OSE Immunotherapeutics — Positive Tedopi step 1, rethinking its future

OSE Immunotherapeutics (PAR: OSE)

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Research: Healthcare

OSE Immunotherapeutics — Positive Tedopi step 1, rethinking its future

On 1 April 2020, OSE announced that the primary endpoint was met in the predefined step 1 analysis of the Phase III Atalante 1 trial with OSE’s cancer vaccine Tedopi in HLA-A2 positive, non-small cell lung cancer (NSCLC) patients after they failed checkpoint inhibitors (CPIs, anti-PD-1 or anti-PD-L1). The patients (n=99) were randomised and received treatment at least 12 months before step1 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. In the chemotherapy control arm, the 12-month survival rate was 36% (13 out of 36). Due to the COVID-19 pandemic, OSE has decided to terminate enrolment into the step 2 part 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. Our valuation is virtually unchanged at €230m or €15.3/share.

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Written by

Healthcare

OSE Immunotherapeutics

Positive Tedopi step 1, rethinking its future

R&D update

Pharma & biotech

7 April 2020

Price

€4.2

Market cap

€63m

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

15.1

9.7

5.0

Rel (local)

37.1

51.8

33.3

52-week high/low

€4.6

€3.0

Business description

OSE Immunotherapeutics is an immunotherapy company based in Nantes and Paris, France, and listed on the Euronext Paris exchange. OSE 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

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

OSE Immunotherapeutics is a research client of Edison Investment Research Limited

On 1 April 2020, OSE announced that the primary endpoint was met in the predefined step 1 analysis of the Phase III Atalante 1 trial with OSE’s cancer vaccine Tedopi in HLA-A2 positive, non-small cell lung cancer (NSCLC) patients after they failed checkpoint inhibitors (CPIs, anti-PD-1 or anti-PD-L1). The patients (n=99) were randomised and received treatment at least 12 months before step1 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. In the chemotherapy control arm, the 12-month survival rate was 36% (13 out of 36). Due to the COVID-19 pandemic, OSE has decided to terminate enrolment into the step 2 part 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. Our valuation is virtually unchanged at €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

11.1

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.

OSE-127 milestone payment brought forward

In March, OSE announced that it had renegotiated certain deal terms with Servier, which brought the €5m milestone payment forward (of €20m); this is now expected as soon as the first patient is recruited to the Phase II trial with OSE-127 (anti-IL-7R antibody). Notably, two Phase II trials with OSE-127 were planned to start in 2020, but the company indicated that the outbreak may affect these initiations. We note that given the circumstances trial initiation delays are preferable to trial interruptions.

Rethinking Tedopi’s future

OSE had a clear plan for expansion of the Phase III trial and was ready to open more recruitment centres if step 1 analysis was positive. So, the announcement about the termination was unexpected and clearly a result of the COVID-19 pandemic. Because of underlying conditions and immunosuppression due to other treatments, NSCLC patients are vulnerable to coronavirus infections. The positive outcome of the futility analysis means the asset is not compromised and the newly obtained data will likely be used in regulatory and partnering discussions.

Valuation: €230m or €15.3/share

Our valuation of OSE is virtually unchanged at €230m or €15.3/share. We brought the expected €5m payment forward in our rNPV model (risk-adjusted; not yet included in our financial estimates as per our principles). We make no changes to our rNPV model for Tedopi for the moment. However, some modifications to our model will be warranted once OSE releases more information. We reviewed recent R&D progress with other assets in our last report published in March.

Phase III Atalante 1 trial update

As a reminder, this was a Phase III trial with Tedopi, an off-the-shelf cancer vaccine, as second- or third-line treatment vs standard of care (docetaxel or pemetrexed) in HLA-A2 positive patients (c 45% of the total population) with locally advanced (stage IIIB), or metastatic (stage IV) NSCLC. Patients who have failed post-checkpoint inhibitor treatment represent an area where no novel treatment has been approved yet. In total, 99 patients were randomised and received treatment for at least 12 months. The results of the predefined step 1 assessment were:

The 12-month survival rate in the Tedopi arm was 46% (29 out of 63). The predefined futility threshold was 25%, while the obtained confidence interval at 95% of significance level was 33–59%, so a statistically strong result.

In the chemotherapy control arm, the 12-month survival rate was 36% (13 out 36).

Together with the Independent Data Monitoring Committee and the Steering Committee of the trial, OSE has reviewed the prospects for continuation of the trial in light of the COVID-19 pandemic. Since COVID-19 can cause serious complications to NSCLC patients, there is a risk that the trial data could be significantly affected by the outbreak. In addition, industry stakeholders (medical societies, some pharma companies) have recommended or have taken actions to introduce voluntary holds on the recruitment of new patients in oncology trials. OSE has therefore decided not to expand the trial into step 2.

OSE also announced that it would like to discuss these results with the regulatory authorities and agree the best options for further development. In addition to regulatory interactions, OSE indicated that it will actively explore potential partnership opportunities for Tedopi.

Our view

Since step 1 was primarily a futility analysis, statistical significance between the active and control arms is not available at the moment. The absolute difference of 10% in 12-month survival between the arms seems encouraging. The fact that the lower boundary of the 95% confidence interval was well above the predefined futility threshold is a key finding, in our view.

