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Research: Healthcare
Key inflection points from lead assets Pexa-Vec, TG4010 and TG4001 by year-end will continue to inform the validity of Transgene’s IO strategy. Notably, a futility analysis expected mid-year for the Phase III trial with Pexa-Vec (+sorafenib) in first-line hepatocellular carcinoma (HCC) and efficacy data from the Phase II TG4010 (+nivolumab + chemotherapy) trial in first-line non-small cell lung cancer (NSCLC) will be key to driving value in 2019. Early-stage development continues with both the expansion of its Invir.IO collaboration with BioInvent and the announcement of the first product candidate (TG4050) from the company’s myvac platform (initiating clinical trials in H219). Net profit for FY18 was €8.0m, compared with a €32.3m loss in FY17, mainly as a result of the non-cash gain of €35.6m in FY18 from the allocation of Tasly shares. We value Transgene at €312m.
Written by
Daniel Wilkinson
Transgene |
Defining data from lead assets by year-end |
FY18 results |
Pharma & biotech |
27 March 2019 |
Share price performance
Business description
Next events
Analysts
Transgene is a research client of Edison Investment Research Limited |
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Key inflection points from lead assets Pexa-Vec, TG4010 and TG4001 by year-end will continue to inform the validity of Transgene’s IO strategy. Notably, a futility analysis expected mid-year for the Phase III trial with Pexa-Vec (+sorafenib) in first-line hepatocellular carcinoma (HCC) and efficacy data from the Phase II TG4010 (+nivolumab + chemotherapy) trial in first-line non-small cell lung cancer (NSCLC) will be key to driving value in 2019. Early-stage development continues with both the expansion of its Invir.IO collaboration with BioInvent and the announcement of the first product candidate (TG4050) from the company’s myvac platform (initiating clinical trials in H219). Net profit for FY18 was €8.0m, compared with a €32.3m loss in FY17, mainly as a result of the non-cash gain of €35.6m in FY18 from the allocation of Tasly shares. We value Transgene at €312m.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
8.1 |
(35.0) |
(0.53) |
0.0 |
N/A |
N/A |
12/18 |
42.9 |
(36.8) |
(0.45) |
0.0 |
N/A |
N/A |
12/19e |
9.2 |
(26.2) |
(0.42) |
0.0 |
N/A |
N/A |
12/20e |
6.7 |
(28.7) |
(0.46) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Myvac and Invir.IO progression highlights capabilities
Transgene has announced its plans to start clinical development (partnership with NEC Corporation) for new asset TG4050. TG4050 is based on Transgene’s personalised immunotherapy platform (myvac) and NEC’s neoantigen prediction system. Transgene will initiate two clinical studies in H219 focusing on second-line (following surgery and chemo) ovarian cancer and second-line (following surgery and radiation therapy) head and neck cancer patients. The trials are jointly funded by both parties. Transgene recently announced the expansion of its BioInvent collaboration to focus on new, unspecified multifunctional oncolytic viruses for the treatment of solid tumours. Transgene will provide its oncolytic virus expertise and technology (Invir.IO), while BioInvent will provide its antibody capabilities, including novel antibody sequences. Costs, revenue and royalties will be split 50:50.
FY18 results: Funded into 2020
Transgene reported cash and equivalents of €16.9m at 31 December 2018. Cash burn was €24.5m in FY18 (vs €28.1 in FY17) and the company expects this to rise to between €25m and €30m in FY19. Transgene has secured a €20m revolving credit facility with Natixis. The credit facility has a 30-month term, and Transgene will be able to draw and repay the facility at its discretion. Transgene has used its shares in Tasly Biopharmaceuticals as collateral. We forecast a cash reach into 2020, assuming a full drawdown of the Natixis facility.
Valuation: €312m (€5.02/share)
We value Transgene at €312m (€5.02/share) vs €290m (€4.68/share) previously, based on a risk-adjusted NPV model of TG4010, TG4001, TG1050, Pexa-Vec and TG6002. The increase in value is driven by rolling forward our model and more favourable exchange rates. In addition, we have updated current net cash.
