Successful manufacturing of first TCR therapy

Medigene 19 November 2018 Update
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Medigene

Successful manufacturing of first TCR therapy

Q3 results

Pharma & biotech

 

19 November 2018

Price

€9.59

Market cap

€236m

Net cash (€m) at 30 September 2018 (including time deposits)

76.3

Shares in issue

24.6m

Free float

80.3

Code

MDG1

Primary exchange

Xetra

Secondary exchange

Frankfurt

Share price performance

%

1m

3m

12m

Abs

(14.0)

(28.5)

(12.5)

Rel (local)

(10.7)

(22.9)

0.7

52-week high/low

€18.8

€9.5

Business description

Medigene is a German biotech company with complementary technology platforms in cancer immunotherapy. Its dendritic cell vaccines and T-cell receptors (TCRs) are both in Phase I/II clinical studies.

Next events

DC vaccine initial clinical data

H119

MDG1011 initial clinical data

2019

Analyst

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Medigene is a research client of Edison Investment Research Limited

Medigene’s MDG1011 trial in MM, AML and MDS is ongoing and the first MDG1011 TCR cell product has been successfully produced. Additionally, procedures to speed up patient enrolment are being rolled out, including the simplification of enrolment criteria and the addition of new trial centres. We continue to forecast that clinical data from both the Phase I part of the MDG1011 Phase I/II clinical TCR trial and the now fully enrolled Phase I/II dendritic cell (DC) vaccine trial will be available in 2019. Financials for 9M18 were above guidance, driven by a reduction in expected R&D costs. We now forecast a net loss of €16.9m in FY18 vs €18.4m previously. Additionally, Medigene announced an exclusive licence agreement with Leiden University to develop a TCR against HA-1, an antigen expressed in a range of cancers. We value Medigene at €457m.

Year end

Revenue (€m)

PBT* (€m)

EPS* (€)

DPS (€)

P/E (x)

Yield (%)

12/16

9.7

(13.4)

(0.66)

0.0

N/A

N/A

12/17

11.4

(12.4)

(0.60)

0.0

N/A

N/A

12/18e

10.4

(16.3)

(0.70)

0.0

N/A

N/A

12/19e

11.0

(17.1)

(0.70)

0.0

N/A

N/A

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

MDG1011 TCR trial: Patient screening ongoing

The first personalised MDG1011 TCR therapy has been manufactured in the Phase I/II clinical trial and met the requirements needed for patient administration. However, due to the progression of the patient’s disease, the treatment could not to be administered. Screening of patients is ongoing, although strict enrolment criteria (eg PRAME+ and HLA-A*02:01+) mean that only 10–20% of potential patients are eligible for treatment. We forecast initial Phase I data in 2019.

Leiden University agreement expands pipeline

Medigene has announced an exclusive worldwide licence agreement with Leiden University Medical Center (LUMC) to develop, manufacture and commercialise an HA-1 specific TCR for cancer treatment. The HA-1 TCR has been tested in five patients by LUMC and was well tolerated. LUMC will receive a one-time payment from Medigene plus milestone payments and low-single digit royalties.

9M18 financials: Lower than expected costs

To reflect new guidance, we have lowered our FY18 R&D forecasts to €20.1 vs €21.6m previously, as H118 clinical trial costs continue to be lower than previously forecast due to slower patient enrolment. We now forecast an FY18 EBITDA loss of €16.7m vs a loss of €18.2m previously. Medigene’s net cash at end September 2018 was €76.3m (including time deposits).

Valuation: €457m (€18.59/share)

We value Medigene at €457m (€18.59/share) vs €453m (€18.47/share) previously as a result of rolling forward our model and updating it for net cash. This is based on an rNPV of its TCR, DC and legacy assets in addition to deal metrics for the bluebird bio partnership and legacy asset, Veregen.

