Immunovia — Update 10 November 2016

Immunovia AB is a technology platform and product development company headquartered in Lund, Sweden. It is based in the Medicon Village, a biomedical cluster that harbours some 100 organisations employing 1,400 people. Immunovia was founded in 2007 based on research from Lund University and the Centre for Translational Cancer Research (CREATE Health) in Lund. Its proprietary technology platform IMMray utilises antibody microarrays to detect biomarkers of early disease thereby allowing rapid treatment. The system is complemented with proprietary antibody libraries, antibody production and purification as well as software and clinical algorithms. The IMMray system has the potential to allow for monitoring of cancer treatment, predicting disease progression and assessing response to therapy. The company’s main product is IMMray PanCan-d, a blood-based test for early detection of pancreatic cancer. Detection at stage I or II would allow resection and improve survival rates.

Our DCF valuation is SEK2.6bn or SEK155.2/share (SEK149.6 diluted), based on a risk-adjusted NPV analysis using a 12.5% discount rate. We assume a price of SEK5,000 per test, and peak sales of c SEK2.1bn in the EU and US. We project a 35% penetration rate in the c 200,000 population of patients at increased risk of pancreatic cancer and 5% in the 3.4 million newly diagnosed diabetic patients, which represent a combined opportunity of SEK36bn per year.

In December 2015 the company completed a listing on Nasdaq First North in Stockholm, offering 2.6m shares at SEK18.50 per share, raising SEK60m. The offering was five times oversubscribed. This added to the SEK43m grant that Immunovia received from the EU and national programmes, of which SEK12m was used in 2015.

At June 2016 Immunovia had SEK59.7m cash plus SEK28m in EU funding from Horizon 2020. As a result of the initiation of prospective trials in high-risk individuals and newly diagnosed T2D patients and the first commercial operations, we expect operating expenses to increase in 2017-20 to a peak of SEK60m in 2019. To cover the costs of these trials Immunovia has raised SEK218.6m in September and October 2016 in a combined direct and rights issue offering.

The key sensitivity is market penetration, in particular the large, but yet untested, market of newly diagnosed T2D patients. Sensitivity (true positives) and specificity (true negatives) need to be measured in the context of the population; that is, the predictive value. The test needs to properly detect those patients with the disease and keep the false negatives to a minimum, avoiding expensive secondary testing with ultrasound, magnetic resonance imaging (MRI) or computerised tomography (CT) scan, to get reimbursement and become commercially successful. Successful commercialisation will require managing price sensitive healthcare authorities in each country. In the US, Immunovia will market its product as a laboratory developed test (LDT) validated by a Clinical Laboratory Improvement Amendments-(CLIA) accredited laboratory; however, that may severely limit its ability to distribute its test beyond the CLIA-certified lab and may mean a slow ramp-up in revenues and a lower probability of reimbursement. FDA approval, which requires additional resources, would increase the chances of getting reimbursement. As an example, Exact Sciences’s Cologuard was only reimbursed after FDA approval. True acceptance will likely only come after full reimbursement and inclusion in various cancer screening guidelines.

Immunovia develops blood-based tests for the early detection of cancer. In most types of cancer, early detection is critical to improve outcomes. Cancer is classified according to progression, with stages I and II being localised and amenable to surgical resection, while stages III and IV have spread to lymph nodes and other internal organs. In the case of pancreatic cancer, symptoms do not appear until the disease has spread and it is too late for full resection. As a result, less than 5% of patients are alive five years after diagnosis. Early detection at stage I or II, when the tumour can be removed with surgery, could improve five-year survival rates to c 50%. In addition to patients at high risk of pancreatic cancer and newly onset diabetic patients, the company has ongoing projects in other indications such as systemic lupus erythematosus (SLE), prostate and breast cancer.

To support clinical development and commercialisation, Immunovia works in association with key opinion leaders and top cancer research centres such as the OHSU Knight Cancer Institute (which received a $1bn donation in 2015 to fund research for early detection of cancer), Liverpool University Hospital, University of Michigan, Mount Sinai Hospital, the USCF Medical Center and the Karolinska Institute.

Immunovia’s IMMray technology platform covers the production of arrays and the laboratory work needed for analysis of samples and results. IMMray’s key assets are its antibody library, its bioinformatics and its simplicity of use. One of the main problems of antibody-based arrays is stability due to the inherent complex structure of antibodies and susceptibility to changes in the environment. Immunovia’s IMMray technology uses small fragments termed single-chain variable fragments (scFv) that retain specificity and are optimised to be stable on a solid surface. Immunovia has an in-house antibody production and purification facility.