Evolving SOCs present opportunities and challenges
Transgene’s strategy involves the development of its immunotherapies for the treatment of cancer and viral indications, notably in combination with other approved therapies like PD-(L)1 ICIs. Key to determining the success of Transgene’s combination strategy will be efficacy readouts in 2019 from the Phase II TG4010 (+nivolumab + chemotherapy) trial in first-line NSCLC and the Phase III Pexa-Vec (+sorafenib) trial (PHOCUS) in first-line hepatocellular carcinoma (trial conducted by partner SillaJen). If the PHOCUS trial is clinically successful (i.e meets primary endpoint of statistical improvement in overall survival), it could enable the first commercial launch of a Transgene-developed product. However, we note that in the rapidly changing treatment landscape of oncology, clinical programme success and subsequent regulatory approvals alone do not guarantee successful commercialisation. Transgene currently has five ongoing company-sponsored studies across 4 products (Exhibit 1), with three new studies expected to begin patient enrolment in 2019.
Immunotherapies have dramatically altered the standard of care (SOC) for many cancers and continue to do so. However, the speed of change can also present substantial challenges to trial design and execution. This was evidenced recently by the cessation of Transgene’s second-line NSCLC trial as PD-(L)1 naïve patients (per the original inclusion criteria) were unable to be recruited as first-line treatment had rapidly advanced to include PD-(L)1 inhibitors.
First-line NSCLC treatment continues to advance with two significant approvals in the last six months for Keytruda plus chemotherapy and Tecentriq plus Avastin plus chemotherapy. Transgene’s first-line TG4010 NSCLC trial will need to demonstrate a comparable or improved ORR (Keytruda combo ORR: 48%. 95% CI: 43–45% and Tecentriq triple combo ORR: 55%. 95% CI: 49–60%) in similar patient populations to be considered for future development. We also note changes in the HCC treatment landscape that could affect Pexa-Vec’s clinical and commercial potential. In the past, approvals have predominately focused on second-line HCC (Cabometyx approval and Keytruda approval). However, first-line approvals for lenvantinib and numerous ongoing ICI clinical trials continue to advance the SOC. Across the pipeline, Transgene’s assets have the potential to change the SOC for many diseases, although significant challenges remain in a fast-moving sector.
Exhibit 1: Transgene sponsored clinical pipeline
Compound/phase |
Combination compound |
Indication |
Collaborators |
Trial status |
Data readout |
Notes |
TG4010/ Phase II |
Opdivo (nivolumab) & chemo |
First-line NSCLC |
N/A |
H219 |
ORR data expected in H219 on a total of 35 patients. |
|
Pexa-Vec/ Phase III |
Nexavar (sorafenib) |
First-line HCC |
Conducted by partner SillaJen |
Mid-2019 |
Global study with expected complete enrolment of 600 patients (300 per arm). Futility analysis expected mid-2019 with first efficacy readout in 2020. |
|
Pexa-Vec/ Phase I/II |
Opdivo (nivolumab) |
First-line HCC |
Nancy, France |
H219 |
Recent safety review was positive and trials proceed as planned. Interim analysis on ORR (overall response rate) expected in 15 patients in H219. |
|
TG4001/ Phase I/II |
Avelumab |
HPV+ (human papilloma virus) head and neck squamous cell carcinoma |
Institut Curie (PI Pr Christophe Le Tourneau) |
H219 |
Phase II enrolment is ongoing with additional sites being activated in Europe. Data expected in H219. |
|
TG6002/ Phase I/II |
N/A |
Advanced gastrointestinal adenocarcinoma |
Prof Philippe Cassier, Centre Léon Bérard, Lyon |
H219 |
50 patients expected to be enrolled. Primary endpoint for Phase I is dose-limiting toxicity, for Phase II it is ORR. |
|
TG6002/ Phase I |
N/A |
Metastatic colon cancer (liver metastasis) |
Adel Samson, St James’s Hospital, Leeds (UK) |
Planning |
N/A |
Multi-centre trial in UK; INDs submitted. First patient expected to be treated in Q419. |
TG4050/ Phase I |
N/A |
Ovarian cancer (after 1st line surgery & adjuvant therapy) |
