Mendus — Guarding against relapse

Mendus (OMX: IMMU)

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Research: Healthcare

Mendus — Guarding against relapse

Mendus’s Q323 update was primarily focused on the clinical progression of its lead cancer vaccine, vididencel, which is being developed for acute myeloid leukaemia (AML) and ovarian cancer (OC). The latest interim data from the Phase II trial (ADVANCE II) demonstrated compelling efficacy, which, in our view, enhances the drug’s prospects as a potential AML maintenance therapy. Mendus’s key catalysts include: detailed data from the ADVANCE II trial, due to be presented at the 11 December American Society of Hematology (ASH) meeting; further updates from the combination trial with Onureg; additional readouts from the ongoing Phase I OC trial; and the initiation of ilixadencel Phase II in soft tissue sarcomas in H124. At end-Q323, Mendus’s net cash balance stood at SEK142.5m, which, as per our estimates, should provide an operational cash runway into H224, crucially past further readouts from the ongoing ADVANCE II and ALISON vididencel trials.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Mendus_resized

Healthcare

Mendus

Guarding against relapse

Q323 results

Pharma and biotech

13 November 2023

Price

SEK0.45

Market cap

SEK389m

SEK11.0/US$

Net cash (SEKm) at 30 September 2023

142.5

Shares in issue

863.1m

Free float

37%

Code

IMMU

Primary exchange

Nasdaq Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.6

21.8

(78.6)

Rel (local)

15.2

28.8

(78.1)

52-week high/low

SEK3.13

SEK0.3

Business description

Mendus is a clinical-stage immuno-oncology company based in Sweden and the Netherlands. The company specialises in allogeneic dendritic cell biology and currently has two lead cell-based, off-the-shelf therapies for haematological and solid tumours.

Next events

Vididencel data in ADVANCE II

December 2023

Vididencel Phase II combination trial initiation

H124

Ilixadencel Phase II trial initiation

H124

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Zoe Karamanoli

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

Mendus is a research client of Edison Investment Research Limited

Mendus’s Q323 update was primarily focused on the clinical progression of its lead cancer vaccine, vididencel, which is being developed for acute myeloid leukaemia (AML) and ovarian cancer (OC). The latest interim data from the Phase II trial (ADVANCE II) demonstrated compelling efficacy, which, in our view, enhances the drug’s prospects as a potential AML maintenance therapy. Mendus’s key catalysts include: detailed data from the ADVANCE II trial, due to be presented at the 11 December American Society of Hematology (ASH) meeting; further updates from the combination trial with Onureg; additional readouts from the ongoing Phase I OC trial; and the initiation of ilixadencel Phase II in soft tissue sarcomas in H124. At end-Q323, Mendus’s net cash balance stood at SEK142.5m, which, as per our estimates, should provide an operational cash runway into H224, crucially past further readouts from the ongoing ADVANCE II and ALISON vididencel trials.

Year
end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/21

0.0

(133.4)

(0.73)

0.0

N/A

N/A

12/22

3.4

(138.8)

(0.70)

0.0

N/A

N/A

12/23e

0.8

(97.2)

(0.18)

0.0

N/A

N/A

12/24e

0.0

(124.5)

(0.14)

0.0

N/A

N/A

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

Promising ADVANCE II data from ASH abstracts

Updated interim data from the Phase II ADVANCE trial show promising efficacy for vididencel as a potential maintenance therapy for AML. A total of 20 patients in complete remission (CR) with measurable residual disease (MRD) were treated with vididencel and, at a follow-up of 24.8 months, the median relapse-free survival (mRFS) and overall survival (OS) had not been reached, with 12 out of 20 patients remaining relapse-free for 24.4 to 54.7 months. This suggests a potentially competitive profile compared to the current standard of care, Onureg, which we note has projected global sales of $505m in 2028, according to Evaluate Pharma.

Gearing up for the next stage: Vididencel plus Onureg

Mendus plans to maximise the potential of vididencel as an AML maintenance treatment by initiating a Phase II combination trial with Onureg. Initially, the trial will involve a small number of patients (c 40) randomised to receive either vididencel in combination with Onureg, or Onureg alone, followed by a larger pivotal trial. There is also a possibility of a trial expansion, provided the interim data are supportive, and potentially exploring additional haematological malignancies.

