Steady progress across pipeline

Targovax 21 November 2018 Update
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Targovax

Steady progress across pipeline

Company update

Pharma & biotech

 

21 November 2018

Price

NOK7.15

Market cap

NOK376m

Cash (NOKm) end-Q318 (excludes government long-term debt of NOK49m repayable only on product launch)

173

Shares in issue

52.6m

Free float

55%

Code

TRVX

Primary exchange

Oslo Stock Exchange

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(29.1)

(35.6)

(51.0)

Rel (local)

(23.5)

(29.9)

(52.1)

52-week high/low

NOK21.3

NOK7.2

Business description

Targovax is an immunoncology company headquartered in Oslo, Norway, with two technology platforms that are being developed in oncological indications. ONCOS-102 is an oncolytic virus technology. TG is a therapeutic cancer vaccine platform comprising peptides mimicking the most common RAS oncogenic mutations.

Next events

ONCOS-102 mesothelioma Phase Ib interim data

H120

ONCOS-102 melanoma Phase I interim data

H119

TG02 colorectal cancer Phase I interim data readout

H119

TG02+PD-1 combination preclinical data

H119

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Alice Nettleton

+44 (0)20 3077 5700

Targovax delivered a steady stream of newsflow in 2018 from R&D projects in its pipeline, and from the recent KOL event in New York and capital markets day in Oslo. Highlights include the announcement of interim data from the Phase I trial with ONCOS-102 (an oncolytic virus) and Keytruda combination in melanoma, and the full dataset from the Phase I/IIa trial with TG01 (a neoepitope cancer vaccine) with gemcitabine combination in resected pancreatic cancer. Our valuation is marginally higher at NOK1.41bn or NOK26.8/share.

Year end

Revenue (NOKm)

PBT* (NOKm)

EPS* (NOK)

DPS (NOK)

P/E (x)

Yield (%)

12/16

0.0

(122.7)

(3.55)

0.0

N/A

N/A

12/17

0.0

(122.3)

(2.58)

0.0

N/A

N/A

12/18e

0.0

(140.8)

(2.67)

0.0

N/A

N/A

12/19e

0.0

(141.0)

(2.67)

0.0

N/A

N/A

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

First response data from ONCOS-102 melanoma trial

On 27 September 2018, Targovax announced the interim data readout from its open-label Phase I study with ONCOS-102 in melanoma in combination with pembrolizumab (Keytruda, Merck & Co). The results included ORR data from six patients and biomarker data from four. One of the six showed complete response (RECIST 1.1 and irRECIST), correlated with an increase in intratumoural T cells; five of the six progressed, but, notably, these were pre-treated patients with relapsed, unresectable disease. Targovax plans to recruit an additional 12 patients to test a modified dosing schedule and will open two new US centres. This will extend the trial timeline, but is necessary to understand the best dosing regimen to increase the likelihood of seeing efficacy in later trials.

Mature TG01 dataset released; focus on TG02 in CRC

The complete dataset from the Phase I/II resected pancreatic cancer trial was presented on 15 October 2018 at the CMD. This included updated immune activation and survival data. Targovax is exploring options for further development of TG01 after it decided to reconsider the R&D path for this asset earlier this year. Potential options include investigator-led studies in pancreatic cancer; TG01 in different pancreatic cancer populations or using a different primary endpoint, eg disease-free survival rather than overall survival; and combination trials with CPIs in other indications. The Phase I trial with the second asset in this platform TG02 in colorectal cancer (CRC) is progressing as planned and the first data are expected in H119.

Valuation: NOK1.41bn or NOK26.8/share

Our valuation is slightly higher, at NOK1.41bn or NOK26.8/share, from NOK1.31bn or NOK24.9/share, due to rolling our model forward, which was partially offset by a lower net cash position. We maintain our other assumptions and see continued interest in the space, as evidenced by the recent deal where Boehringer Ingelheim acquired oncolytic virus developer ViraTherapeutics for €210m in September 2018, whose VSV-GP virus candidate was still in the preclinical stage.

Targovax is a research client of Edison Investment Research Limited

ONCOS-102 update
Second interim data readout from the Phase I melanoma study

As a reminder, Targovax is carrying out an open-label Phase I study with ONCOS-102 in combination with pembrolizumab (PD1 inhibitor) in melanoma at Memorial Sloan Kettering Cancer Center and Fox Chase Cancer Center. The first safety review showed that ONCOS-102 is well tolerated (December 2018). Data from the first four patients (out of 12) at week three (January 2018) showed increased levels of pro-inflammatory cytokines, cytotoxic CD8+ T-cells and expression of PD-1 on CD8+ T-cells (see our March 2018 note). On 27 September 2018, Targovax announced some additional data from the same four patients at week nine and the ORR has now been evaluated in a total of six patients.

