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New large indication for UV1

Ultimovacs 13 December 2021 Update
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Ultimovacs

New large indication for UV1

Company update

Pharma & biotech

13 December 2021

Price

NOK107

Market cap

NOK3,659m

Net cash (NOKm) at end Q321 plus share issue

618

Shares in issue

34.2m

Free float

91%

Code

ULTI

Primary exchange

Euronext Oslo

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(16.4)

(1.8)

75.4

Rel (local)

(13.5)

(4.8)

43.5

52-week high/low

SEK162

SEK60

Business description

Ultimovacs is a biotechnology company developing novel immunotherapies against cancer. The lead product candidate, UV1, is a peptide-based vaccine against the universal cancer antigen telomerase (hTERT). Around 85% of all cancer types express high levels of hTERT. Therefore, UV1 has a broad potential in a variety of different settings and combinations with other cancer treatments.

Next events

Cohort 2 24-month follow-up data from Phase I trial of UV1 plus CPI in melanoma

2022

Top line results Phase II INITIUM

H222

Top line results Phase II NIPU

H222

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

Ultimovacs is a research client of Edison Investment Research Limited

Ultimovacs has made the decision to expand its R&D pipeline with a new indication, non-small cell lung cancer (NSCLC), for its lead asset the therapeutic cancer vaccine, UV1. The sponsorship arrangement will be similar to most of the other Phase II trials: Ultimovacs will work closely with the lead investigator and will provide financial support. The company will be able to continue the development if the Phase II data are positive. Despite significant progress being made with the advent of immunotherapies, NSCLC is still a challenging cancer to manage. Ultimovacs aims to position UV1 as a combination therapy with Keytruda in a first-line setting, which means it is targeting the biggest share of the large NSCLC market. We adjust our model to include the new opportunity and increase our valuation to NOK6.13bn or NOK179/sh (from NOK128/sh).

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/19

0.0

(61.2)

(2.67)

0.0

N/A

N/A

12/20

0.0

(120.6)

(3.98)

0.0

N/A

N/A

12/21e

0.0

(150.0)

(4.53)

0.0

N/A

N/A

12/22e

0.0

(194.2)

(5.67)

0.0

N/A

N/A

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

Another set of good data from Phase I in melanoma

At the cut-off date of 12 October 2021, every patient in the first cohort (n=20) of the Phase I trial (Exhibit 1; UV1 plus Keytruda in metastatic melanoma) had been followed for at least 24 months from the start of their treatment. In this group the overall survival (OS) was 80%, progression-free survival (PFS) of 18.9 months was reported previously. This compares favourably with historical comparable data, OS of 58% and PFS 5.5–11.6 months (Robert et al 2019; FDA label; see our analysis of previous results in our last published report). We note that Ultimovacs recently received a fast-track designation for UV1 in combination with checkpoint inhibitors (CPIs) in advanced melanoma, as well as orphan drug designation for the treatment of stage IIB–IV melanoma, both from the FDA.

Entering an active newsflow period

These findings and previously reported follow up data from the Phase I trial were a significant driver behind the share price rally in H221. The final readout (after 24 months of follow up) from the second cohort is expected in 2022. This will set expectations for Ultimovacs’ Phase II trial INITIUM, where melanoma patients in the active arm are treated with triple combination UV1 plus nivolumab plus ipilimumab. Readouts are expected every year over the next several years from all Phase II trials, so Ultimovacs is entering an active newsflow period.

Valuation: NOK6.13bn or NOK179 per share

Our updated valuation is NOK6.13bn or NOK179/share (NOK4.08bn or NOK128/share previously). We have added an rNPV model to assess the potential of the new NSCLC indication. The new indication, the improved cash position and rolling our model forward more than offset the dilution from the share issue. The company is now financed until early 2024. Some of the key readouts from the Phase II trials should be announced before that (Ultimovacs intends to update guidance in the Q421 report, more details below).

Both fast-track and orphan drug designations received

Ultimovacs recently received a fast-track designation for UV1 in combination with CPIs in advanced melanoma, as well as orphan drug designation for the treatment of stage IIB–IV melanoma, both awarded by the FDA. Orphan drug designation provides such benefits as seven-year market exclusivity after regulatory approval, exemption from FDA application fees and tax credits for qualified clinical trials. The fast-track designation enables early and frequent communication with the FDA to support UV1’s development and provides eligibility for accelerated approval and priority review in certain cases. It also allows a rolling review of the biologic licence application (BLA) by the FDA (ie the BLA can be submitted even when the data package is not full, which shortens the regulatory review time).

