Mendus — DCP-001 in focus

Mendus (OMX: IMMU)

Last close As at 15/06/2024

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Research: Healthcare

Mendus — DCP-001 in focus

As of 23 June 2022, Immunicum will be known as Mendus, after management announced a corporate rebranding. The company is focused on the development of DCP-001, a cancer relapse vaccine, in acute myeloid leukaemia (AML) maintenance therapy and high-grade serous ovarian cancer. Near-term, median relapse-free survival (RFS) and overall survival (OS) data from the Phase II ADVANCE II study in AML maintenance (expected in Q422) represent the main catalyst for Mendus, in our view. In addition, the company will begin investigating its dendritic cell immune primer, ilixadencel, for which it recently received FDA orphan drug designation, in the treatment of gastrointestinal stromal tumours (GISTs). With a cash position of SEK122.9m at end-Q122, we estimate the company is sufficiently funded to end-FY22. We value Mendus at SEK1.78bn or SEK8.93/share (previously SEK1.95bn or SEK9.76/share).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Mendus

DCP-001 in focus

Clinical asset update

Pharma and biotech

24 June 2022

Price

SEK2.26

Market cap

SEK451m

US$/SEK10.11

Net cash (SEKm) at 31 March 2022 (excluding lease liabilities)

85.0

Shares in issue

199.4m

Free float

37%

Code

IMMU

Primary exchange

Nasdaq Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.4)

(1.1)

(46.6)

Rel (local)

5.8

20.2

(33.8)

52-week high/low

SEK5.90

SEK1.85

Business description

Mendus (formerly Immunicum) is a clinical-stage immunoncology company based in Sweden and the Netherlands. It specialises in allogeneic dendritic cell biology and has two lead, cell-based, off-the-shelf therapies for haematological and solid tumours.

Next events

DCP001 Phase II six-month RFS and OS data

Q422

DCP-001 Phase I Ovarian cancer interim data

H222

Ilixadencel GIST Phase II begins enrolment

H222

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Harry Shrives

+44 (0)20 3077 5700

Mendus is a research client of Edison Investment Research Limited

As of 23 June 2022, Immunicum will be known as Mendus, after management announced a corporate rebranding. The company is focused on the development of DCP-001, a cancer relapse vaccine, in acute myeloid leukaemia (AML) maintenance therapy and high-grade serous ovarian cancer. Near-term, median relapse-free survival (RFS) and overall survival (OS) data from the Phase II ADVANCE II study in AML maintenance (expected in Q422) represent the main catalyst for Mendus, in our view. In addition, the company will begin investigating its dendritic cell immune primer, ilixadencel, for which it recently received FDA orphan drug designation, in the treatment of gastrointestinal stromal tumours (GISTs). With a cash position of SEK122.9m at end-Q122, we estimate the company is sufficiently funded to end-FY22. We value Mendus at SEK1.78bn or SEK8.93/share (previously SEK1.95bn or SEK9.76/share).

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/20

0.0

(89.2)

(1.17)

0.0

N/A

N/A

12/21

0.0

(133.4)

(0.73)

0.0

N/A

N/A

12/22e

1.9

(133.7)

(0.67)

0.0

N/A

N/A

12/23e

0.0

(137.0)

(0.69)

0.0

N/A

N/A

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

ADVANCE II data begin to shape up

The company reported updated interim data from the Phase II ADVANCE II trial, investigating the use of DCP-001 as a potential AML maintenance therapy, at the 2022 American Society of Clinical Oncology annual meeting. DCP-001 demonstrated measurable residual disease (MRD) conversion in 25% of patients (five of 20), with two patients showing at least a tenfold reduction in MRD. While only preliminary, we view these data as encouraging and expect median RFS and median OS survival data to be reported in Q422.

Cash runway into 2023; further funding required

At end-Q122 Mendus had a cash position of SEK122.9m, which at the current burn rate of c SEK32m (Q122) we see as funding the company into 2023. We anticipate management will engage in a capital raise or licensing/partnership deal during H222 to fund continuing clinical development of DCP-001 and ilixadencel. We have updated our estimates to reflect the company’s new focus.

Valuation: SEK1.78bn or SEK8.93 per share

We value Mendus at SEK1.78bn or SEK8.93 per share (previously SEK1.95bn or SEK9.76 per share) based on a risk-adjusted NPV using a 12.5% discount rate and including a net cash position of SEK85m at end-Q122. The value decrease is due to removal of the renal cell carcinoma (ilixadencel) indication from our valuation (in accordance with the company’s new focus) and partially offset by rolling our model forward by nine months, foreign exchange adjustments and increasing the probability of success for DCP-001 in AML to 20% (previously 15%).

