Mendus — Equipped for near-term inflection points

Mendus (OMX: IMMU)

Last close As at 21/05/2024

SEK0.48

0.02 (4.35%)

Market capitalisation

SEK451m

More on this equity

Research: Healthcare

Mendus — Equipped for near-term inflection points

Mendus has shared its Q223 report, including a financial update and overview of its clinical activities. Highlights from the quarter include positive interim data for lead asset vididencel in ovarian cancer (OC) and the secured alliance with NorthX Biologics to establish large-scale manufacturing capabilities for pivotal-stage clinical development and commercialisation. At end-Q223, Mendus had net debt of SEK49m, but with the equity raise announced in August 2023 (rights issue: SEK227m; directed issue: SEK90m to Flerie Invest), we estimate a cash runway to at least Q424. With our model roll and FX changes, our valuation for Mendus adjusts to SEK2.26bn or SEK2.61/share (from SEK2.2bn or SEK2.53/share).

Written by

Arron Aatkar

Associate analyst

Healthcare

Mendus

Equipped for near-term inflection points

Q223 results

Pharma and biotech

1 September 2023

Price

SEK0.32

Market cap

SEK276.2m

SEK11.0/US$

Pro-forma net cash (SEKm) at 30 June 2023 (including July 2023 raise)

268.3

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

(35.5)

(76.8)

(84.7)

Rel (local)

(33.0)

(76.3)

(85.6)

52-week high/low

SEK3.13

SEK0.31

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

Q423

Vididencel Phase II combination trial initiation

H223

Ilixadencel Phase II trial initiation

H223

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Arron Aatkar

+44 (0)20 3077 5700

Jitisha Malhotra

+44 (0)20 3077 5700

Mendus is a research client of Edison Investment Research Limited

Mendus has shared its Q223 report, including a financial update and overview of its clinical activities. Highlights from the quarter include positive interim data for lead asset vididencel in ovarian cancer (OC) and the secured alliance with NorthX Biologics to establish large-scale manufacturing capabilities for pivotal-stage clinical development and commercialisation. At end-Q223, Mendus had net debt of SEK49m, but with the equity raise announced in August 2023 (rights issue: SEK227m; directed issue: SEK90m to Flerie Invest), we estimate a cash runway to at least Q424. With our model roll and FX changes, our valuation for Mendus adjusts to SEK2.26bn or SEK2.61/share (from SEK2.2bn or SEK2.53/share).

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

0.3

(96.1)

(0.18)

0.0

N/A

N/A

12/24e

0.0

(124.2)

(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.

Ramping up for a busy H223

Interim data from the ADVANCE-II trial for vididencel in acute myeloid leukaemia (AML) maintenance (reported December 2022) suggest that the cancer vaccine may offer improved survival beyond the current standard of care (Onureg); updated data including relapse-free survival (RFS) and overall survival (OS) are expected in Q424. Mendus is also planning to maximise the potential of vididencel with a Phase II combination study with Onureg, which is on track to commence by end-2023. For ilixadencel, management is preparing for a Phase II trial within the broader group of soft tissue sarcomas (STS), the initiation of which is also expected by end-2023.

Manufacturing alliance supports off-the-shelf therapy

In June 2023, Mendus announced a manufacturing agreement with NorthX Biologics, supported by a SEK90m investment from Flerie Invest, intended to fund all necessary manufacturing activities to Q225. While the company has sufficient inventory for the upcoming Phase II trial, the alliance provides an opportunity to establish a dedicated facility for the production of the cancer vaccine for the final stages of clinical development, as well as future plans for commercialisation. While personalised cell-based therapies are associated with manufacturing bottlenecks, vididencel may differentiate itself as an off-the-shelf, non-patient-specific treatment. In our view, this offers the potential to circumvent production constraints, and we believe the manufacturing alliance with NorthX Biologics marks a positive step to facilitate broader patient access, provided vididencel obtains regulatory approval.

Valuation: SEK2,255m or SEK2.61 per share

We value Mendus at SEK2,255m or SEK2.61 per share (previously SEK2,183m or SEK2.53 per share). Our valuation includes a pro-forma net cash position of SEK268.3m at end-Q223. The slight increase in valuation is mainly driven by rolling our model forward and updating FX assumptions, slightly offset by a reduction in net cash over Q223 (SEK286m previously).

