Mendus — Momentum gathering across the pipeline

The ADVANCE II trial (NCT03697707), currently in the long-term follow-up stage, is investigating the use of vididencel as a potential monotherapy in AML maintenance to prevent relapse in patients who have responded to previous therapy and in complete remission (CR) but still harbour measurable residual disease (MRD). Positive survival data from the trial (reported in December 2022 at the American Society of Hematology (ASH) meeting) established proof-of-concept for vididencel as an AML maintenance therapy and demonstrated a potentially competitive profile for the treatment, in our view

At a median follow-up of 19.4 months, median relapse-free survival (mRFS) had not been reached, with 12 out of 20 patients still in complete disease remission, and median overall survival (mOS) was recorded as 30.9 months. In our view, these results represent a significant improvement over existing standard-of-care AML maintenance therapy azacitidine (mRFS: 7.1 months; mOS: 14.6 months). Additionally, an increased tumour immune response was observed in 17 out of 20 patients, supportive of vididencel’s immune stimulating mechanism of action. With limited treatment options available in the AML maintenance setting, we view the ADVANCE II data as highly positive, providing important proof of concept of vididencel’s clinical utility in AML.

With clinical proof-of-concept in hand, management plans to focus on maximising vididencel’s potential as an AML maintenance therapy in FY23. The positive data, to date, from ADVANCE II suggest, in our view, that vididencel could have a competitive profile versus the only currently approved AML maintenance therapy, oral azacitidine (launched by Bristol Myers Squibb in 2020, with estimated 2028 global sales of $583m according to EvaluatePharma). However, ADVANCE II has only assessed vididencel as a monotherapy in AML patients achieving complete remission, which is achieved in c 60–80% of adult AML patients following induction chemotherapy. Management believes there are additional opportunities to investigate vididencel in AML maintenance including as part of combinational treatment regimens to further improve efficacy, and/or the identification of new AML patient sub-populations. As such, Mendus is planning two additional clinical studies in ‘chemo-fit’ patients, specifically a Phase I trial in post-HSCT and as a potential combination treatment with standard-of-care azacitidine in a Phase II study, Exhibit 1.

HSCT involves patient irradiation followed by reintroduction of allogenic hematopoietic stem cells to ‘replace’ cancerous blood cells with healthy ones. This treatment option is normally offered to patients in complete remission and is regularly successful, with five-year disease-free survival rates in first complete remission reported at 45–60%. However, many patients still relapse. While studies are ongoing, to date no maintenance therapy is indicated post-HSCT.

Allogenic HSCT continues to be one of the most effective post-remission therapies in AML patients; however, certain patient groups may not be eligible for treatment due to potential toxicity issues. Patients who have achieved CR or complete remission with incomplete blood count recovery (CRi) following induction chemotherapy might instead receive azacitidine as a maintenance therapy. In targeting and assessing these two post-remission populations, Mendus aims to position vididencel across the entire AML maintenance setting.

Additionally, Mendus also sees a potential opportunity for vididencel to expand into the ‘chemo-unfit’ patient population as a maintenance therapy in patients who have received first-line azacitidine and venetoclax (standard of care in chemo unfit patients). This is supported by encouraging preclinical data that have demonstrated synergistic efficacy enhancements from the vididencel/azacitidine/venetoclax combination. Global sales of venetoclax (Venclexta) in AML are expected to reach $1.2bn (Evaluate Pharma) and may therefore represent a potentially significant market opportunity for Mendus to target. However, we believe Mendus is set to initially focus on broadening vididencel’s application in the ‘chemo-fit’ population.

