Mendus — Momentum gathering across the pipeline

Mendus (OMX: IMMU)

Last close As at 01/03/2024

SEK0.49

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SEK432m

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Research: Healthcare

Mendus — Momentum gathering across the pipeline

Mendus recapped highlights of the positive clinical readouts from its ADVANCE II study in acute myeloid leukaemia (AML) in an investor update in conjunction with its annual filing. Management intends to continue focusing on the development of vididencel (DCP-001) and broaden its positioning as an AML maintenance therapy with two additional studies in AML, a Phase I study in AML patients post-hematopoietic stem cell transplantation (HSCT) and a Phase II trial in combination with standard-of-care azacitidine. We expect updates on the timing of these studies in FY23. In our view, a key operational development in FY22 was the optimisation of the production process for Mendus’s second clinical asset, ilixadencel, providing a robust manufacturing protocol that ensures consistent supply for future clinical trials. Mendus is now preparing a Phase II study to establish clinical proof of concept in gastrointestinal stromal tumours (GIST), initiation of which we view as the next clinical milestone for ilixadencel. Our valuation of Mendus remains virtually unchanged at SEK1.8bn or SEK9.07/share (previously SEK1.8bn or 9.31/share)

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Mendus_resized

Healthcare

Mendus

Momentum gathering across the pipeline

Operational update

Pharma and biotech

19 April 2023

Price

SEK1.78

Market cap

SEK358m

SEK10.4/US$

Net debt (SEKm) at 31 December 2022 (excluding lease liabilities)

10.2

Shares in issue

201.3m

Free float

37%

Code

IMMU

Primary exchange

Nasdaq Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

29.9

(35.9)

(13.7)

Rel (local)

18.7

(36.4)

(11.5)

52-week high/low

SEK3.40

SEK1.08

Business description

Mendus is a clinical-stage immunoncology 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 mRFS data in ADVANCE II

FY23

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Adam McCarter

+44 (0)20 3077 5700

Mendus is a research client of Edison Investment Research Limited

Mendus recapped highlights of the positive clinical readouts from its ADVANCE II study in acute myeloid leukaemia (AML) in an investor update in conjunction with its annual filing. Management intends to continue focusing on the development of vididencel (DCP-001) and broaden its positioning as an AML maintenance therapy with two additional studies in AML, a Phase I study in AML patients post-hematopoietic stem cell transplantation (HSCT) and a Phase II trial in combination with standard-of-care azacitidine. We expect updates on the timing of these studies in FY23. In our view, a key operational development in FY22 was the optimisation of the production process for Mendus’s second clinical asset, ilixadencel, providing a robust manufacturing protocol that ensures consistent supply for future clinical trials. Mendus is now preparing a Phase II study to establish clinical proof of concept in gastrointestinal stromal tumours (GIST), initiation of which we view as the next clinical milestone for ilixadencel. Our valuation of Mendus remains virtually unchanged at SEK1.8bn or SEK9.07/share (previously SEK1.8bn or 9.31/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

0.0

(151.3)

(0.76)

0.0

N/A

N/A

12/24e

0.0

(76.9)

(0.38)

0.0

N/A

N/A

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

Maintenance strategy in AML at the forefront

Following ADVANCE II, management plans to focus on maximising vididencel’s potential as an AML maintenance therapy in FY23. The company’s planned Phase II combination study with oral azacitidine (AML maintenance standard of care) will include the same patient population as the ADVANCE II trial and, in our view, represents a logical next step in vididencel’s clinical development. Additionally, we see combinational treatment regimens as being critical for future clinical breakthroughs to disrupt standard-of-care treatment protocols in oncology.

Optimised manufacturing paves the way in GIST

In FY22 Mendus reported improvements in the manufacturing process for ilixadencel. The process developments have helped extend ilixadencel’s shelf life, which we believe will drive cost efficiencies provided market approval is received, and ensures sufficient quantities of the drug can be produced to support the upcoming Phase II GIST program. We see the initiation of this trial as the next major catalyst for ilixadencel and we expect an update in FY23.

Valuation: SEK1.8bn or SEK9.07 per share

Our valuation of Mendus remains relatively unchanged at SEK1.8bn or SEK9.07/share, including net debt of SEK10.2m at end-Q422. Our per share valuation has decreased slightly due to the issuance of new shares in FY23 related to the Negma convertible debt facility.

ADVANCE II spearheading AML maintenance

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.

Exhibit 1: Vididencel potential positioning in AML maintenance

Source: Mendus annual report presentation


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.

Positive data from ALISON study continue

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.

Streamlined manufacturing to support development

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.

Financials

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.

Valuation

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.

Exhibit 2: Mendus rNPV valuation

Product

Indication

Launch

Peak sales (US$m)

NPV
(SEKm)

Probability of success

rNPV
(SEKm)

rNPV/share
(SEK/share)

Vididencel (DCP-001)

AML

2027

680

3,415

20.0%

899

4.47

OC

2031

760

2,262

15.0%

704

3.50

Ilixadencel

GIST

2029

230

1,552

15.0%

233

1.16

Net cash/(debt) at 31 December 2022

(10.2)

100.0%

(10.2)

(0.1)

Valuation

 

 

 

7,220

 

1,826

9.07

Source: Edison Investment Research

Exhibit 3: Financial summary

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

2020

2021

2022

2023e

2024e

Income statement

 

 

 

 

 

