Mendus — Equipped for near-term inflection points

Mendus has an active clinical pipeline focused on applying the company’s capabilities in allogenic cell therapies and dendritic cell (DC) biology to target various cancer indications (Exhibit 1). Mendus's lead candidate, vididencel, is a cell-based cancer vaccine in clinical trials for AML and OC. The company’s second clinical-stage asset, ilixadencel, is an intratumoural immune primer, for which management is preparing for a Phase II trial for the treatment of STS.

AML is an aggressive type of blood and bone marrow cancer, and it is estimated that there will be c 20,380 new cases and c 11,310 deaths from AML in the United States in 2023. First-line treatment for AML is chemotherapy, typically a 3+7 regimen (three days of an anthracycline antibiotic and seven days of cytarabine chemotherapy), while chemo-unfit patients are likely to be treated with venetoclax and azacitidine. However, the safety and toxicity of these regimens remains a concern, and as such, the competitive landscape for AML treatments is an active space. Notably, in recent months 2seventy bio (an oncology spinoff from bluebird bio) had its Phase I clinical trial for CD33-targeting CAR-T cell therapy put on hold following the death of a patient, highlighting the challenge in developing novel AML treatments. Despite this, we believe there is significant scope in the market for maintenance therapies that aim to extend disease-free survival after induction chemotherapy.

While many patients see initial signs of success following chemotherapy, it is estimated that c 50% of AML patients in complete remission (CR) experience disease relapse, and this can occur several months or even years after treatment. With every AML patient carrying a risk of relapse, we believe improving the survival rates for these patients represents an important medical need. AML maintenance therapies aim to completely eradicate residual cancerous cells from the patient after chemotherapy to reduce the chances of relapse. A key concept in AML maintenance therapy is measurable residual disease (MRD), referring to the presence of cancerous cells that can only be detected by very sensitive modern approaches. Importantly, a patient can be considered to have achieved CR, but still be MRD positive. Therefore, MRD status is recognised as an important relapse risk factor in AML, serving as a prognostic biomarker.

Currently, allogeneic hematopoietic stem cell transplantation (allo-HSCT) is the only potentially curative treatment option for AML patients who have already undergone induction chemotherapy. However, a significant portion of patients are ineligible for allo-HSCT. This may be due to the age or health condition of the patient, or because a matched transplant donor is not available, and patients that are ineligible for allo-HSCT often face a poor prognosis. For this group of patients, Onureg (oral azacitidine) is the current standard of care as the only approved drug for AML maintenance. We note that while Onureg is considered a chemotherapeutic agent, it has a desirable safety profile compared to traditional chemotherapy, making it more suitable for longer-term use. However, many patients continue to experience disease progression even with Onureg treatment, with relapse remaining a clinical dilemma.

We therefore believe that there is a significant opportunity for Mendus’s most advanced clinical project, vididencel, as an AML maintenance therapy with the potential to provide a durable response in patients with MRD to mitigate the risk of relapse. To date, the treatment has demonstrated a desirable safety profile, meaning it has potential as an effective maintenance therapy to prevent remissions, without significantly affecting patient quality of life.

The ongoing Phase II ADVANCE II trial is investigating vididencel, the company’s lead cancer vaccine, as a potential monotherapy in AML maintenance. The study involves participants 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. Positive interim survival data were reported in December 2022 at the American Society of Hematology meeting. It was found that at a follow-up of 19.4 months, median relapse-free survival (mRFS) had not yet been reached, with 12 out of 20 patients enrolled still in CR, and median overall survival (mOS) was recorded as 30.9 months. We note that this represents a potentially competitive profile over Onureg as the current standard of care (mRFS: 7.1 months; mOS: 14.6 months), which has projected global sales in 2028 of $520m, according to EvaluatePharma. Updated RFS and OS data from ADVANCE II are on track to be shared in Q423.