The resulting product of the platform is a slide made of 14 antibody arrays. Arrays are a collection of antibodies fixed to a solid surface in a particular order where they interact with labelled biological samples and generate a signal. The discovery arrays that Immunovia uses have 17,136 data points, while the commercial product is fine-tuned to 3,584 data points per slide in 14 arrays per slide. Slides are scanned, generating an image that is processed by its proprietary bioinformatics algorithm, providing a snapshot of the patient’s disease status. This is valuable information that can be used to assess the patient’s responsiveness to therapy, diagnostics, disease follow up and monitoring.

The pancreas is a gland located in the upper abdomen, behind the stomach and in front of the spine. Through exocrine pancreatic cells, digestive enzymes are released into the small intestine. The endocrine islet cells (or islets of Langerhans) secrete hormones such as insulin and glucagon that help control sugar levels in the blood. Most tumours form in exocrine cells and usually do not cause symptoms until disease has advanced into later stages. Pancreatic cancer is the 12th most common type of cancer; however, it is one of the most lethal with 53,000 new cases in the US in 2016 and an estimated 41,780 deaths, according to SEER. In the EU-27, there were 78,654 new cases and 77,958 deaths in 2012 according to EUCAN.

Pancreatic cancer is split into stages according to the following criteria:

Both stage I and II are considered amenable for surgery, ie resectable. Stages III and IV are considered unresectable. Surgery, chemotherapy and radiotherapy may all be used in the treatment of pancreatic cancer. Surgery is mostly used in early stages when the cancer is small and has not spread. In locally advanced cancer, chemotherapy and/or radiotherapy may be given to control cancer. When the disease has spread to other parts of the body, palliative therapy is administered.

The fact that there are not noticeable symptoms or that they are vague (weight loss, abdominal pain, jaundice) make pancreatic cancer difficult to detect at early stages and therefore difficult to treat and deadly. Hence, five-year survival rates are around 5% for advanced pancreatic cancer. Early detection could significantly increase this rate.

The value of a diagnostic test is predicated on its accuracy and predictive value. In terms of accuracy, sensitivity is the probability that a test result will be positive when the disease is present, also known as the true positive rate; specificity is the probability that a test result will be negative when the disease is not present, also known as the true negative rate.

Predictive values are the positive predictive value (PPV), that is, the probability that the disease is present when the test is positive; and the negative predictive value (NPV), which measures the probability that the disease is not present when the test is negative.

IMMray’s algorithms select a combination of markers that aim to provide the optimal balance between sensitivity and specificity. Biomarkers are selected on the basis of the additional information that they contain; hence, the test can be balanced towards high sensitivity at the expense of specificity or vice versa. Sensitivity and specificity are independent of the population subjected to the test, while PPV and NPV are dependent on the prevalence of the disease in the population tested. It is important to choose the appropriate test depending on the objectives. When false negatives need to be avoided, a test with high sensitivity and high NPV is chosen. On the other hand, when false positives need to be avoided, a test with high specificity and high PPV is recommended, which is the case of pancreatic cancer. A good diagnostic test for pancreatic cancer needs to show that a positive result is actually a positive. Therefore, a high specificity and high PPV will ultimately determine the value of the test for this condition and influence reimbursement decisions.

IMMray PanCan-d is Immunovia’s first product and is a blood-based diagnostic test for early detection of pancreatic cancer. It leverages Immunovia’s IMMray technology to produce a micro-array with a 25-protein signature. It has been tested in a number of retrospective studies and is due to be confirmed in a prospective trial.

The company also holds strong IP rights over the combination of its tests’ markers. It has four groups of patents; one of them covers IMMray PanCan-d entirely with five different patent families. Protection extends beyond 2030.

Immunovia has conducted seven retrospective trials testing different biomarker signatures from the IMMray technology. The main endpoint of these trials has been the area under the receiver operating characteristic (ROC) curve (AUROCC or AUC), which reflects how good the test is at differentiating between patients with and without a given condition. In this case, it has been able to differentiate pancreatic cancer patients at different stages from healthy individuals and other conditions of the pancreas. The greater the AUC, the better the test. For instance, an AUC of 1 means 100% specificity and sensitivity.

The IMMray technology has proved effective in discriminating between pancreatic cancer patients and healthy individuals and patients with other conditions of the pancreas, at variable rates, as shown in Exhibit 2. In the Scandinavian study (n=1,355) IMMray PanCan-d was able to differentiate between stage I and II pancreatic cancer and healthy subjects at a rate of 96%, with 98% for stages I to IV and healthy subjects. The rate was 96% in the US validation study (see Exhibit 2). Rates are lower when discriminating between pancreatic cancer and other pancreatic diseases; 85% in one study, 70% in another (Exhibit 2).

From these data, the company has developed a signature of 35 biomarkers that discriminates pancreatic cancer from healthy samples and other pancreatic diseases.