Valuation: SEK2.18bn or SEK2.52 per share

Our valuation for Mendus adjusts to SEK2.18bn or SEK2.52 per share, from SEK2.26bn or SEK2.61 per share previously. The change in valuation mainly reflects the impact of the updated net cash balance (ie SEK142.5m at end-Q323 compared to SEK268.3 previously calculated on pro forma basis), which more than offsets the model roll forward effect. At the current net cash position, we estimate that Mendus has a cash runway into H224.

Vididencel: Breaking ground in AML maintenance

The ongoing Phase II ADVANCE II trial is investigating vididencel as a potential monotherapy in AML maintenance. The study involves participants (n=20) who have previously responded to therapy and achieved CR, but still have MRD, and the trial is currently in the long-term follow-up stage. Updated positive interim survival data were included in the ASH 2023 abstracts released this month and will be shown in an oral presentation at the ASH 2023 meeting on 11 December.

At a follow-up of 24.8 months (range 6.6–54.8), mRFS and OS had not yet been reached (Exhibit 1), with 12 out of 20 patients being relapse-free for 24.4 to 54.7 months. We believe this suggests a potentially competitive profile over Onureg, which is the current standard of care (mRFS: 7.1 months; mOS: 14.6 months). It is worth noting that 17 out of the 20 patients, despite being heavily pretreated, had at least one vaccine-induced response (VIR) and there was a clear correlation between the number of VIRs and the OS, with the best survival seen in patients with three or more VIRs (Exhibit 2). We look forward to the presentation next month and believe that it could potentially provide a rational for this observation. Another particularly encouraging observation was that out of the seven patients that had three, or less than three, VIRs, four were converted to MRD negative.

Consistent with previous data, vididencel’s safety profile was benign with no serious treatmentrelated adverse events (AEs) or severe AEs. Treatment-related AEs were mainly injection site reactions such as redness, warmth and swelling, which occurred within 48 hours after intradermal administration. From the ASH abstract, we note that the majority of the patients (13 of 20) enrolled had a European LeukemiaNet 2017 (ELN2017) risk score assessed as ‘favourable’. According to management, if we were to apply the classification used in the Onureg study, then the patient population in the ADVANCE II trial would have a similar risk score.

Exhibit 1: Relapse-free survival data

Exhibit 2: OS in patients with 3 VIRs versus 2 VIRs

Source: ASH 2023 oral and poster abstracts, 769 (Van de Loosdrecht et al, Induction of cellular and humoral immune responses) from session 704: Cellular immunotherapies.

Source: ASH 2023 oral and poster abstracts, 769 (Van de Loosdrecht et al, Induction of cellular and humoral immune responses) from session 704: Cellular immunotherapies.

Exhibit 1: Relapse-free survival data

Source: ASH 2023 oral and poster abstracts, 769 (Van de Loosdrecht et al, Induction of cellular and humoral immune responses) from session 704: Cellular immunotherapies.

Exhibit 2: OS in patients with 3 VIRs versus 2 VIRs

Source: ASH 2023 oral and poster abstracts, 769 (Van de Loosdrecht et al, Induction of cellular and humoral immune responses) from session 704: Cellular immunotherapies.

Next development step: Combination study with oral azacitidine

Mendus has collected preclinical data and recently published additional Phase I data supporting the combination of vididencel with oral azacitidine. The company is planning to maximise the potential of vididencel as an AML maintenance therapy and is preparing for a Phase II combination trial with Onureg. Management has communicated that the study will initially involve a small number of patients, who will be randomised to receive either vididencel in combination with Onureg, or Onureg alone. Patients will be monitored across 18–24 months, and there is the potential to expand the study into a pivotal trial lasting a further 24–36 months, provided the interim data are supportive. We note that throughout the duration of this combination study, management may also consider exploring additional haematological malignancies.

