Mendus — DCP-001 in focus

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).

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.

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.

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.

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.

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.

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).

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).