First ORR data (1/6 complete response): one patient showed complete response (RECIST 1.1 and irRECIST) after treatment with ONCOS-102 and two doses of pembrolizumab. The patient had prior surgery and treatment with ipilimumab and pembrolizumab. All other patients showed disease progression; however, it is important to note all these patients have already been previously treated with a PD1 inhibitor and later relapsed, hence at the time of ONCOS-102 administration all had advanced, unresectable disease and few treatment options.

Correlation between ONCOS-102, mechanism of action and response: the patient with complete response also showed the greatest relative increase in pro-inflammatory cytokines (during the injection days) and intratumoural CD3+, CD4+ and CD8+ T cells (when measured at week three and week nine), which are biomarkers for innate immune response and immune activation in the tumour respectively (Pt 01-001-05, Exhibit 1). However, it cannot yet be attributed with certainty that this increase in T-cells seen at day 22 is due to ONCOS-102, as pembrolizumab was also given prior to day 22. Lower levels of intratumoural T cells were observed in two patients, who received a lower dose of ONCOS-102 (less than three injections), which also points to a correlation.

Exhibit 1: (A) Cytokine biomarker analysis; (B) T cell biomarker analysis from first four patients to week nine

Up to 12 additional patients on new dosing schedule

Based on the data above, management believes an increased number of ONCOS-102 injections could improve response rates in patients. Therefore, Targovax is updating the study protocol, where ONCOS-102 will be given to new patients for the duration of treatment with pembrolizumab, compared with three injections prior to treatment with pembrolizumab (Exhibit 2). Up to 12 additional patients will be enrolled. This will extend the trial timeline, but in our view it will be beneficial to understand the best dosing regimen to increase the likelihood of seeing efficacy in later trials. The first dataset from the first patient cohort (n=8) is expected in H119, which will include ORR and immune data.

Exhibit 2: Updated Phase I ONCOS-102 melanoma trial protocol for new cohort

TG platform update
TG01 full dataset released

On 15 October 2018, Targovax announced the full and final data from the Phase I/II trial with TG01 in two cohorts of resected pancreatic cancer patients (total n=32) in combination with standard of care chemotherapy gemcitabine. The two cohorts differed in dosing regimen of TG01 and survival data at different maturity stages have been published before (see our last note). The complete two-year follow-up data now include OS, median OS (mOS) and median disease-free survival (mDFS) from the both cohorts and was presented during the capital markets day in October 2018:

Both cohorts combined, n=32

16.1 months median mDFS

33.4 months mOS

72% OS (23/32 patients were alive two years after surgery)

First cohort, n=19

13.9 months mDFS

33.1 months mOS

68% OS (13/19 were alive two years after surgery)

Second cohort, n=13

19.5 months mDFS

mOS not yet reached at time of analysis

77% OS (10/13 patients were alive two years after surgery)

This was Phase I/II trial, so a small patient group, and the absence of a comparator arm means we cannot yet draw any definitive conclusions about clinical efficacy of TG01 in this patient group; however, the survival data looks better when comparing to historical data from the ESPAC4 trial for gemcitabine alone, which showed 13.1 months mDFS and 27.6 months mOS.

In June 2018, a third party released new Phase III data at ASCO that suggested an almost two-year improvement in overall survival in the FOLFIRINOX arm with resected pancreatic cancer patients compared to gemcitabine. This is likely to become a new standard of care and with median overall survival in this specific indication (resected pancreatic cancer) approaching five years, such a long clinical trial became impractical for a small biotech. The CMD presentations sent a message that Targovax remains committed to the TG platform as a whole, and specifically for TG01 asset management outlined a few ideas that are being evaluated for the future development strategy for this asset:

Targovax indicated it has received interest from various institutions, such as cancer networks, to conduct further testing of TG01 in pancreatic cancer. An investigator-initiated trial could be a realistic and cost-effective solution (Targovax already has two such trials running), but this means the timelines of the project would be beyond the company’s control.

Other potential options include the use of (i) different endpoint in resected pancreatic cancer that could reduce the timelines, exploring (ii) TG01 in different pancreatic cancer patient populations or in (iii) combination trials with checkpoint inhibitors in various other indications.

Until more details emerge, we remain conservative and do not make any new additions to our SOTP valuation table, but we will revisit TG01 once more details emerge. Meanwhile, data generated from the ongoing CRC study with TG02 will also help to clarify the TG platform strategy, in our view. The next data from this trial will be released in H119 and will include immune activation and mechanistic data (Exhibit 3).

Exhibit 3: Targovax R&D pipeline

Source: Targovax CMD presentation 11 October 2018. Note: Trials sponsored by collaborators highlighted in grey.