We consider Mendus’s previously disclosed plan of prioritising a combination study a logical step forward for the clinical development of vididencel and we continue to believe that combination treatment regimens will play a key role in future clinical breakthroughs that disrupt standard-of-care treatment protocols in oncology. Management will provide further updates on the trial design by end-2023 and we are keen to see if patients with specific mutations (eg FLT3-ITD) will be included or excluded, given recent FDA approvals.

The hunt for AML remission

Currently, allogeneic haematopoietic stem cell transplantation (allo-HSCT) is the only potentially curative treatment option for AML patients who have responded to initial therapy, are fit and are MRD negative. For patients ineligible for allo-HSCT, there are currently two approved therapeutic options. Onureg (oral azacitidine), which is the current standard of care for AML maintenance, and Vanflyta (quizartinib), which was recently approved by the FDA for patients that carry the FLT3-ITD mutation (c 37% of AML patients). Despite these therapeutic options, many patients continue to experience disease progression and relapse remains a clinical challenge.

We, therefore, see a significant opportunity for Mendus’s vididencel programme and believe it has the potential to provide durable responses in patients with positive MRD, mitigating the risk of relapse. To date, the treatment has demonstrated a desirable safety profile, which is key for an effective maintenance therapy without significantly affecting patients’ quality of life, and compelling efficacy with the potential to further improve remission in AML.

Vididencel in ovarian cancer: ALISON interim in Q124

Beyond AML, Mendus is also focused on the clinical development of vididencel as a first-line monotherapy treatment for OC in the Phase I ALISON trial. The primary endpoint of the study is the number of patients with vididencel-induced antigen-specific T-cell responses following treatment. Previous data from seven out of 11 patients (seven had completed vididencel vaccination regimen and four were still being treated), presented in April 2023, showed that 57% (four out of the seven patients) exhibited disease recurrence, while 43% (three out of the seven patients) were disease free. Of the four patients with disease recurrence, one patient had died, reflecting the aggressive nature of the disease. Of the patients evaluated for VIRs, four out of five (80%) showed at least one sustained VIR to at least one of the four tumour-associated antigens measured in the study.

Recently, the company presented additional data from the study at the Society for Immunotherapy of Cancer (SITC) annual meeting (1–5 November 2023). Of the 13 patients enrolled, nine had completed the treatment phase (up to week 22) and all nine patients were still alive, with four patients showing disease recurrence before week 22. VIRs were observed in six out of the eight evaluable patients (75%). Interestingly, Mendus also reported that the immune responses against tumour-associated antigens, which are not present in vididencel, were also observed following vididencel administration. This suggests that vididencel may elicit a broader immune response due to the so-called antigen spreading caused by tumour cell lysis syndrome. At the SITC cut-off date, 16 out of 17 patients were enrolled and management expects full enrolment of the trial before the end of 2023.

While we recognise that these interim results come from a small sample size, we view the immune responses as a positive indicator of the trial meeting its primary endpoint of the number of patients with vididencel-induced antigen-specific T-cell responses. Encouragingly, the data from this readout provided further confirmation of the relatively benign safety profile of vididencel. Management has communicated that recruitment for the ALISON trial is ongoing and updated readouts from the study are expected in H124. We expect these to provide further information from a larger sample size on both primary and secondary endpoints, which include recurrence-free survival and OS.

Ilixadencel: A Phase II proof-of-concept on the horizon

Ilixadencel is an immune primer comprised of pro-inflammatory activated allogeneic dendritic cells (DCs), intended for intratumoural administration. Ilixadencel has been designed such that, when injected into a tumour, the DCs are expected to cause local recruitment and activation of the patient’s immature DCs, natural killer cells and T-cells, which are projected to drive an anti-cancer response. As of now, Mendus is preparing for a Phase II proof-of-concept study to assess ilixadencel for the treatment of soft tissue sarcomas (STS), for which the company has received Fast Track and Orphan Drug designation from the FDA. According to management, the trial is expected to commence by H124.