TCR trial: New protocols in place to drive enrolment

Medigene’s lead TCR product candidate, MDG1011, is a TCR that targets preferentially-expressed antigen in melanoma (PRAME) and is currently in the Phase I stage of a Phase I/II clinical trial. The company is initially planning to enrol 12 patients into the Phase I trial with one of three relapsed or refractory blood cancers: r/r multiple myeloma (MM), acute myeloid leukaemia (AML) or myelodysplastic syndrome (MDS). An additional 80 patients are expected to be enrolled in the Phase II stage (total of 92 patients). Prospective patients will be genotyped to ensure they are HLA-A*02:01 positive and PRAME positive, and all patients enrolled will undergo a cyclophosphamide and fludarabine preconditioning regimen. The Phase I component of the trial is designed to test up to three dose cohorts (an optional fourth dose cohort may be utilised) in a 3+3 design (12 patients in total). Patient screening is currently ongoing with no patient having received treatment to date. However, Medigene has successfully manufactured the first MDG1011 TCR cell therapy but, due to the progression of the patient’s disease, the treatment could not be administered.

After discussions with the German regulatory authority, Medigene has been granted permission to amend its trial enrolment criteria with the aim of speeding up enrolment by changing the inclusion criteria from one patient per disease in each dose cohort to at least one MM patient and at least one patient of either AML or MDS. Multiple myeloma has a higher incidence rate than that of AML or MDS, so this change should be beneficial as it could enable the inclusion of two MM patients per cohort.

We note that the inclusion criteria remain relatively restrictive (eg HLA-A*02:01 positive and PRAME positive) and only 10–20% of patients screened are likely to make it into the trial. To expand the eligible patient population, Medigene has optimised its analytical method for determining whether a patient is PRAME positive so that lower levels of clinically relevant PRAME expression can now be detected.

Additionally, as demonstrated by the first cell product manufactured, patients may progress in the time (approximately two months) between having their T-cells removed, genetically modified (to make MDG1011) and then infused back into them (known as the vein-to-vein time). At this point, patients are no longer eligible for treatment. This is a well-known problem with cell therapy clinical trials and has been observed in other TCR and CAR-T trials. We expect a gradual and small reduction in the vein-to-vein time as the trial progresses and Medigene’s expertise with cell production increases. Medigene is also preparing to open both new clinical trial centres to increase the number of patients screened and to start screening some patients at referral centres instead of clinical trial sites (to speed up the time to treatment).

In addition to these time concerns relating to manufacturing and screening, there are numerous safety periods in the Phase I component of the trial where no new patients can be treated (notably, at each dosing level, once all patients have been treated, a four-week safety follow-up will be observed before an independent data and safety monitoring board decides if the next dosing level should be administrated).

For now we retain our assumption that initial data (Phase I data, potentially first dose group) from the trial will be available in 2019 and that the Phase II part of the trial is likely to start in 2020. However, based on the sensitivities discussed above, these timings could alter further.

For further details of the MDG1011 trial design, please see our outlook note, TCR enters the clinic, published on 27 March 2018.

Minor histocompatibility antigen HA-1 potential across cancers

With the signing of an exclusive worldwide licence agreement with LUMC, Medigene has added an additional TCR asset to its pipeline. Under the agreement, Medigene will further develop an HA-1 specific TCR for the potential use in either solid or liquid cancers. The plans for development remain undisclosed at this time, but Medigene notes that it sees significant commercial and clinical opportunity with this antigen (Exhibit 1). We envision that a similar Phase I/II trial to the one currently being implemented with MDG1011 could be undertaken by the end of 2019. However, at this time we do not include HA-1 TCR in our valuation or financials and await more details on the product development strategy, at which point we will reassess the situation.

To date, an HA-1 specific TCR has been tested by LUMC in five patients (clinical trial registry). Data are yet to be published, but Medigene reports that the therapy was well tolerated. The trial was originally meant to enrol 20 patients, but was halted early due to slow enrolment as a result of complications in the trial design and manufacturing. Medigene will implement its own manufacturing processes and use the experience it is gaining with the MDG1011 clinical trial to try and bypass many of these previous issues. We note while LUMC has clinically tested the HA-1 TCR, Medigene will have to start the clinical trial development from scratch with a dose-escalation Phase I study. This is because Medigene is using its own manufacturing processes, which will classify the HA-1 TCR as a new product. We await the publication of efficacy data from the LUMC trial to further assess the potential of a HA-1 TCR.