Focus on AML, ovarian cancer and GIST

Following analysis of available clinical data and the therapeutic landscape in 2021, Mendus will focus the development of its two clinical assets, DCP-001 and ilixadencel, on three main indications: AML (DCP-001), ovarian cancer (DCP-001) and GIST (ilixadencel). The ADVANCE II trial (NCT03697707) is investigating the use of DCP-001 as a potential AML maintenance therapy to prevent relapse in patients who have responded to previous therapy but still harbour MRD. Additionally, Mendus is developing DCP-001 as a first-line monotherapy treatment for ovarian cancer in the Phase I ALISON study (NCT04739527), for which management expects to report initial results in mid-2022 (Exhibit 1).

Exhibit 1: Mendus’ clinical programme timetable

Source: Mendus corporate presentation

Management is also developing the dendritic cell-based immune primer ilixadencel, for the treatment of GISTs in combination with tyrosine kinase inhibitors (TKIs), for which the company received orphan drug designation in June 2022. GISTs are a rare type of gastrointestinal tumour that affect approximately 4000–6000 people in the United States each year. Five-year survival rates for patients with GISTs are 83%, however, these can be affected by different factors, including treatment type. Surgery is often the first line of treatment for GISTs but if the disease has metastasised, often it cannot be cured. Targeted TKIs such as imatinib (Gleevec), sunitinib (Sutent) and regorafenib (Stivarga) are commonly prescribed to patients with GISTs. However, as with many TKIs, undesirable side effects are common.

DCP-001 ADVANCE(s) through the pipeline

Clinical data for DCP-001 are beginning to shape up after updated interim results from the Phase II ADVANCE II trial (NCT03697707) in AML maintenance therapy were reported on 16 May (Exhibit 2). The ADVANCE II study uses MRD status as the primary endpoint and will assess median RFS and median OS as secondary endpoints. At the time of analysis, seven out of 20 patients treated with DCP-001 had shown an MRD response (classified as completed MRD conversion or >10x reduction) over the 32-week study period. Of these, five patients converted from MRD+ to MRD- and two patients demonstrated at least a tenfold reduction in MRD. A further seven patients had stable MRD and six patients relapsed during this time. At median follow-up (14.3 months), the study had not reached median RFS or median OS, a potentially encouraging sign (see Onureg discussion below). However, management did report an estimated six-month RFS and OS of 83.7% and 97.0%, respectively. We expect an update on median RFS and median OS data plus immunomonitoring data in Q422.

Exhibit 2: Updated ADVANCE II interim data

Source: Mendus corporate presentation

As a prognostic biomarker, MRD status is recognised as an important risk factor in AML. A recent meta-analysis of more than 11,000 AML patients found a strong correlation between MRD status and RFS. In this, MRD+ patients were observed to have a significantly lower five-year RFS of 25% compared to 68% in MRD- individuals, indicating that MRD negativity is associated with superior long-term survival. In this context, we see a 25% MRD conversion rate as a meaningful result for DCP-001 in AML maintenance therapy.

The American Cancer Society estimates that two out of three people who receive chemotherapy for the treatment of AML will go into complete remission and it is likely that with the approval of new therapies for chemo-unfit patients, for example venetoclax/azacitidine, this ratio will increase. Due to associated toxicity concerns, chemotherapeutic regimes are often not suitable for maintenance therapy. The increase in complete remission patients combined with the need for safe and effective AML maintenance therapies that do not affect patient quality of life, represent a considerable area of unmet medical need. In our view, the demonstrated positive safety profile and recent efficacy data from the ADVANCE II study indicate that DCP-001 could be a significant competitor in the AML maintenance therapy market.

Onureg sets the landscape in AML maintenance

Currently, oral azacitidine (Onureg, Bristol Myers Squibb) is the only therapeutic approved for AML maintenance therapy and the hypomethylating agent is estimated to reach worldwide sales of $563m in 2028 (source: EvaluatePharma). Onureg was approved by the FDA in 2020 for AML maintenance based on data from the randomised, placebo-controlled, double-blind Phase III QUAZAR AML-001 (NCT01757535) study. In this, Onureg demonstrated an OS of 14.6 months (vs 10.4 months in placebo group) in baseline MRD+ patients and RFS of 7.1 months (vs 2.7 months in placebo group) in this subgroup. We believe the combination of DCP-001 and azacitidine could represent an attractive opportunity for the company as, in our view, an RFS of 7.1 months still leaves patients in this group highly vulnerable to remission. The data supporting Onureg will be important in defining the regulatory hurdle for DCP-001’s approval in the AML maintenance setting.