Financials

In Q323, Mendus reported total operating expenses of SEK26.1m, down by 32.2% y-o-y from SEK38.5m in Q322, which was primarily due to advance payments made for the vididencel clinical programme (shown as prepaid expenses on the balance sheet) and lower R&D activity related to the ilixadencel programme. As a result, R&D expenses, accounting for c 64% of total operating expenses, reduced to SEK16.6m in the quarter (vs SEK21.6m in the prior period). General and administrative expenses also took a downturn to SEK9.2m from SEK16.9m in Q322. While no revenue was recorded during the quarter, other operating income (primarily consisting of patent transfer revenue and grants for the previously charged innovation loan) were reported at SEK0.3m in Q323, compared to SEK1.1m in Q223. As a result, the operating loss for the period stood at SEK25.9m (vs SEK37.4m in Q322), which was largely equal to operating expenses. Cash outflow from operating activities increased to SEK101.9m, from SEK27.8m in Q322, due to an SEK88.6m prepaid expense incurred by Mendus for the vididencel programme.

While there were no material updates or changes in Q323, we have made some slight tweaks to our FY23 estimates based on Mendus’s Q323 performance. While our key expense estimates for FY23 (R&D and G&A expenses) remain unchanged, we marginally adjusted our estimates for other income to SEK0.8m (vs SEK0.3m previously) and net financial income to SEK22.5m (vs SEK23.2m previously) to incorporate year-to-date numbers. As a result, our operating loss and net loss estimates slightly adjust to SEK119.7m and SEK97.2m in FY23, compared to SEK119.4m and SEK96.1m previously. Our FY24 estimates remain unchanged.

At end-Q323, Mendus reported a net cash position of SEK142.5m, which was supported by the recent SEK317m (gross) fundraise in August 2023 through a combination of a rights issue (SEK227m) and a directed issue to Flerie Invest (SEK90m). Additionally, the company paid off the SEK50m shareholder loan to Van Herk Investments via a debt-to-equity conversion as part of the financing transaction. We expect the current cash position to provide a cash runway into H224, past further readouts of the ongoing ADVANCE II and ALISON vididencel trials. By the end of FY24, we have assumed a licensing deal for vididencel based on the full survival data from the Phase II ADVANCE II trial, which are expected in H224. However, in the case of a delay in securing the outlicensing deal (uncertain at the moment) and incorporating the possibility of Mendus conducting further trials on its own, we anticipate the need to raise a further SEK250m through FY24–26 (SEK50m in FY24, SEK100m in FY25 and SEK100m in FY26).

Valuation

Our valuation goes down to SEK2.18bn or SEK2.52 per share (SEK2.26bn or SEK2.61 per share previously) as the updated net cash balance (SEK142.5m at end-Q323 vs SEK268.8m previously calculated on a pro forma basis) more than offsets the model roll forward effect. The valuation is based on a sum-of-the-parts calculation and includes a risk-adjusted NPV (rNPV) calculation for vididencel in AML and OC, and ilixadencel in STS (our model assumes gastrointestinal stromal tumours (GIST) as a specific indication based on Mendus’s initial data). Our long-term assumptions remain unchanged based on the Q323 results.

Exhibit 3: Mendus rNPV valuation

Product

Indication

Launch

Peak sales
($m)

NPV
(SEKm)

Probability of success

rNPV
(SEKm)

NPV/share
(SEK/share)

Vididencel (DCP-001)

AML

2027

680

3,528

20.0%

1,009

1.17

Vididencel (DCP-001)

OC

2031

760

2,244

15.0%

774

0.90

Ilixandencel

GIST

2029

230

1,669

15.0%

250

0.29

Net cash at 30 September 2023

142.5

100.0%

142.5

0.17

Valuation

 

 

 

7,583

 

2,176

2.52

Source: Edison Investment Research


Exhibit 4: Financial summary

Accounts: IFRS; year end 31 December; SEK’000s

2021

2022

2023e

2024e

INCOME STATEMENT

 

 

 

 

Total revenue

31

3,375

817

0

Cost of sales

0

0

0

0

Gross profit

31

3,375

817

0

SG&A (expenses)

(41,639)

(44,028)

(33,021)

(34,012)

R&D costs

(85,796)

(87,049)

(82,674)

(84,788)

Other expenses

(845)

(1,134)

(830)