While the proposed indications are currently undisclosed, Medigene is likely to focus on cancers where HA-1 is abundant, including leukaemias and lymphomas. Additionally the HA-1 TCR could potentially be utilised in solid cancers like renal cell carcinoma and breast cancer.

Exhibit 1: HA-1 TCR advantages

Source: Medigene Q318 company presentation

Technical investments for the future

In August 2018, Medigene announced a collaboration with Structured Immunity (SI), which will provide structural immunology expertise to aid Medigene’s TCR selections. The collaboration will involve studying the interactions between a TCR and the corresponding MHC-peptide complexes. Additionally, the project will be supported by the expertise of the research laboratory of Dr Brian Baker at the University of Notre Dame and the IDEA (Innovation, De-Risking and Enterprise Acceleration) Centre.

SI has built a multifaceted platform that can determine TCR structure utilising x-ray crystallography, characterise TCR-peptide/MHC stability and affinity, asses TCR specificity, and provide structure-guided protein engineering solutions. Initially, the work will involve SI analysing the specificity and recognition properties of a Medigene-produced TCR selected against a solid tumour target.

In addition to seeking external expertise, Medigene continues to develop its internal platform (as noted by more than 15 patent applications in 2018). In March 2018, Medigene announced the grant of a European patent (EP2327763, expires in August 2026) that is based on the ability to discover antigen-specific MHC class-II-restricted CD4+ T-cells for use in the treatment of solid tumours. Based on internal and external research, Medigene believes that CD4+ T-cells will be able to enter and kill solid tumour tissue. This approach could broaden the number of potential tumour antigen targets and Medigene continues to refine the process with additional IP pending.

9M18 financials: Funded through trial readouts

Medigene reported 9M18 revenue of €6.0m (9M17: €5.2m) driven by increases in immunotherapy revenue (as a result of the bluebird collaboration), which rose 38% to €4.7m (9M17: €3.4m).

COGS and selling expenses in the period reduced to €0.7m and €1.4m respectively (vs €0.9m and €1.8m in 9M17). The reduction in costs was a result of the termination agreement with the API provider for Veregen in the previous year. General administrative expenses remained flat at €4.5m in 9M18.

R&D expenses increased to €13.3m (vs €11.1m in 9M17) as a result of the ongoing clinical trials, but were lower than forecast as the MDG1011 clinical trial costs continue to be below expectations due to both a later than expected trial start and slower than anticipated patient enrolment. Medigene has again (following Q2 revision) revised its forecast R&D costs downwards for FY18. As a result, we have adjusted our FY18 R&D forecasts to €20.1m vs €21.6m previously.

The 9M18 EBITDA loss increased by 5% to €10.7m (9M17: €10.14m). We now forecast an FY18 EBITDA loss of €16.7m vs a loss of €18.2m previously.

9M18 net loss increased to €12.2m vs €10.7m previously. We now forecast an FY18 net loss of €16.9m vs a loss of €18.4m previously.

The net cash position at end September 2018 of €76.3m (including time deposits) should enable the funding of Medigene beyond 2020 based on current forecast expenditure. We forecast a FY18 cash utilisation of €13.7m excluding the May 2018 €30.1m net capital raise.