Momentum building toward key clinical milestones

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.

Exhibit 1: Mendus’s clinical development pipeline

Source: Mendus Q223 report

Targeting the opportunity in AML maintenance therapy

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.

An active period ahead for vididencel in H223

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.

Gearing up for the Phase II ilixadencel trial in STS

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.

Financials

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.

Valuation

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.

Exhibit 2: 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

3,447

20.0%

986

1.14

OC

2031

760

2,193

15.0%

756

0.88

Ilixadencel

GIST

2029

230

1,630

15.0%

245

0.28

Pro-forma net cash at 30 June 2023
(including July 2023 raise)

268.3

100.0%

268.3

0.31

Valuation

 

 

 

7,538

 

2,255

2.61

Source: Edison Investment Research


Exhibit 3: Financial summary

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

2021

2022

2023e

2024e

Income statement

 

 

 

 

Total revenue

31

3,375

299

0

Cost of sales

0

0

0

0

Gross profit

31

3,375

299

0

SG&A (expenses)

(41,639)

(44,028)

(33,021)

(34,012)

R&D costs

(85,796)

(87,049)

(82,674)

(84,788)

Other income/(expense)

(845)

(1,134)

0

0

Exceptionals and adjustments

0

0

0

0

Reported EBITDA

(128,249)

(128,836)

(115,396)

(118,800)

Depreciation and amortisation

(1,851)

(4,848)

(3,989)

(4,721)

Reported Operating Profit/(loss)

(130,100)

(133,684)

(119,384)

(123,521)

Finance income/(expense)

(3,310)

(5,101)

23,244

(679)

Other income/(expense)

 

 

 

 

Exceptionals and adjustments

0

0

0

0

Reported PBT

(133,410)

(138,785)

(96,140)

(124,201)

Adjusted PBT

(133,410)

(138,785)

(96,140)

(124,201)

Income tax expense

0

0

0

0

Reported net income

(133,410)

(138,785)

(96,140)

(124,201)

 

 

 

 

 

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

257,475

133,915

Prepaid expenses and accrued income

10,214

1,919

1,919

1,919

Other current assets

19,702

3,442

3,442

3,442

Total current assets

185,229

47,212

262,836

139,276

Non-current loans and borrowings*

36,666

22,845

850

850

Non-current lease liabilities

0

23,706

23,706

23,706

Total non-current liabilities

36,666

46,551

24,556

24,556

Trade and other payables

11,610

7,411

7,411

7,411

Current loans and borrowings

0

29,198

41,193

41,193

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

71,392

71,392

Equity attributable to company

656,741

514,438

740,073

615,872

 

 

 

 

 

Cashflow statement

 

 

 

 

Operating Profit/(loss)

(130,100)

(133,684)

(119,384)

(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

0

0

Interest paid / received

(140)

(1,135)

23,244

(679)

Income taxes paid

0

0

0

0

Cash from operations (CFO)

(138,031)

(1,09,331)

(92,151)

(119,479)

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

321,775

0

Movements in debt

(1,922)

8,194

(10,000)

0

Other financing activities

0

0

0

0

Cash flow from financing activities

127,029

8,194

311,775

0

Increase/(decrease) in cash and equivalents

(12,363)

(113,461)

215,624

(123,559)

Cash and equivalents at beginning of period

167,644

155,316

41,853

257,477

Cash and equivalents at end of period

155,316

41,853

257,477

133,917

Net (debt) cash

118,647

(10,192)

215,432

91,872

Source: Mendus company accounts, Edison Investment Research


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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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New Zealand

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United Kingdom

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United States

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London, WC1R 4PS

United Kingdom

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Kendrion — Price increases largely drive revenue growth

Kendrion’s Q223 organic revenue growth of 9% was better than the 5% in Q1 despite the slowdown in economic activity in several regions. Gross margin remained under pressure due to cost increases. EBITDA increased slightly year-on-year in Q2 after a decline in Q1, as cost savings offset wage inflation. Despite the short-term uncertainties, Kendrion is positive about its orderbook, which is driven by electrification and clean energy trends. On lower margin estimates, the average of our valuation methods points to a value of €21.5 per share.

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