In addition to all these benefits, we view the designations as an external validation of UV1 technology to some extent. For example, for the fast-track designation the FDA considered the available clinical data (the previously mentioned Phase I findings). Even though it is not an official assessment of UV1’s efficacy, the fact that the FDA reviewed the available data and awarded the designation is reassuring for both investors and the physicians, who are involved in Ultimovacs’ trials and treat the patients with UV1.

NSCLC indication expands the R&D pipeline

In October 2021, Ultimovacs announced that it will investigate UV1 in a new Phase II trial, LUNGVAC, in combination with pembrolizumab in NSCLC. This will be a Norway-based multi-centre, randomised (two equally balanced arms), open-label trial assessing the safety and efficacy of UV1 in combination with pembrolizumab versus pembrolizumab alone in NSCLC patients with advanced or metastatic disease. The trial is sponsored by Drammen Hospital, based just outside Oslo, Norway. However, as with other Phase II studies in its pipeline (except INITIUM in melanoma, which is run solely by Ultimovacs), the company is closely working with the lead investigators, will provide financial support and, if the data are positive, Ultimovacs could carry on the development. The trial will enrol 138 patients, who meet the following criteria:

certain histological subtypes, specifically adenocarcinoma or squamous cell carcinoma,

at least 50% of malignant cells express the PD-L1 (prerequisite for pembrolizumab monotherapy), and

patients must be pembrolizumab (anti-PD-1) treatment-naïve (first-line setting).

These subgroups represent approximately one third of all advanced and metastatic NSCLC patients. The primary endpoint of the trial will be PFS. Secondary endpoints will include overall response rate (ORR) and OS. The first patient is expected to be treated in H122, with that data readout from LUNGVAC anticipated by the end of 2024.

Exhibit 1: NSCLC cancer treatment options and the design of the Phase II trial

Source: Ultimovacs (partially sourced from GlobalData)

NSCLC: Review of the opportunity

NSCLC generally presents late and is frequently diagnosed at stage IV when metastatic, so it is still a significant unmet need despite that fact that the management of this cancer has evolved drastically with the advent of immunotherapy. The American Cancer Society estimates 235,760 new lung cancer patients will be diagnosed in 2021 in the United States, c 85% of which will have NSCLC. While smoking is a risk factor in a percentage, driver mutations (alteration in a gene that can drive cancer growth) can lead to NSCLC even in non-smokers.

Over the last decade the treatment paradigm for NSCLC has evolved significantly with the approval of targeted therapies and immunotherapies. It is now common practice to screen NCSLC patients for biomarkers to determine the most effective treatment approach; PD-L1, EGFR and ALK status in particular. Those with addressable driver mutations (approximately 25% of NSCLC patients) receive targeted therapies specific to the mutation as first line treatment, while CPIs are increasingly used as a first-line standard of care for patients not harbouring a specific driver mutation. Keytruda is the market-leading PD-1 CPI (Merck & Co, consensus sales forecast of $27bn in 2026). Patients with PD-L1 greater than 50% are eligible for Keytruda monotherapy, while patients with PD-L1 <50% receive platinum doublet chemotherapy with or without Keytruda.

Exhibit 2: R&D pipeline

Source: Ultimovacs

Valuation

Assumptions for NSCLC project

The addition of the NSCLC indication to the R&D pipeline is a significant expansion since this particular cancer type is one of the most common malignancies. Furthermore, Ultimovacs is targeting the first line treatment segment and with the most popular CPI. All this translates into high potential peak sales and NSCLC now having a significant weight in our sum-of-the-parts valuation of Ultimovacs (Exhibit 3).

To value UV1 in the new setting we used a similar approach as with other indications, risk-adjusted net present value (NPV), and developed a bottom-up model using these assumptions:

Target population: we use a target population of c 135k in the selected markets (the United States and top European countries). As with other indications, we have focused on the Western markets (the United States and top 15 wealthy European countries). The drug development and approval requirements in these countries are similar, however if the data are positive, we believe the expansion into Asian markets (Japan, China and others) would be a matter of time (in large scale Phase III programmes it is possible to include recruitment centres worldwide, eg in Japan, which would likely enable registration without the need for bridging studies).