OSE’s intention to seek and establish a partnership is not surprising, as the company is mostly a translational and early- to mid-stage drug developer and never intended to develop its marketing capacity. We also include a licensing deal for Tedopi in our model. We did expect the trial to progress to step 2 of the Phase III Atalante 1 trial even with no partner on board, but the COVID-19 pandemic seems to be the deciding factor in terminating patient recruitment for now. Because of underlying conditions and immunosuppression due to other treatments, NSCLC patients are vulnerable to coronavirus infections. Recruitment and treatment in step 1 were completed in a very timely manner and OSE was able to present the results.

The positive outcome of the futility analysis means the asset is not compromised and the newly obtained data will likely be used in partnering discussions. As is typical in these situations, the timelines for any partnership deals are uncertain. We do not expect any major announcements until the COVID-19 pandemic subsides. Once that happens, updates on partnering discussions and regulatory interactions will be of primary interest.

Update on commercial partnerships

OSE has two commercial partnerships with a total remaining value of c €1.3bn in R&D and commercial milestones plus royalties.

According to the terms of the licensing deal with Boehringer Ingelheim (BI), OSE is eligible to receive up to €1.1bn in milestones plus royalties if certain conditions are met. The €15m in milestones was paid on the initiation of the Phase I trial in 2019. BI will take over development after completion of the Phase I trial. The next milestone payment has not been guided by OSE, but we would expect it after initiation of the Phase II trial. The key message in the FY19 results release was that, unsurprisingly, the COVID-19 pandemic is affecting recruitment of new patients to the trial and ‘further updates will be made when available’.

Deal terms with Servier include total value of the deal, €272m, of which €22m has been received (upfront payment and step 1 milestone). In our last published note, we described the recently announced successful completion of the Phase I study. In March 2020, OSE reported that, together with Servier, it had signed an amendment to the two-step licensing option agreement for OSE-127, which relates to step 2 (for a summary of deal terms, see our initiation report). According to the new terms, €5m in milestones will be paid to OSE once the first patient is enrolled to the Phase IIa trial in Sjögren’s syndrome, while the remaining €15m will be paid after completion of both trials (Sjögren’s syndrome and ulcerative colitis). The previous version of the option agreement terms had the full €20m due after completion of the Phase II study in ulcerative colitis. Both trials were planned to start in 2020 but, as with the other trials, OSE indicated that the ongoing outbreak may have an effect on initiations. We note that given the circumstances, trial initiation delays are preferable to trial interruptions.

Financials

OSE reported a top line of €26.0m in FY19, which was mostly milestones from BI (€15m) and Servier (€10m), while the rest is R&D cost reimbursement to OSE.

Total FY19 operating expenses were €27.4m (81% related to R&D) vs €19.5m in FY18. Out-of-pocket R&D costs are mainly associated with the Tedopi Phase III NSCLC study, as other clinical studies are financed via partnerships. We therefore forecast lower R&D spending in 2020 and 2021 with total operating expenditure estimates of €22.9m and €23.1m respectively. We do not yet include the €5m milestone payment from Servier in our financial estimates (as per our principles), but the updated deal terms are reflected in our rNPV model.

As of end 2019, OSE had cash, cash equivalents and financial assets of €25.8m. The balance sheet also includes debt of €9.8m, which is mainly government loans. OSE guided that if the €5m payment from Servier and €3m in tax credits is received, funding is sufficient to Q121. This implies that OSE is well positioned to weather the COVID-19 pandemic. OSE also indicated that if the trials are significantly affected and delayed, the runway would also be longer as CRO costs would be delayed, which is a mitigating factor.

Valuation

Our valuation of OSE is virtually unchanged at €230m or €15.3/share compared to our note published in March. We have brought the €5m milestone payment from Servier forward in our rNPV model (risk-adjusted). We make no other changes to our assumptions, described in detail in our previous reports, primarily the initiation report. In the near term we will be focusing on:

Any potential updates on further Tedopi programme, either partnering discussions or interactions with regulators. We make no changes to our rNPV model for Tedopi for the moment. However, we previously assumed that step 2 of the trial would start in 2020, so some modifications to our model will be warranted once OSE releases more information.

Updates on the COVID-19 effects on the ongoing clinical trial (Phase I with BI 765063 in multiple cancer indications) or those that were about to start (two Phase II trials with OSE-127 in Sjögren’s syndrome and ulcerative colitis).

Preclinical updates on the BiCKI platform.

Exhibit 1: 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 2: 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

5,256

2,747

Stocks

0

0

0

0

Debtors

2,253

747

747

747

Cash

9,573

25,842

4,509

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)

(16,067)

(35,085)

Long term borrowings

(3,832)

(9,211)

(9,211)

(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)

0

0

0

Closing net debt/(cash)

 

 

(5,113)

(16,538)

5,250

26,777

Source: Company data, Edison Investment Research


General disclaimer and copyright

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

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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.

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General disclaimer and copyright

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

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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.

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.

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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

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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AT&S — First choice for advanced applications

AT&S is the largest provider of high-density interconnect (HDI) printed circuit boards (PCBs) globally. While Q420 performance was affected by the COVID-19 outbreak in China, AT&S is well placed to benefit from rising demand in the medium term for interconnected devices, data servers and autonomous vehicles. Management is investing <€1bn over the next five years in expanding its integrated circuit (IC) substrate capacity fivefold, with the aim of doubling revenues to €2bn with a 25–30% EBITDA margin.

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