax towards specific indications. Management plans to select one virus to take into Phase I.

Financials: Cash reach to 2020

Targovax reported immaterial revenues and an operating loss of NOK44.6m in Q219, compared to NOK36.7m in Q218, largely in line with our expectations. External Q219 R&D expenses were NOK22.0m versus NOK14.5m a year ago, indicating more intensive clinical R&D. Targovax had cash and cash equivalents of NOK135m at the end of Q219 and guided that this should be sufficient to reach 2020, which is in line with our model. We make no changes to our estimates.

Valuation: NOK1.18bn or NOK18.6/share

Our Targovax valuation is virtually unchanged at NOK1.18bn or NOK18.6/share compared to NOK1.20bn or NOK18.9/share due to rolling our model forward, which was offset by a lower net cash position. All other assumptions for our rNPV model are unchanged. There will be several data readouts over the next 12–18 months (Exhibit 3) starting with preclinical data on new oncolytic viruses in H219.

Adjusting the treatment regime in melanoma study

With its Q219 results, Targovax presented data from Part 1 of the Phase I melanoma trial, which we discussed in our last note. Three of the nine anti-PD1-resistant patients in Part 1 responded to the ONCOS-102 and subsequent Keytruda treatment.

The Part 2 – of the Phase I melanoma trial is currently enrolling patients (six recruited, up to 12 expected). These patients will be on a different treatment regime, which management described as more optimal compared with Part 1 (Exhibit 1). Rather than receiving three injections of ONCOS-102 at week 1 followed by eight doses of Keytruda, patients in Part 2 will continue to receive doses of ONCOS-102 in combination with Keytruda, which means these patients will receive a total of 12 ONCOS-102 injections rather than three.

The rationale for combining an oncolytic virus with a checkpoint inhibitor is to overcome resistance to the checkpoint inhibitor, eg by releasing tumour antigens via direct tumour cell lysis, priming the immune response and increasing T-cell infiltration. To give continued injections of the virus could enhance and maintain these mechanisms to maximise the potential for overcoming resistance. Targovax expects to report data from Part 2 of the trial during H120.

Exhibit 1: Design of the Phase I melanoma study

Source: Targovax

How ONCOS-102 plus Keytruda data compare with other similar studies

Targovax provided a comparison of the ONCOS-102 plus Keytruda data from Part 1 of the melanoma trial (n=9) with data from other studies in the same patient population (ie melanoma patients that have progressed after a checkpoint inhibitor). These included Cavatak (oncolytic virus), lifileucel (T-cell therapy), CMP-001, tilsotolimod and SD-101 (TLR-9 agonists), and entinostat (HDAC inhibitor).

Although not directly comparable in terms of technology or clinical trial design, it is encouraging to see that ONCOS-102 produced a similar ORR (33%) to these other drugs (ORRs ranging from 19% to 38%) and we look forward to performing more meaningful comparisons at a later stage once more data are available.

In comparing clinical trial design, we would single out Checkmate Pharmaceuticals, a biotech company developing a TLR-9 agonist, a class of immunotherapy drugs, in combination with CPIs. Targovax’s ONCOS-102 is also a TLR-9 agonist. Checkmate Pharmaceuticals is conducting a Phase Ib study of intratumoral administration of its lead product CMP-001 in combination with Keytruda in patients with advanced melanoma who were considered refractory to Keytruda treatment. Published interim data (not complete) include an ORR rate of 22% (15/69).

Exhibit 2: ONCOS-102 plus Keytruda data cross-trial comparison

Source: Targovax

Exhibit 3: Targovax R&D pipeline

Source: Targovax. Note: Trials sponsored by collaborators highlighted in grey.

Valuation

Our updated valuation is NOK1.18bn or NOK18.6/share, compared to NOK1.20bn or NOK18.9/share previously, which is based on a risk-adjusted NPV analysis using a 12.5% discount rate, including NOK129.8m net cash. We continue to exclude other long-term debt of NOK53.5m in Finnish government grants from our valuation, as repayment is only required if the products are sold or launched. Our financial forecasts are unchanged.