Financials and valuation

With its Q318 results, Targovax reported immaterial revenues, while external R&D expenses were NOK17.3m, compared with NOK10.6m in Q317. As of end-Q318, Targovax’s cash position was NOK173.2m. Given TG01 will not immediately progress into the next trial, there could be a reduction in cash burn in the near term. We have removed the R&D costs associated with the TG01 resected pancreatic cancer trial, which extended cash reach to end-2019/early 2020. Targovax may decide to use additional funds to expedite other programmes in the pipeline, in which case we will revise our estimates accordingly.

Our updated valuation is NOK1.41bn or NOK26.8/share compared to NOK1.31bn or NOK24.9/share previously. Our valuation is based on a risk-adjusted NPV analysis using a 12.5% discount rate, including NOK173.2m gross cash at end-Q318 (Targovax booked long-term debt of NOK48.8m in Finnish government grants, but repayment is needed only if the products are sold or launched). The assumptions relating to the remaining projects in our rNPV model are unchanged. Upcoming near-term catalysts are:

ONCOS-102 mesothelioma Phase I interim data expected in H120

ONCOS-102 melanoma Phase I interim data readout data expected in H119

TG02 CRC Phase I interim data readout data expected in H119

TG02 + PD-1 combination pre-clinical data expected in H119

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

604

2,378.6

45.2

10

423.3

8.0

ONCOS-102 - mesothelioma

2026

434

1,894.2

36.0

10

322.4

6.1

TG02 - CRC

2026

1,744

3,780.6

71.9

10

493.4

9.4

Net cash at end-Q318

173.2

3.3

100%

173.2

3.3

Valuation

8,226.5

156.3

1,412.3

26.8

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

NOK000s

2016

2017

2018e

2019e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

37

37

0

0

Cost of Sales

0

0

0

0

Gross Profit

37

37

0

0

Research and development

(45,001)

(45,571)

(60,000)

(55,567)

EBITDA

 

 

(119,226)

(119,630)

(142,601)

(140,655)

Operating Profit (before amort. and except.)

 

 

(119,510)

(119,926)

(142,897)

(140,951)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(119,510)

(119,926)

(142,897)

(140,951)

Net Interest

(3,203)

(2,347)

2,060

0

Profit Before Tax (norm)

 

 

(122,713)

(122,273)

(140,838)

(140,951)

Profit Before Tax (reported)

 

 

(122,713)

(122,273)

(140,838)

(140,951)

Tax

260

328

0

0

Profit After Tax (norm)

(122,453)

(121,945)

(140,838)

(140,951)

Profit After Tax (reported)

(122,453)

(121,945)

(140,838)

(140,951)

Average Number of Shares Outstanding (m)

34.5

47.3

52.7

52.8

EPS - normalised (NOK)

 

 

(3.55)

(2.58)

(2.67)

(2.67)

EPS - normalised fully diluted (NOK)

 

 

(3.55)

(2.58)

(2.67)

(2.67)

EPS - reported (NOK)

 

 

(3.55)

(2.58)

(2.67)

(2.67)

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

 

 

339,512

367,415

367,203

366,966

Intangible Assets

338,213

366,250

366,250

366,250

Tangible Assets

1,299

1,165

953

716

Investments

0

0

0

0

Current Assets

 

 

185,832

276,193

146,527

18,731

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

171,629

261,573

131,907

4,111

Other

14,203

14,620

14,620

14,620

Current Liabilities

 

 

(29,184)

(28,295)

(27,034)

(27,732)

Creditors

(29,184)

(28,295)

(27,034)

(27,732)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(94,992)

(108,156)

(108,156)

(108,156)

Long term borrowings

(39,714)

(48,806)

(48,806)

(48,806)

Other long term liabilities

(55,278)

(59,350)

(59,350)

(59,350)

Net Assets

 

 

401,168

507,157

378,540

249,809

CASH FLOW

Operating Cash Flow

 

 

(112,892)

(111,093)

(131,643)

(127,737)

Net Interest

3,203

2,347

2,060

0

Tax

0

0

0

0

Capex

(37)

(56)

(84)

(59)

Acquisitions/disposals

0

0

0

0

Financing

114,593

194,407

0

0

Other

(8,738)

(4,753)

1

0

Dividends

0

0

0

0

Net Cash Flow

(3,871)

80,852

(129,666)

(127,796)

Opening net debt/(cash)

 

 

(135,786)

(131,915)

(212,767)

(83,101)

HP finance leases initiated

0

0

0

0

Other

(0)

0

0

0

Closing net debt/(cash)

 

 

(131,915)

(212,767)

(83,101)

44,695

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 Edison analyst 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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Germany

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

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Schumannstrasse 34b

60325 Frankfurt

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London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

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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 Edison analyst 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 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.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.

Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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US

Sydney +61 (0)2 8249 8342

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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