Assumed 25% peak penetration.

Pricing: $110k per patient per year in the United States, 50% discount in Europe (the same as other indications; for comparison, Keytruda’s cost is estimated at $150k in the United States). Peak sales in six years.

Trial timelines and R&D cost: we assume $5m in R&D costs per year while the Phase II study is running until out-licensing.

We assume a global out-licensing in 2024: unchanged from our previous report. The timing of any deal is uncertain, but in our model we assume a global out-licensing deal in 2024. Detailed discussion about out-licensing approach and comparable transactions is in our initiation report.

We assume approval and launch in 2029: one year later than the other indications we already have in our model.

With regards to the trial progress across the R&D pipeline, Ultimovacs indicated in the Q321 presentation that it will provide updated guidance on expected enrolment timelines and potential readouts together with the Q421 report. The company also reminded investors that the current guidance was issued before the pandemic, implying this may have affected recruitment speeds. Even though some delays may be expected, we see this as an industry-wide issue and not company specific. In addition, Ultimovacs is reporting how many new patients are recruited to all Phase II trials each quarter. Such transparency is rare to see.

Valuation update

Our updated valuation is NOK6.13bn or NOK179 per share (NOK4.08bn or NOK128 per share previously). Our valuation is based on risk-adjusted NPV analysis using a 12.5% discount rate, including estimated net cash of NOK618m (cash on balance sheet at end-Q321 plus share issue). Our model now includes five rNPV projects, which all are based on a similar bottom-up approach (more details in our initiation report).

Exhibit 3: Valuation of Ultimovacs

Product

Launch

Peak sales*
($m)

NPV (NOKm)

NPV/share (NOK/share)

Probability

rNPV (NOKm)

rNPV/share (NOK/share)

UV1 – malignant melanoma

2028

1,230

3,341.1

97.6

25.0%

900.3

26.3

UV1 – mesothelioma

2028

560

1,554.7

45.4

25.0%

418.0

12.2

UV1 – ovarian cancer

2028

764

2,076.4

60.7

25.0%

580.3

17.0

UV1 – Head and neck cancer

2028

1,330

3,808.0

111.3

25.0%

1,101.3

32.2

UV1 – NSCLC

2029

2,683

8,172.4

238.8

25.0%

2,516.5

73.5

Net cash, last reported

 

 

617.8

18.1

100.0%

617.8

18.1

Valuation

 

 

19,570.4

571.9

6,134.1

179.2

Source: Edison Investment Research. Note: Peak sales rounded to the nearest $10m.

Financials

Share issue completed

Together with the announcement of the new indication for UV1, Ultimovacs has also carried out a successful share issue raising proceeds of NOK270m gross, at the high end of the range indicated before the subscription start. In total, the company issued 2,160,000 new shares (or 6.3% of the previously issued) at NOK125 per share. Ultimovacs timed the share issue well, in our view, capitalising on the share price strength after positive data readouts earlier this year. The company has secured funding for several strategic goals:

Financing of the Phase II trial LUNGVAC,

Developing the UV1 programme to Phase III-ready stage,

Further development of the Tetanus-Epitope-Targeting (TET) technology platform, and

General corporate purposes.

The existing funding should be sufficient until early 2024 and includes several key readouts. As discussed above, we assume a licensing deal in 2024, which if the data are positive, is a reasonable timing (we assume full out-licensing, but in reality, various other arrangements are possible, for example co-development or out-licensing of regional rights).

Estimate revision

Ultimovacs reports no revenues, while operating spend was NOK113m in 9M121, a modest increased from NOK99m in 9M20. The operating spend should increase further in 2022 as the new trials start recruiting patients. We increase our operating loss estimates to NOK154m and NOK198m in 2021 and 2022, respectively.

The company had cash of NOK618m (cash on balance sheet at end-Q321 plus share issue) and no debt. This should be sufficient to fund budgeted activities until early 2024. Some of the key readouts from the Phase II trials should be announced before that time, which will be significant catalysts for the share price.