Exhibit 4: Sum-of-the-parts Targovax valuation

Product

Launch

Peak sales
($m)

Unrisked NPV (NOKm)

Unrisked NPV/share (NOK)

Probability (%)

rNPV
(NOKm)

rNPV/share (NOK)

ONCOS-102 – advanced melanoma

2025

590

2,634.6

41.6

15%

652.2

10.3

ONCOS-102 – mesothelioma

2026

424

2,094.0

33.0

10%

398.5

6.3

Net cash, last reported

129.8

2.0

100%

129.8

2.0

Valuation

4,858.4

76.7

1,180.5

18.6

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. Note: Excludes conditional government long-term debt of NOK48.8m.

Exhibit 5: Financial summary

NOK'000s

2017

2018

2019e

2020e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

37

27

0

0

Cost of Sales

0

0

0

0

Gross Profit

37

27

0

0

Research and development

(45,571)

(64,006)

(55,567)

(50,103)

EBITDA

 

 

(119,630)

(145,804)

(139,856)

(136,929)

Operating Profit (before amort. and except.)

 

 

(119,926)

(146,100)

(140,152)

(137,225)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(119,926)

(146,100)

(140,152)

(137,225)

Net Interest

(2,347)

(1,249)

0

0

Profit Before Tax (norm)

 

 

(122,273)

(147,349)

(140,152)

(137,225)

Profit Before Tax (reported)

 

 

(122,273)

(147,349)

(140,152)

(137,225)

Tax

328

334

0

0

Profit After Tax (norm)

(121,945)

(147,015)

(140,152)

(137,225)

Profit After Tax (reported)

(121,945)

(147,015)

(140,152)

(137,225)

Average Number of Shares Outstanding (m)

47.3

52.6

58.0

63.3

EPS - normalised (NOK)

 

 

(2.58)

(2.79)

(2.42)

(2.17)

EPS - normalised fully diluted (NOK)

 

 

(2.58)

(2.79)

(2.42)

(2.17)

EPS - reported (NOK)

 

 

(2.58)

(2.79)

(2.42)

(2.17)

Dividend per share (ore)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

367,415

371,129

376,788

376,521

Intangible Assets

366,250

370,240

370,240

370,240

Tangible Assets

1,165

889

604

337

Investments

0

0

5,944

5,944

Current Assets

 

 

276,193

166,509

89,381

16,320

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

261,573

151,189

74,061

1,000

Other

14,620

15,320

15,320

15,320

Current Liabilities

 

 

(28,295)

(59,377)

(46,070)

(47,018)

Creditors

(28,295)

(50,250)

(33,181)

(34,129)

Short term borrowings

0

(9,127)

(12,889)

(12,889)

Long Term Liabilities

 

 

(108,156)

(103,565)

(105,805)

(156,791)

Long term borrowings

(48,806)

(43,933)

(46,173)

(97,159)

Other long-term liabilities

(59,350)

(59,632)

(59,632)

(59,632)

Net Assets

 

 

507,157

374,696

314,294

189,032

CASH FLOW

Operating Cash Flow

 

 

(111,093)

(112,816)

(144,884)

(124,018)

Net Interest

2,347

1,249

0

0

Tax

0

0

0

0

Capex

(56)

0

(31)

(29)

Acquisitions/disposals

0

0

0

0

Financing

194,407

(30)

67,785

0

Other

(4,753)

(3,041)

1

0

Dividends

0

0

0

0

Net Cash Flow

80,852

(114,638)

(77,128)

(124,047)

Opening net debt/(cash)

 

 

(131,915)

(212,767)

(98,129)

(14,999)

HP finance leases initiated

0

0

0

0

Other

0

0

(6,002)

0

Closing net debt/(cash)

 

 

(212,767)

(98,129)

(14,999)

109,048

Source: Targovax accounts, Edison Investment Research


General disclaimer and copyright

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

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

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

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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

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

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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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

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

General disclaimer and copyright

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

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

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

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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

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

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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