Exhibit 2: Financial summary

€'000s

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

9,749

11,375

10,409

11,018

of which: Veregen revenues (royalties/milestones/supply)

3,048

2,790

1,433

1,582

R&D partnering (SynCore/Falk Pharma/grants)

3,155

0

0

0

Non-cash income (Eligard)

2,493

3,699

3,699

3,699

Bluebird bio partnership

1,053

4,886

5,278

5,738

Cost of sales

(1,402)

(1,621)

(553)

(613)

Gross profit

8,347

9,754

9,856

10,405

Selling, general & administrative spending

(10,025)

(8,266)

(7,186)

(7,395)

R&D expenditure

(11,538)

(14,877)

(20,084)

(21,691)

Other operating spending

0

0

0

0

Operating profit

(8,974)

(13,389)

(17,414)

(18,680)

Goodwill & intangible amortisation

(525)

(524)

(523)

(522)

Exceptionals

4,242

0

0

0

Share-based payment

0

0

0

0

EBITDA

 

 

(12,371)

(12,122)

(16,666)

(17,933)

Operating Profit (before amort. and except.)

 

 

(12,691)

(12,865)

(16,891)

(18,158)

Net interest

(1,009)

(1,434)

(691)

(478)

Other (forex gains/losses; associate profit/loss)

263

1,884

1,278

1,546

Profit Before Tax (norm)

 

 

(13,437)

(12,415)

(16,304)

(17,090)

Profit before tax (reported)

 

 

(9,720)

(12,939)

(16,827)

(17,612)

Tax

228

(634)

(101)

(101)

Profit/(loss) from discontinued operations

0

0

0

0

Profit after tax (norm)

(13,209)

(13,049)

(16,405)

(17,191)

Profit after tax (reported)

(9,492)

(13,573)

(16,928)

(17,713)

Average number of shares outstanding (m)

20.0

21.6

23.4

24.6

EPS - normalised (c)

 

 

(66.20)

(60.42)

(70.03)

(70.01)

EPS - Reported (€)

 

 

(0.48)

(0.63)

(0.72)

(0.72)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

47,742

48,595

47,460

47,357

Intangible assets & goodwill

35,767

36,292

35,769

35,247

Tangible assets

3,323

4,329

4,717

5,136

Other non-current assets

8,652

7,974

6,974

6,974

Current assets

 

 

63,973

63,342

78,717

58,829

Stocks

7,866

7,724

7,724

7,724

Debtors

1,175

1,699

680

680

Cash

52,630

51,724*

68,119*

48,230*

Other

2,302

2,195

2,195

2,195

Current liabilities

 

 

(11,966)

(9,808)

(8,699)

(8,699)

Trade accounts payable

(973)

(725)

(798)

(798)

Short-term borrowings

0

0

0

0

Deferred income

(3,575)

(3,575)

(3,495)

(3,495)

Other

(7,418)

(5,508)

(4,406)

(4,406)

Long-term liabilities

 

 

(21,157)

(15,962)

(20,379)

(17,042)

Pension provisions

(408)

(405)

(405)

(405)

Long-term borrowings

0

0

0

0

Other liabilities (Deferred taxes; Trianta milestones)

(2,395)

(3,672)

(3,672)

(3,672)

Deferred revenues (Eligard non-cash income & bluebird bio)

(18,354)

(11,885)

(16,302)

(12,965)

Net assets

 

 

78,592

86,167

97,099

80,446

CASH FLOW

Operating cash flow

 

 

(3,611)

(20,729)

(15,987)

(19,465)

Net interest

(45)

(45)

109

322

Tax

(102)

(75)

(101)

(101)

Capex

(1,677)

(1,533)

(613)

(644)

Expenditure on intangibles

0

0

0

0

Acquisitions/disposals

10,537

480

1,242

0

Equity financing

(77)

19,329

30,078

0

Other

846

1,667

1,667

0

Net cash flow

5,871

(906)

16,395

(19,888)

Opening net debt/(cash)

 

 

(46,759)

(52,630)

(51,724)

(68,119)

HP finance leases initiated

0

0

0

0

Other (foreign exchanges differences)

0

0

0

0

Closing net debt/(cash)

 

 

(52,630)

(51,724)

(68,119)

(48,230)

Source: Company accounts, Edison Investment Research. Note: *Cash consists of cash in addition to both long- and short-term time deposits.

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

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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.

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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.

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

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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