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Research: Healthcare
Targovax’s Q418 presentation discussed highlights from the past year, focusing on the data readouts from the TG01 study in pancreatic cancer (PC) and the ONCOS-102 melanoma Phase I data. Management’s plan for 2019 is largely unchanged: data from the first cohort of the ONCOS-102 melanoma study will be published in H119, treatment of the second cohort is ongoing and early interim data from TG02 colorectal cancer study will be published in H119. Management will also present three-year survival data from the TG01 PC study in H119 and is confident in finding a partner for continued development of TG01 in PC. Cash reaches into 2020, while our valuation is marginally higher at NOK1.46bn or NOK27.7/share.
Written by
Targovax |
Cohort 2 starts in ONCOS-102 melanoma trial |
Q418 results |
Pharma & biotech |
12 March 2019 |
Share price performance
Business description
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Targovax’s Q418 presentation discussed highlights from the past year, focusing on the data readouts from the TG01 study in pancreatic cancer (PC) and the ONCOS-102 melanoma Phase I data. Management’s plan for 2019 is largely unchanged: data from the first cohort of the ONCOS-102 melanoma study will be published in H119, treatment of the second cohort is ongoing and early interim data from TG02 colorectal cancer study will be published in H119. Management will also present three-year survival data from the TG01 PC study in H119 and is confident in finding a partner for continued development of TG01 in PC. Cash reaches into 2020, while our valuation is marginally higher at NOK1.46bn or NOK27.7/share.
Year end |
Revenue (NOKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
0.0 |
(122.3) |
(2.6) |
0.0 |
N/A |
N/A |
12/18 |
0.0 |
(147.3) |
(2.8) |
0.0 |
N/A |
N/A |
12/19e |
0.0 |
(140.2) |
(2.7) |
0.0 |
N/A |
N/A |
12/20e |
0.0 |
(137.2) |
(2.6) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
ONCOS-102 Phase I melanoma study progressing
The focus for the next 12 months will be the ONCOS-102 Phase I melanoma study in combination with Keytruda in CPI refractory patients (discussed in our November 2018 update). ORR and immune data from the first cohort (n=9) will be published in H119, and the first patient from the second cohort (up to 12 patients, increased dosing) was treated on 11 February 2019. Meanwhile, management made progress on its TG platform development strategy and is confident of securing a collaboration agreement for TG01 in pancreatic cancer, potentially as soon as this year. This is now the main development path for the TG01 project, which was modified in response to changing standard of care in pancreatic cancer management (discussed in our June 2018 update).
Financials: Cash reach to 2020
Targovax reported immaterial revenues and an operating loss of NOK42.2m in Q418, compared to NOK32.5m in Q417, largely in line with our expectations. External Q418 R&D expenses were NOK21.0m versus NOK12.2m a year ago indicating a more intensive clinical R&D. Targovax had cash and cash equivalents of NOK151m at the end of Q418 and guided this should be sufficient to reach 2020, which is in line with our model.
Valuation: NOK1.46bn or NOK27.7/share
Our Targovax valuation is modestly higher at NOK1.46bn or NOK27.7/share compared to NOK1.41bn or NOK26.8/share due to rolling our model forward, which was partially offset by lower net cash position. All other assumptions for our rNPV model are unchanged except for a small modification in the colorectal cancer project (see below). ONCOS-102 melanoma Phase I interim data expected in H119 are the nearest major catalyst for the share price, while there will be several other data readouts over the next 12–18 months (Exhibit 4).
Additional immune data from ONCOS-102 first cohort
Targovax presented some additional observations from the first cohort in Phase I melanoma trial where patients were treated with the lead asset oncolytic virus ONCOS-102. Analyses were carried out on tumour biopsies from these patients and the findings suggest ONCOS-102 could effect T-cell activation. We see the results as encouraging, especially because there is a continuing correlation with patient 5 in terms of immune response, who was the only patient with a complete response. A more detailed review of the released data is in our November 2018 note, while the additional details presented during the Q418 results call include:
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IFN-γ ELISPOT analyses of week three biopsies from two patients showed there were increases in tumour-specific T-cells in the tumours (an apparent infiltration of T-cells) measured by the number of T-cells that recognise tumour-specific antigens MAGE-A1 or NY-ESO-1. This suggests that treatment with ONCOS-102 may have elicited a T-cell response in these patients.