N/A |
Planning |
N/A |
Co-financed by Transgene and NEC. First patient exp Q419. Trial will be conducted in the US & France. |
TG4050/ Phase I |
N/A |
HPV-negative head & neck cancer (after surgery and adjuvant therapy) |
N/A |
Planning |
N/A |
Co-financed by Transgene and NEC. First patient exp Q419 Trial will be conducted in the UK & France |
Source: Edison Investment Research, Transgene
FY18 financials
Transgene reported FY18 revenue of €42.9m (FY17: €8.1m). This was driven by the €35.6m sale of TG1050 rights to Tasly Biopharmaceuticals in the form of shares (27.4m). Transgene has sold the Greater China rights for TG6002 and TG1050 to Tasly and holds approximately 2.53% of Tasly Biopharmaceuticals shares. Using these shares as capital, Transgene has secured a €20m revolving credit facility with Natixis (a French corporate and investment bank). The credit facility has a 30-month term, and Transgene will be able to draw and repay the facility at its discretion. Tasly intended to float on the Hong Kong Stock Exchange before year-end 2018. However, this did not occur and we have no visibility on if or when it will. Transgene has a 12-month, post-IPO lock-up on its shares in Tasly.
In additional support of the industrialisation of the myvac platform, the NEOVIVA project was awarded a €5.2m grant from Bpifrance’s ‘Investments for the Future’ programme. Transgene will receive €2.6m of the grant. The NEOVIVA project is across four companies, and aims to develop and validate manufacturing approaches for individualised therapies. The two TG4050 trials will provide proof of concept.
R&D expenses decreased in FY18 to €27.3m (vs €30.4m in FY17) as a result of a reduced IP expense and licensing costs to €0.9m (vs €4.8m in FY17). The increased costs in FY17 were due to a €3.8m milestone payment to SillaJen on enrolment of the first patient in the PHOCUS study. The majority of R&D expenditure continues to be driven by payroll costs (as R&D staff costs are accounted for in R&D expenditure) and external expenses for clinical projects. Payroll costs were €11.2m vs €11.1m in FY17 and external expenses for clinical projects increased slightly to €7.9m (FY17: €7.0m). We forecast that FY19 R&D will decrease slightly to €24.6m as numerous clinical trials were completed or terminated in 2018 (TG4010 in second-line NSCLC, TG1050 in hepatitis B and Pexa-Vec in both breast and solid tumours) and we expected reduced ongoing costs.
G&A costs increased to €7.0m in FY18 from €5.7m in FY17. This was predominately driven by an increase in fees and admin expenses to €2.8m (vs €1.6m in FY17) as a result of the Tasly transaction. We forecast a slight increase in FY19 G&A to €7.1m.
Net interest generated a loss of €2.0m in FY18 (vs €2.3m in FY17). We note accrued interest on the EIB loan (€10m) that was drawn down in June 2016 is repayable in June 2019 with the capital repayable in 2021.
Net profit for FY18 was €8.0m, compared with a €32.3m loss in FY17, as a result of the non-cash gain of €41.4m in FY18 from the allocation of Tasly shares. We forecast a net loss in FY19 of €26.3m.
Cash burn was €24.5m in FY18 (vs €28.1 in FY17) and Transgene expects this to rise in FY20 to between €25m and €30m. Transgene reported cash, cash equivalents and financial assets of €16.9m at 31 December 2018 (compared to €41.4m at 31 December 2018). Our model predicts the full drawdown of the €20m credit facility with Natixis to enable cash reach until mid-2020. In addition, we model illustrative debt of €30m in 2020 to ensure continued operations.
Research: TMT
As flagged in its post-close trading update, IQE’s FY18 performance was severely affected by a short-term dip in production for one of its volume VCSEL programmes. While this does not affect the medium-term prospects for photonics growth, which are based on multiple VCSEL opportunities, management has downgraded FY19 guidance, primarily reflecting short-term softness in the handset market, which it expects will recover during H219. We cut our FY19 EPS estimate by 40%.
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