One of the most important parameters for physicians is positive predictive value, which applies sensitivity and specificity to the population. A high sensitivity rate means most cases will be correctly detected in the population. However, unless specificity is very high and the disease is prevalent in the test population, there will be many false positives (people who do not have the disease, but test positive). Clinicians expect a test to be reliably positive when it renders a positive result. If the false positive rate is high, many patients would need expensive confirmatory tests, increasing the cost burden to health services. Therefore, it is important to find the population groups in which the disease is more prevalent.

To confirm its findings, Immunovia plans to run a prospective study in approximately 1,000 at-risk subjects in some of the top hospitals in Europe and the US. The study will start by the end of 2016 and run for three years. Immunovia plans to start selling to out-of-pocket customers (without reimbursement) in 2017 with first revenues starting in 2018, although at a cost of SEK5,000 we expect uptake to be slow until there is reimbursement.

This trial intends to show the clinical utility of the test by discriminating between people who have pancreatic cancer and those who do not, even at early stages.

To commence commercial activities in 2017, Immunovia is working to obtain a CE mark following the 98/97/EC directive of In Vitro Diagnostic Medical Devices in Europe. In the US, the company will market its product as a laboratory developed test (LDT), regulated by the CLIA, which reviews the analytical validation of the LDT. Immunovia will also obtain the ISO/IEC 17025 accreditation for clinical laboratories. These activities will be completed by mid-2017. The prospective study will be important for reimbursement discussions. The company will market the test to pancreatologists (around 400) with its own salesforce.

Furthermore, Immunovia plans to pursue patients diagnosed with type 2 diabetes. Diabetologists are becoming increasingly aware of the risk of pancreatic cancer (up to eight times higher) for patients that have been diagnosed with T2D and need to be followed up. The Consortium to Study Chronic Pancreatitis, Diabetes and Pancreatic Cancer was formed by leading US academic centres to gain insights into the epidemiology of chronic pancreatitis and the association between pancreatic cancer and diabetes.

To obtain reimbursement for the test, it is necessary to run an economic evaluation of cost-effectiveness that takes into account measures such as quality-adjusted life years (QALY) and the incremental cost-effectiveness ratio (ICER).

QALY combines the quantity and quality of life for a patient following a particular treatment or intervention. It is calculated by estimating the years of life remaining for a patient and weighting each year with a score that describes quality of life; one QALY is a year in perfect health.

As part of the examination of the costs associated with health outcomes, the ICER represents the additional cost of one unit of outcome gained by a given intervention compared with another. Willingness to pay, or cost-effectiveness threshold, is defined by monetary units per QALY gained, and varies by country. For instance, in Europe it is c €50,000 per QALY gained, while the UK’s National Institute for Health and Care Excellence has a threshold of £20,000 per QALY. Cost per QALY can be calculated by dividing the difference in cost of each intervention by the difference in benefits in QALY terms. Depending on the cost of the test (the company guides for €400-1,000/test) and the incidence of the target population, the ICER varies, being more cost-effective the higher the incidence and the cheaper the test, as shown in Exhibit 3:

In assessing the cost-effectiveness of a test, the sensitivity and specificity must be estimated. These values would be combined with the estimated prevalence of the condition being tested for, to get an estimation of the number of true positives, true negatives, false positives and false negatives.

There are no official screening guidelines for pancreatic cancer but, according to the consensus reached at the International Cancer of the Pancreas Screening Consortium summit, screening is not recommended for the general population. Instead, the groups recommended for screening are:

Those with two first-degree relatives with pancreatic cancer have a 6.4-fold greater risk of pancreatic cancer (8-12% lifetime risk) than the general population. Those with three or more first-degree relatives with pancreatic cancer have a 32-fold greater risk (40% lifetime risk).1

As previously mentioned, to make an economically justified and cost-effective case, it is necessary to target population subgroups with an increased risk of pancreatic cancer. High prevalence of the disease in the population will increase PPV. In particular, Immunovia plans to address the following population subgroups:

As previously mentioned, IMMray PanCan-d intends to be a first filter in the screening for pancreatic cancer. At present, people who are considered high risk due to a strong family history of pancreatic cancer or with a genetic disease that significantly increases their risk undergo an endoscopic ultrasound (EUS). This test is done with an endoscope that has a small probe on its tip and can take biopsies if necessary. EUS has sensitivity of 89% and specificity of 96% and costs approximately $500 unless covered by insurance. It requires sedation and sometimes general anaesthesia. It involves the insertion of a tube into the mouth, down to the stomach and into the first part of the small intestine. Risks are bleeding and gastrointestinal perforation, and sometimes infection. So, while accurate, it is far from perfect or consumer friendly and many patients drop out after the first visit. Other techniques are CT scan, which is useful in assessing pancreatic cancer and other conditions of the pancreas, and magnetic resonance imaging, which can help exclude or detect cancer in patients with pancreas abnormalities; this is the method of choice in the US. The potential benefit of Immunovia’s blood-based screening is clear: the easier it is to screen, the more screening will take place, which will help detect cancer earlier when it is more treatable and chances of survival are higher.