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Exhibit 1: Data from two patients showing potential T-cell response |
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Granzyme B, a protease released by cytotoxic T-cells, was measured and data were presented from four patients showing a general increase in granzyme B from baseline to day 22, which had reduced again by day 64. The initial increase also suggests that treatment with ONCOS-102 may have elicited a T-cell response against the tumour. In patient 4 there was an apparent response in both the primary and non-injected tumours, a so-called ‘abscopal effect’.
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Exhibit 2: Granzyme B-expressing CD8+ T-cells, showing change from baseline |
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Financials and valuation
As Targovax’s Q418 results were in line with our expectations, we made no major changes to our estimates. Full-year operating loss was NOK146m with external R&D expenses accounting for NOK64m. We expect the company will maintain similar or slightly less intensive clinical R&D activities (because a partner is being sought for the TG01 project) and our total operating loss estimate for 2019 is NOK140m (unchanged). Therefore, the cash position of NOK151m at the end of Q418 should reach 2020. As Targovax’s R&D pipeline matures, several projects should reach mid-stage around 2021, which is when we expect another substantial increase in R&D spend. The required additional funding for 2020 is reflected in our model (Exhibit 5) as a long-term debt of NOK118m, as per our research principles.
Our updated valuation is NOK1.46bn or NOK27.7/share compared to NOK1.41bn or NOK26.8/share previously, which is based on a risk-adjusted NPV analysis using a 12.5% discount rate, including NOK151m gross cash at end-Q418 (Targovax booked total gross debt of NOK53.1m in Finnish government grants, but repayment is needed only if the products are sold or launched). We increased the required time to market for the colorectal cancer project by one year, which is mainly a result of fine-tuning our NPV model. We keep other assumptions relating to the clinical trials in our rNPV model unchanged (described in our initiation report). Upcoming near-term catalysts are (Exhibit 4):
■
ONCOS-102 mesothelioma Phase I interim data expected in H120.
■
ONCOS-102 melanoma Phase I interim data readout data expected in H119.
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TG02 colorectal cancer Phase I interim data readout data expected in H119.
■
TG01 pancreatic cancer three-year survival data H119.
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TG02 + PD-1 combination pre-clinical data expected in H219.
Exhibit 3: Sum-of-the-parts Targovax valuation
Product |
Launch |
Peak sales |
Unrisked NPV (NOKm) |
Unrisked NPV/share (NOK) |
Probability (%) |
rNPV |
rNPV/share (NOK) |
|||
ONCOS-102 - advanced melanoma |
2025 |
590 |
2,475.5 |
47.0 |
10% |
466.7 |
8.9 |
|||
ONCOS-102 - mesothelioma |
2026 |
424 |
1,967.5 |
37.4 |
10% |
352.2 |
6.7 |
|||
TG02 - CRC |
2027 |
1,714 |
3,377.4 |
64.2 |
10% |
484.9 |
9.2 |
|||
Net cash at end-Q418 |
151.2 |
2.9 |
100% |
151.2 |
2.9 |
|||||
Valuation |
7,971.6 |
151.5 |
1,455.0 |
27.7 |
||||||
Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. Note: Excludes conditional government long-term debt of NOK48.8m.