The fact that the ADVANCE II study had not yet reached median RFS and median OS at 14.3 months suggests a potentially significant improvement over Onureg (median RFS 7.1 months, median OS 14.6 months), in our view. However, we caveat that these are preliminary data and care must be taken when making comparisons. Additionally, the rigorous design of the Phase III QUAZAR AML-001 study (randomised, placebo controlled, double blind) means comparison with the Phase II ADVANCE II study (open-label) survival data is not necessarily applicable. We see readouts for median RFS and median OS (expected in Q422) as significant near-term catalysts for Mendus.

Preclinical data support DCP-001/5-aza/VEN combination

Recent preclinical data, presented at the 20th Cancer Immunotherapy annual meeting, demonstrate that DCP-001 can be combined viably and functionally with azacitidine and venetoclax (a common AML therapy). In a humanised AML mouse model, the DCP-001/azacitidine/venetoclax combination showed the strongest tumour growth inhibition when compared to DCP-001 monotherapy or azacitidine plus venetoclax. While this study was preclinical and investigated AML tumour growth (not maintenance therapy), we believe these preclinical results potentially support the combination of DCP-001 and azacitidine in AML maintenance therapy. DCP-001 has the potential to be used as an AML maintenance therapy post treatment with azacitidine and venetoclax or in post-hematopoietic stem cell transplant MRD+ patients as a single agent or in combination with azacitidine and we expect this to be an area that management could address in future.

Valuation

We value Mendus at SEK1.78bn or SEK8.93 per share (previously SEK1.95bn or SEK9.76 per share), based on a risk-adjusted NPV analysis using a 12.5% discount rate and including a net cash position of SEK85m at end-Q122 (gross cash of SEK122.9m less SEK37.5m in long-term debt). The value decrease was primarily due the removal of the valuation of ilixadencel in renal cell carcinoma, following the strategic refocusing by management in Q222. As this indication accounted for c 36% of our previous valuation, we decrease our estimated licensing deal value by a corresponding amount to a total value of $1.05bn. Our revised deal value consists of an estimated upfront payment of $160m (previously $250m) and estimated milestone payments of $890m (previously $1.39bn). We continue to value the DCOne technology separately, assigning it 20% of the deal value. The remaining value (80%) we split between AML (39%), ovarian cancer (44%) and GIST (17%) based on peak sales (a breakdown is shown in Exhibit 3). The value decrease is partially offset by rolling our model forward by nine months, updating our foreign exchange estimates (US$/SEK10.11, previously US$/SEK8.40) and increasing the probability of success for DCP-001 in AML maintenance therapy to 20% (taking account of new clinical data, previously 15%). Our valuation for DCP-001 in AML is higher (relative to ovarian cancer) as it reflects an earlier launch date and therefore less discounting. We maintain our other underlying assumptions for our valuation (a breakdown can be found in our previous report).

Exhibit 3: Mendus rNPV valuation

Product

Launch

Peak sales

NPV
(SEKm)

Probability of success

rNPV
(SEKm)

NPV/share
(SEK/share)

DCP-001 – AML

2027

$680m

3,088

20.0%

739

3.71

DCP-001 – ovarian cancer

2031

$760m

1,972

15.0%

636

3.19

Ilixadencel – GIST

2026

$300m

915

15.0%

115

0.58

DCOne platform

871

10.0%

204

1.02

Net cash at 31 March 2022

85

100.0%

85

0.43

Valuation

 

 

6,931

 

1,780

8.93

Source: Edison Investment Research

Financials

Mendus reported SEK1.9m of revenues in Q122, corresponding to the patent transfer to Elicera and management fee charges to DCprime. The company reported a Q122 operating spend of SEK28.7m, a decrease of 30% y-o-y (Q121 SEK41.0m), due mainly to lower research and development (R&D) expenses as a large portion of clinical development for ilixadencel was completed in FY21. Based on our updated estimates, we expect R&D expense will rise again during FY22 as the Phase II trial for ilixadencel in GISTs begins and the ADVANCE II and ALISON studies continue to enrol patients. We estimate an R&D expense for FY22 of SEK90m (unchanged from our previous estimates), a 5% increase from FY21 (SEK85.7m),and grow general and administrative expense by 3% y-o-y to SEK44.8m for FY22 (FY21: SEK43.5m). In total, we estimate this will result in a net loss of SEK133.7m for the company in FY22, in line with FY21 (SEK133.4m). With a gross cash position of SEK122.9m at end-Q122 and based on our forecasts, we estimate that Mendus has sufficient funds to operate into 2023 and we model that management will need to raise SEK116m in H123. According to Edison principles, we model any fundraising as illustrative long-term debt, which stands at SEK116m in 2023 (assuming stable R&D costs).