CEA (carcinoembryonic antigen) and CA 19-9 (carbohydrate antigen 19-9) are two tumour markers commonly used to follow patients with known cancers. Serum CA 19-9 is more commonly used and although it is not particularly useful in the diagnosis of pancreatic cancer, it may be used to monitor the evolution of disease, watch for recurrence and help differentiate between pancreatic cancer and others conditions such as pancreatitis.

Immunovia’s network of key opinion leaders (KOLs) will play a crucial role in the commercialisation of IMMray PanCan-d. They have participated in the research studies conducted by the company and have influence over a broad group of stakeholders that comprise patient organisations, hospitals, top research centres and payers. Moreover, Immunovia has signed an agreement with the Knight Cancer Institute of Oregon Health and Science University (OHSU) to run a retrospective trial to confirm in the US population the findings of previous studies, which have been conducted in European and Chinese populations. After the test has confirmed these data, OHSU Knight Diagnostic Laboratories will validate it. The OHSU Knight Diagnostic Laboratories is CLIA certified and recently received $1bn in funding for cancer research.

Geographically, the company will first target the US, Germany and the Nordics. In a second wave, the UK, Spain and Italy will be targeted.

As previously discussed, the key sensitivity is market penetration, in particular the large, but yet untested, market of newly diagnosed T2D patients. Regarding sensitivity and specificity, it is important to reduce false positives as much as possible for a critical condition like pancreatic cancer. Therefore, to secure payers’ acceptance, the test will need to demonstrate a high specificity with high positive predictive value. This will reduce the need for expensive secondary testing. For example, since the incidence of pancreatic cancer is low (c 13 cases per 100,000 people), screening in the general population is not a feasible strategy. A test with 99% specificity and 99% sensitivity in a population with low incidence of a disease (like the 0.013% of pancreatic cancer) used to screen 100,000 individuals would detect nearly all patients with the disease, but would classify 1,000 healthy individuals as having the disease. This would result in a PPV of just 1.3%, which is too low to justify screening the general population. That is why it is important to focus on particular subgroups with increased incidence of pancreatic cancer. In the at-risk population, it is estimated that the incidence is around 2.2%, which is a PPV of c 60%, assuming the test has 99% sensitivity and specificity rates.

Initial out-of-pocket sales may gain certain traction in the US where this market is more developed, but acceptance will come after positive data from the prospective study, regulatory approval and full reimbursement is granted. The company plans on getting the CE mark in Europe and market its product as an LDT under the CLIA waiver programme in the US. The tentative timeline for both is mid-2017. Nonetheless, we believe that true acceptance will come after a full reimbursement and inclusion in various cancer screening guidelines. This may involve the need of FDA approval.

Expansion to other population subgroups such as patients with vague gastrointestinal symptoms, additional products targeting SLE, in current development, and other cancer indications could provide upside.

The company’s share price has risen almost 400% since IPO. This increase has been supported by strong demand from investors, a successful business plan execution (agreements with major cancer centres and KOLs), clinical data and pipeline expansion to autoimmune diseases (SLE). We value Immunovia at SEK155.2 per share (SEK149.6/share fully diluted), using a 12.5% discount rate. We have projected future free cash flows according to the following assumptions:

In September and October 2016 Immunovia raised a total of SEK218.6m in two tranches. First, a direct offering of almost 2.2m shares at SEK87 per share that resulted in gross proceeds of SEK189.9m. Second, a preferential rights issue of 329,451 shares at SEK87 per share raised an additional SEK28.7m. Due to increased demand from shareholders, the rights issue was oversubscribed by 43%.

At June 2016 cash and equivalents were SEK59.7m plus SEK28m in EU funding from Horizon 2020 and SEK218.6m from the recent offering. Thus, we expect 2016 net cash of c SEK273.6m, following our cash consumption projections and taking into account the equity raise proceeds.

Following Immunovia’s guidance, we project first sales of SEK13.5m in 2018, with increased sales from 2020 onwards as the company obtains approval and reimbursement for IMMray PanCan-d in the two target indications. We model increasing operating costs to cover clinical trials, starting in 2017 for the at-risk population, and 2018 for the T2D population; both running for three years and consuming SEK40m and SEK90m respectively. We also model an increase in marketing costs to cover the salesforce expenses.

At end 2015, Immunovia had SEK13.88m as intangible assets, the majority of which wascapitalised as development costs. According to Immunovia’s accounting rules, development costs can be capitalised and reduce the net loss. These costs are included in the balance sheet as intangible assets, which will be amortised according to our model.