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Exhibit 4: Targovax R&D pipeline |
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Source: Targovax Q418 presentation 14 February 2019. Note: Trials sponsored by collaborators highlighted in grey. |
Exhibit 5: Financial summary
NOK'000s |
2016 |
2017 |
2018 |
2019e |
2020e |
||
December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
37 |
37 |
27 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
37 |
37 |
27 |
0 |
0 |
||
Research and development |
(45,001) |
(45,571) |
(64,006) |
(55,567) |
(50,103) |
||
EBITDA |
|
|
(119,226) |
(119,630) |
(145,804) |
(139,856) |
(136,929) |
Operating Profit (before amort. and except.) |
|
|
(119,510) |
(119,926) |
(146,100) |
(140,152) |
(137,225) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(119,510) |
(119,926) |
(146,100) |
(140,152) |
(137,225) |
||
Net Interest |
(3,203) |
(2,347) |
(1,249) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(122,713) |
(122,273) |
(147,349) |
(140,152) |
(137,225) |
Profit Before Tax (reported) |
|
|
(122,713) |
(122,273) |
(147,349) |
(140,152) |
(137,225) |
Tax |
260 |
328 |
334 |
0 |
0 |
||
Profit After Tax (norm) |
(122,453) |
(121,945) |
(147,015) |
(140,152) |
(137,225) |
||
Profit After Tax (reported) |
(122,453) |
(121,945) |
(147,015) |
(140,152) |
(137,225) |
||
Average Number of Shares Outstanding (m) |
34.5 |
47.3 |
52.6 |
52.6 |
52.6 |
||
EPS - normalised (NOK) |
|
|
(3.55) |
(2.58) |
(2.79) |
(2.66) |
(2.61) |
EPS - normalised fully diluted (NOK) |
|
|
(3.55) |
(2.58) |
(2.79) |
(2.66) |
(2.61) |
EPS - reported (NOK) |
|
|
(3.55) |
(2.58) |
(2.79) |
(2.66) |
(2.61) |
Dividend per share (NOK) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
339,512 |
367,415 |
371,129 |
370,844 |
370,577 |
Intangible Assets |
338,213 |
366,250 |
370,240 |
370,240 |
370,240 |
||
Tangible Assets |
1,299 |
1,165 |
889 |
604 |
337 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
185,832 |
276,193 |
166,509 |
21,517 |
15,320 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
0 |
0 |
0 |
0 |
||
Cash |
171,629 |
261,573 |
151,189 |
6,197 |
0 |
||
Other |
14,203 |
14,620 |
15,320 |
15,320 |
15,320 |
||
Current Liabilities |
|
|
(29,184) |
(28,295) |
(59,377) |
(42,308) |
(43,256) |
Creditors |
(29,184) |
(28,295) |
(50,250) |
(33,181) |
(34,129) |
||
Short term borrowings |
0 |
0 |
(9,127) |
(9,127) |
(9,127) |
||
Long Term Liabilities |
|
|
(94,992) |
(108,156) |
(103,565) |
(103,565) |
(221,415) |
Long term borrowings |
(39,714) |
(48,806) |
(43,933) |
(43,933) |
(161,783) |
||
Other long term liabilities |
(55,278) |
(59,350) |
(59,632) |
(59,632) |
(59,632) |
||
Net Assets |
|
|
401,168 |
507,157 |
374,696 |
246,488 |
121,226 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(112,892) |
(111,093) |
(112,816) |
(144,962) |
(124,018) |
Net Interest |
3,203 |
2,347 |
1,249 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(37) |
(56) |
0 |
(31) |
(29) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
114,593 |
194,407 |
(30) |
0 |
0 |
||
Other |
(8,738) |
(4,753) |
(3,041) |
1 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,871) |
80,852 |
(114,638) |
(144,992) |
(124,047) |
||
Opening net debt/(cash) |
|
|
(135,786) |
(131,915) |
(212,767) |
(98,129) |
46,863 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(0) |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(131,915) |
(212,767) |
(98,129) |
46,863 |
170,910 |
Source: Targovax accounts, Edison Investment Research
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Research: Industrials
Following the acquisition of Clyde Space in January 2018, ÅAC Microtec is at the forefront of the rapidly growing and revolutionary market for small satellites. As nanosatellite build rates and deployments rise sharply over the next decade, increasing systems supply and platform revenues should be enhanced by operational and service revenues, moving ÅAC to a sustainable financial footing. Near-term growth challenges remain but the company delivered on strong growth guidance for 2018 and achieved a positive EBITDA in Q418. Our capped DCF-based value indicates a price of SEK14.7 per share, despite applying a WACC of 12%.