Total revenue

0

31

3,375

0

0

Cost of sales

0

0

0

0

0

Gross profit

0

31

3,375

0

0

SG&A (expenses)

(37,193)

(42,498)

(44,737)

(46,079)

(47,461)

R&D costs

(47,883)

(85,796)

(87,049)

(99,088)

(15,000)

Other income/(expense)

(65)

(845)

(1,134)

0

0

Exceptionals and adjustments

0

0

0

0

0

Reported EBITDA

(85,141)

(129,108)

(129,545)

(145,167)

(62,461)

Depreciation and amortisation

(887)

(992)

(4,139)

(4,131)

(4,939)

Reported Operating Profit/(loss)

(86,028)

(130,100)

(133,684)

(149,298)

(67,400)

Finance income/(expense)

(3,220)

(3,310)

(5,101)

(2,026)

(9,469)

Other income/(expense)

0

0

0

0

0

Exceptionals and adjustments

0

0

0

0

0

Reported PBT

(89,248)

(133,410)

(138,785)

(151,324)

(76,870)

Adjusted PBT

(89,248)

(133,410)

(138,785)

(151,324)

(76,870)

Income tax expense

0

0

0

0

0

Reported net income

(89,248)

(133,410)

(138,785)

(151,324)

(76,870)

 

 

 

 

 

 

Basic average number of shares, m

76.2

184.0

198.3

200.4

201.3

Basic EPS (SEK)

(1.17)

(0.73)

(0.70)

(0.76)

(0.38)

Diluted EPS (SEK)

(1.17)

(0.73)

(0.70)

(0.76)

(0.38)

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

Property, plant and equipment

1,705

2,109

13,899

14,588

15,191

Intangible assets

532,441

532,441

532,441

532,441

532,441

Right of use assets

1,204

361

26,216

26,216

26,216

Other non-current assets

677

843

618

618

618

Total non-current assets

536,027

535,754

573,174

573,863

574,466

Cash and equivalents

167,643

155,313

41,851

30,416

17,943

Prepaid expenses and accrued income

4,760

10,214

1,919

1,919

1,919

Other current assets

20,230

19,702

3,442

3,442

3,442

Total current assets

192,633

185,229

47,212

35,777

23,304

Non-current loans and borrowings*

18,982

36,666

22,844

187,844

252,844

Non-current lease liabilities

303

0

23,706

23,706

23,706

Total non-current liabilities

19,285

36,666

46,550

211,550

276,550

Trade and other payables

10,365

11,610

7,411

7,411

7,411

Current loans and borrowings

14,879

0

29,198

0

0

Short-term lease liabilities

880

309

2,413

2,413

2,413

Other current liabilities

22,157

15,657

20,375

20,375

20,375

Total current liabilities

48,281

27,576

59,397

30,199

30,199

Equity attributable to company

661,094

656,743

514,440

367,891

291,022

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

Operating Profit/(loss)

(86,028)

(130,100)

(133,684)

(149,298)

(67,400)

Depreciation and amortisation

1,774

1,851

4,139

3,311

3,477

Other adjustments

0

0

0

0

0

Movements in working capital

27,731

(10,089)

27,030

0

0

Interest paid/received

(103)

(140)

(1,135)

(2,026)

(9,469)

Income taxes paid

0

0

0

0

0

Cash from operations (CFO)

(56,626)

(138,031)

(109,331)

(148,012)

(73,393)

Capex

(464)

(1,361)

(12,324)

(4,000)

(4,080)

Acquisitions & disposals net

0

0

0

0

0

Other investing activities

0

0

0

0

0

Cash used in investing activities (CFIA)

157,298

(1,361)

(12,324)

(4,000)

(4,080)

Net proceeds from issue of shares

51,629

128,949

0

4,775

0

Movements in debt

(725)

(1,922)

10,925

165,000

65,000

Other financing activities

0

0

(2,731)

(29,198)

0

Cash flow from financing activities

50,904

127,027

8,194

140,577

65,000

Increase/(decrease) in cash and equivalents

153,611

(12,330)

(113,462)

(11,435)

(12,473)

Cash and equivalents at beginning of period

14,032

167,643

155,313

41,851

30,416

Cash and equivalents at end of period

167,643

155,313

41,851

30,416

17,943

Net (debt)/cash

133,782

118,647

(10,191)

(157,428)

(234,901)

Source: Mendus company accounts, Edison Investment Research. Note: *Includes the Van Herk Investments shareholder loan and the Negma Group convertible debt facility which we assume will both be fully drawn down.

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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.

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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Context Therapeutics’ April R&D webinar included takeaways from its poster presentation on CTIM-76 preclinical data at the AACR Annual Meeting in April 2023. The presentation highlighted the development of Context’s CLDN6 program and rationale for selecting CTIM-76 (a CLDN6xCD3 targeting bispecific antibody) as its new lead candidate (following the recent discontinuation of the ONA-XR program). We remind readers that while the therapeutic benefits of targeting CLDN6 (expressed on a variety of malignant tumor cells but rarely in healthy tissue) are well recognized, development hitherto has been hampered by a lack of selectivity and off target toxicities. Preclinical data presented by Context suggest that CTIM-76 selectively binds to CLDN6 with a potentially beneficial safety profile. The latest Phase I data in solid tumors from BioNTech’s CLDN6 CAR-T asset BNT211 (33% overall response rate, ORR; n=21) highlight the potential of a CLDN6-targeting therapy and are an encouraging read-across for this asset class, including CTIM-76.

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