Exhibit 4: Financial summary

Year end 31 December

NOK'000s

2018

2019

2020

2021e

2022e

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Total revenues

0

0

0

0

0

Cost of sales

0

0

0

0

0

Gross profit

0

0

0

0

0

SG&A (expenses)

(27,078)

(20,160)

(50,989)

(66,708)

(68,376)

R&D costs

(28,844)

(43,995)

(70,438)

(84,526)

(126,788)

Other income/(expense)

0

0

0

0

0

Exceptionals and adjustments

 

0

0

0

0

0

Reported EBITDA

 

(55,922)

(64,155)

(121,427)

(151,234)

(195,164)

Depreciation and amortisation

(601)

(2,063)

(2,720)

(3,114)

(2,991)

Reported Operating Profit/(loss)

(56,523)

(66,218)

(124,147)

(154,347)

(198,155)

Finance income/(expense)

1,242

5,051

3,593

4,322

3,958

Other income/(expense)

0

0

0

0

0

Exceptionals and adjustments

0

0

0

0

0

Reported PBT

(55,281)

(61,167)

(120,554)

(150,025)

(194,198)

Income tax expense

0

0

0

0

0

Reported net income

 

(55,281)

(61,167)

(120,554)

(150,025)

(194,198)

Basic average number of shares (m)

15.6

22.9

30.3

33.1

34.2

Basic EPS (NOK)

 

(3.55)

(2.67)

(3.98)

(4.53)

(5.67)

Diluted EPS (NOK)

(3.55)

(2.67)

(3.98)

(4.53)

(5.67)

BALANCE SHEET

Property, plant and equipment

 

736

536

377

359

341

Intangible assets

56,418

55,519

64,551

61,737

59,046

Other non-current assets

0

3,523

3,630

3,630

3,630

Total non-current assets

68,135

70,429

80,353

77,521

74,812

Cash and equivalents

 

115,540

399,607

440,925

572,085

386,584

Trade and other receivables

0

0

0

0

0

Other current assets

6,184

8,004

8,438

8,438

8,438

Total current assets

121,724

407,611

449,363

580,523

395,022

Non-current loans and borrowings

0

0

0

0

0

Total non-current liabilities

 

10,981

13,152

13,870

13,870

13,870

Trade and other payables

 

2,978

11,768

8,611

10,190

9,400

Other current liabilities

15,996

7,164

17,149

17,149

17,149

Total current liabilities

18,974

20,257

27,467

29,046

28,256

Equity attributable to company

159,904

444,632

488,380

615,132

427,711

CASH FLOW

Operating Profit/(loss)

 

(56,523)

(66,218)

(124,147)

(154,347)

(198,155)

Depreciation and amortisation

601

2,063

2,720

3,114

2,991

Other adjustments

0

0

0

0

0

Movements in working capital

5,528

(1,862)

6,395

1,579

(789)

Interest paid / received

0

0

0

0

0

Income taxes paid

0

0

0

0

0

Cash from operations (CFO)

(50,389)

(62,989)

(108,224)

(138,556)

(185,219)

Capex

(513)

(172)

(282)

(282)

(282)

Acquisitions & disposals net

 

0

0

0

0

0

Other investing activities

1,247

4,490

(455)

0

0

Cash used in investing activities (CFIA)

(3,852)

4,318

(737)

(282)

(282)

Net proceeds from issue of shares

0

344,582

152,933

270,000

0

Movements in debt

0

0

0

0

0

Other financing activities

0

(1,579)

(1,916)

0

0

Cash from financing activities (CFF)

0

343,003

151,017

270,000

0

Increase/(decrease) in cash and equivalents

(54,269)

284,067

41,317

131,162

(185,501)

Cash and equivalents at beginning of period

169,808

115,539

399,606

440,923

572,085

Cash and equivalents at end of period

115,539

399,606

440,923

572,085

386,584

Net (debt) cash

115,540

399,607

440,925

572,085

386,584

Source: Ultimovacs accounts, Edison Investment Research


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This report has been commissioned by Ultimovacs and prepared and issued by Edison, in consideration of a fee payable by Ultimovacs. Edison Investment Research standard fees are £60,000 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.

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This report has been commissioned by Ultimovacs and prepared and issued by Edison, in consideration of a fee payable by Ultimovacs. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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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.

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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.

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