Exhibit 4: Financial summary

Accounts: IFRS, year-end: 31 December, SEK’000s

2019

2020

2021

2022e

2023e

INCOME STATEMENT

 

 

 

 

 

Total revenue

0

0

31

1,910

0

Cost of sales

0

0

0

0

0

Gross profit

0

0

31

1,910

0

SG&A (expenses)

(11,734)

(37,193)

(43,490)

(44,795)

(46,139)

R&D costs

(48,980)

(47,883)

(85,796)

(90,000)

(90,000)

Other income/(expense)

16,689

(64)

(845)

0

0

Exceptionals and adjustments

0

0

0

0

0

Reported EBITDA

(44,025)

(85,140)

(130,100)

(132,885)

(136,139)

Depreciation and amortisation

(831)

(887)

0

(842)

(854)

Reported Operating Profit/(loss)

(44,856)

(86,027)

(130,100)

(133,727)

(136,993)

Finance income/(expense)

(2,915)

(3,220)

(3,310)

0

0

Other income/(expense)

0

(1)

0

0

0

Exceptionals and adjustments

0

0

0

0

0

Reported PBT

(47,771)

(89,248)

(133,410)

(133,727)

(136,993)

Income tax expense

0

0

0

0

0

Reported net income

(47,771)

(89,248)

(133,410)

(133,727)

(136,993)

Basic average number of shares, m

73.9

76.2

182.8

199.4

199.4

Basic EPS (SEK)

(0.65)

(1.17)

(0.73)

(0.67)

(0.69)

Diluted EPS (SEK)

(0.65)

(1.17)

(0.73)

(0.67)

(0.69)

BALANCE SHEET

 

 

 

 

 

Property, plant and equipment

4,328

2,909

2,470

2,506

2,529

Intangible assets

0

424,091

424,091

424,091

424,091

Other non-current assets

442

678

843

843

843

Total non-current assets

4,770

536,028

535,754

535,790

535,813

Cash and equivalents

14,032

167,643

155,313

21,550

500

Trade and other receivables

0

0

0

0

0

Other current assets

18,695

20,230

19,702

19,702

19,702

Total current assets

33,150

192,633

185,230

51,467

30,417

Non-current loans and borrowings*

31,062

18,982

36,666

36,666

152,632

Total non-current liabilities

32,292

19,285

36,666

36,666

152,632

Trade and other payables

1,898

10,365

11,610

11,610

11,610

Other current liabilities

8,537

22,158

15,657

15,657

15,657

Total current liabilities

11,306

48,282

27,576

27,576

27,576

Equity attributable to company

(5,677)

661,094

656,742

523,015

386,022

CASH FLOW STATEMENT

 

 

 

 

 

Operating Profit/(loss)

(44,856)

(86,027)

(130,100)

(133,727)

(136,993)

Depreciation and amortisation

831

887

992

842

854

Other adjustments

0

0

0

0

0

Movements in working capital

(14,186)

27,731

(10,089)

0

0

Interest paid / received

(166)

(103)

(140)

0

0

Income taxes paid

0

0

0

0

0

Cash from operations (CFO)

(57,569)

(56,626)

(138,031)

(132,885)

(136,139)

Capex

(809)

(464)

(1,361)

(878)

(878)

Acquisitions & disposals net

0

0

0

0

0

Other investing activities

0

0

0

0

0

Cash used in investing activities (CFIA)

(809)

157,298

(1,361)

(878)

(878)

Net proceeds from issue of shares

0

0

128,949

0

0

Movements in debt

(760)

(725)

(1,922)

0

115,966

Other financing activities

67,818

51,629

0

0

0

Cash flow from financing activities

67,058

50,904

127,027

0

115,966

Increase/(decrease) in cash and equivalents

9,627

153,611

(12,330)

(133,763)

(21,050)

Cash and equivalents at beginning of period

4,405

14,032

167,643

155,313

21,550

Cash and equivalents at end of period

14,032

167,643

155,313

21,550

500

Net (debt)/cash

(17,030)

133,782

118,647

(15,116)

(152,132)

Source: Mendus company accounts, Edison Investment Research

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

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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

1185 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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Portobello SpA — Creating an omnichannel presence

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