Mendus is also developing vididencel as a maintenance therapy following first-line treatment for ovarian cancer (OC) in the Phase I ALISON study (NCT04739527), for which management reported positive interim safety data at the European Congress on Gynaecological Oncology 2022. The primary endpoint of the trial is the number of patients with vididencel-induced antigen-specific T-cell responses following treatment. The company presented new data from ALISON at the American Association for Cancer Research (AACR) meeting in 2023. The most notable developments from the study, at the data cut-off for AACR submission, included data from seven of the 11 enrolled patients who had completed the full vididencel vaccination protocol, with four patients remaining to complete the vaccination cycles. Four out of seven patients (57%) who completed the vaccination regimen had disease recurred, of which one had died, while three patients (43%) were disease free. We note that one patient remained disease free 68 weeks following the first dosing of vididencel (patients received six doses in total over the first 22 weeks). Additionally, four out of five patients (80%) evaluated for vaccine-induced T-cell response (VIR) exhibited at least one sustained VIR to at least one of the four tumour-associated antigens measured in the study. While we acknowledge these results represent a very small patient sample size, we believe the immune response observed is highly encouraging towards the trial meeting its primary endpoint of the number of patients with vididencel-induced antigen-specific T-cell responses. We also note that vididencel treatment continues to be safe and well-tolerated in the ALISON study.

Ilixadencel is an immune primer made up of pro-inflammatory activated allogeneic dendritic cells (DCs) and intended for intratumoural administration. When injected into the tumour, ilixadencel DCs cause local recruitment and activation of the patient’s immature DCs, natural killer cells and T-cells, potentially causing an anti-cancer response. The treatment is currently in preparations to start a Phase II trial in GIST, which we expect to begin later this year, in combination with tyrosine kinase inhibitors (TKIs). In June 2022 the FDA awarded orphan drug designation (ODD) to ilixadencel as a treatment for GIST. Commencement of the Phase II study had been delayed due to complexities associated with ilixadencel production. However, Mendus spent much of FY22 addressing the production challenges associated with ilixadencel, and management believes it now has a more robust production process to support demand from future clinical studies and has extended the shelf life of ilixadencel.

Cell therapies are often associated with manufacturing complexities and supply chain bottlenecks, so Mendus’s steps to improve its production processes would appear to be supportive of ilixadencel’s continued advancement into human trials.

In August 2022, the company secured up to SEK250m in financing commitments, consisting of a shareholder loan of SEK50m from Van Herk Investments and up to SEK200m in convertible bonds from Negma Group. Management requested and received the first loan (SEK10m, which carries a 6% cumulative interest) under the Van Herk Investments agreement in October 2022, and secured a second loan in March 2023 for SEK25m, carrying 6% annual interest that is due within one year. The company also drew down the first tranche (SEK13.7m) of the convertible bond agreement with Negma in January 2023. Negma converted a total of SEK4.77m of the bonds into 3,293,913 newly issued shares, representing c 1.65% of shares outstanding. Mendus subsequently repaid all outstanding amounts of the SEK13.7m convertible bond tranche from Negma Group in two instances; one in March 2023 (SEK5m) and the remainder in April 2023 (SEK3.9m, plus 8% premium). With Negma having converted a total of SEK4.8m of bonds, there are no more convertible bonds outstanding and the Negma debt facility now available to Mendus stands at SEK195.0m. The redemption was triggered by the share price reaching the floor conversion price set for the first tranche of convertible bonds where the conversion of bonds below the floor price would have resulted in higher transaction costs for Mendus.

At the time of writing, SEK15.0m of the Van Herk shareholder loan and SEK195.0m of the convertible Negma Group facility remain available for drawdown. If the company fully exercises the committed financing available, we believe it should provide sufficient funds to support its clinical programmes and working capital requirements into H224, based on our projected burn rates. If the entire SEK195.0m of convertible debt is used by Mendus, the ensuing stock conversion, assuming a price of SEK1.72/share, would result in the issue of 113.4m shares, diluting existing shareholders by c 56%. We do not expect Mendus to be fully revenue generating and self-sustaining until 2027, following the launch of vididencel, and we estimate the company will need to raise an additional SEK220.0m in funding, which we account for this as illustrative debt in our model. If this is realised through an equity issue, it would result in the issuance of 127.9m shares. If we assume full drawdown of the Negma debt facility (SEK195.0m) and our estimated additional funding requirements (SEK220.0m), Mendus would have to issue c 241.3m shares, resulting in our per share valuation decreasing from SEK9.07/share to SEK4.13/share.

Our valuation remains largely unchanged, with the underlying assumptions described in our prior note. There are no significant changes to our operating expense forecasts but minor adjustments in our valuation have been realised by rolling our model forward and updating our foreign exchange assumptions. The increase in share count as a result of the conversion of convertible bonds from the Negma debt facility has also had an impact on our risked net present valuation.