0

Exceptionals and adjustments

0

0

0

0

Reported EBITDA

(128,249)

(128,836)

(115,708)

(118,800)

Depreciation and amortisation

(1,851)

(4,848)

(3,989)

(4,721)

Reported Operating Profit/(loss)

(130,100)

(133,684)

(119,696)

(123,521)

Finance income/(expense)

(3,310)

(5,101)

22,546

(934)

Exceptionals and adjustments

0

0

0

0

Reported PBT

(133,410)

(138,785)

(97,150)

(124,455)

Adjusted PBT

(133,410)

(138,785)

(97,150)

(124,455)

Income tax expense

0

0

0

0

Reported net income

(133,410)

(138,785)

(97,150)

(124,455)

Basic average number of shares, m

184.0

199.4

531.3

863.1

Basic EPS (SEK)

(0.73)

(0.70)

(0.18)

(0.14)

Diluted EPS (SEK)

(0.73)

(0.70)

(0.18)

(0.14)

BALANCE SHEET

 

 

 

 

Property, plant and equipment

2,109

13,899

13,910

13,269

Intangible assets

532,441

532,441

532,441

532,441

Right of use assets

361

26,216

26,216

26,216

Other non-current assets

843

618

618

618

Total non-current assets

535,754

573,174

573,185

572,544

Cash and equivalents

155,313

41,851

103,339

29,524

Prepaid expenses and accrued income

10,214

1,919

90,529

90,529

Other current assets

19,702

3,442

3,442

3,442

Total current assets

185,229

47,212

197,310

123,495

Non-current loans and borrowings

36,666

22,845

850

50,850

Non-current lease liabilities

0

23,706

23,706

23,706

Total non-current liabilities

36,666

46,551

24,556

74,556

Trade and other payables

11,610

7,411

7,411

7,411

Current loans and borrowings

0

29,198

0

0

Short-term lease liabilities

309

2,413

2,413

2,413

Other current liabilities

15,657

20,375

20,375

20,375

Total current liabilities

27,576

59,397

30,199

30,199

Equity attributable to company

656,741

514,438

715,740

591,284

CASHFLOW STATEMENT

 

 

 

 

Operating Profit/(loss)

(130,100)

(133,684)

(119,696)

(123,521)

Depreciation and amortisation

1,851

4,848

3,989

4,721

Other adjustments

447

(6,390)

0

0

Movements in working capital

(10,089)

27,030

(88,610)

0

Interest paid / received

(140)

(1,135)

22,546

(934)

Income taxes paid

0

0

0

0

Cash from operations (CFO)

(138,031)

(109,331)

(181,771)

(119,734)

Capex

(1,361)

(12,324)

(4,000)

(4,080)

Acquisitions & disposals net

0

0

0

0

Other investing activities

0

0

0

0

Cash used in investing activities (CFIA)

(1,361)

(12,324)

(4,000)

(4,080)

Net proceeds from issue of shares

128,951

0

294,115

0

Movements in debt

(1,922)

8,194

(46,856)

50,000

Other financing activities

0

0

0

0

Cash flow from financing activities

127,029

8,194

247,259

50,000

Increase/(decrease) in cash and equivalents

(12,363)

(113,461)

61,488

(73,814)

Cash and equivalents at beginning of period

167,644

155,316

41,853

103,341

Cash and equivalents at end of period

155,316

41,853

103,341

29,526

Net (debt) cash

118,647

(10,192)

102,489

(21,326)

Source: Company reports, 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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General disclaimer and copyright

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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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Industrials

Kendrion — Industrial weaker, Automotive still in recovery

Kendrion’s segments showed opposite trends in Q323 with Industrial Brakes hard hit by weaker economies in Germany and China and Automotive still in recovery mode with continued high single-digit organic revenue growth. On 6% lower group revenues EBITDA declined 12% with a 70bp lower margin at 10.5%. Kendrion expects the challenging market conditions to continue in Q423 and H124 and has taken measures to protect its profitability. We have lowered our revenue estimates for FY23–25 by 5–8% and EBITDA estimates by 12–18%. The unweighted average of our three valuation methods points to a fair value of €15.5 per share.

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