Mendus is planning to maximise the potential of vididencel as an AML maintenance treatment, 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 either vididencel in combination with Onureg, or Onureg alone. Patients will be monitored across 18–24 months, with the potential to expand the study into a pivotal trial lasting 24–36 months further, provided the interim data are supportive. We note that throughout the duration of this combination study, management may also consider exploring additional haematological malignancies to pursue. In our opinion, Mendus’s strategy of prioritising a combination study is a logical step forward for the clinical development of vididencel, as 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. The trial is due to commence by end-2023, consistent with prior guided timelines, potentially representing an important milestone for Mendus, in our view.

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. The most recent data, from seven out of 11 patients (seven had completed vididencel vaccination and four were still on treatment) presented at the American Association for Cancer Research meeting in April 2023, showed that four out of seven patients (57%) who had completed the vaccination regimen exhibited disease recurrence, of which one had died, reflecting the aggressive nature of the disease, while the other three out of seven patients (43%) were disease free. Additionally, four out of five patients (80%) who were evaluated for vaccine-induced T-cell response (VIR) showed at least one sustained VIR to at least one of the four tumour-associated antigens measured in the study. While we recognise that these interim results come from a small sample size, it is our opinion that the immune responses observed are 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 also confirmed 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 H223. We expect these to provide further information from a greater sample size on both primary and secondary endpoints, which include recurrence free survival and overall survival.

Ilixadencel is an immune primer comprised of pro-inflammatory activated allogenic 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. Mendus is preparing for a Phase II proof-of-concept study to assess ilixadencel for the treatment of STS, for which the company has received Fast Track and Orphan Drug designation from the FDA. The trial is expected to commence by end-2023.

As anticipated, Mendus reported no revenues in Q223. Total operating expenses in Q223 stood at SEK27.7m and comprised R&D-related expenses (SEK19.2m) and administration costs (SEK8.4m). R&D costs increased 2.9% year-on-year, led by higher costs for third parties aiding the development and manufacturing of vididencel and ilixadencel. Conversely, administrative expenses were down materially by 8.5% year-on-year in Q223, highlighting improved efficiencies by the company. The operating loss for the period stood at SEK27.7m, which was equal to operating expenses. Mendus reported a net loss of SEK3.9m in Q223 (versus SEK29.3m in Q222); this improvement was primarily driven by one-off financial income of SEK25.2m (related to shareholder contributions) during the quarter. This also resulted in a reduction in the cash outflow from operations in Q223 (SEK7.3m versus SEK36.3m in Q222).

Based on patent transfer income reported in H123, we have incorporated SEK0.3m as other income in our FY23 forecast. We reduce our FY23e and FY24e administrative expenses to SEK33.0m and SEK34m from SEK45.2m and SEK46.5m, respectively, to account for the improved administrative expense run-rate shown in the company’s H123 results. We also increase our financing income forecast for FY23 to account for the SEK25.2m financial income earned by the company during the quarter. Our sales and R&D forecasts remain unchanged.

At end-Q223, Mendus reported a net debt position of SEK49m (gross cash of SEK20.2m, net of SEK68.1m in short-term debt and SEK0.9m in long-term debt), excluding lease liabilities. However, as highlighted in our recent update note, the company successfully raised SEK317m (gross) in August 2023 through a combination of a rights issue (SEK227m) and a directed issue to Flerie Invest (SEK90m). We expect this fund raise to provide a cash runway into Q424, in line with management guidance. We further note that the company has paid off the entire SEK50m shareholder loan to Van Herk Investment via debt-to-equity conversion as part of the financing transaction.

We value Mendus at SEK2.26bn or SEK2.61 per share (SEK2.18bn or SEK2.53 per share previously), based on a sum-of-the-parts calculation. This includes a risk-adjusted NPV calculation for vididencel in AML and OC, ilixadencel in STS (our model assumes gastrointestinal stromal tumours (GIST) as a specific indication based on the company’s initial data), and a pro-forma net cash position of SEK268.3m at 30 June 2023 (gross cash of SEK20.2m, net of SEK68.1m in short-term debt and SEK0.9m in long-term debt and pro forma adjusted for SEK317m equity raise in July 2023). We maintain our previous assumptions relating to target population, product pricing, trial timelines and licensing deals.