Targovax — More data in 2020 from both clinical trials

On Friday 20 March, Targovax issued a statement specifically addressing the expected effect of the COVID-19 pandemic on its clinical trials. The key conclusion was that, for now, there are no significant implications for the core operations and the company has sufficient stock of ONCOS-102 in supply for patient treatment. Targovax completed a private placement recently, so from a financial perspective the R&D operations are secured in the near term. More specifically:

Targovax was also planning to present preclinical data on its next-generation oncolytic viruses at the AACR 2020 in March, but the conference has been postponed until later this year. In our view, the important issue is that Targovax can continue working on its preclinical projects, while the data disclosure can be carried out in a variety of ways (conferences, press releases, company quarterly presentations, etc).

The ongoing Phase I trial enrolled patients with advanced, unresectable melanoma, who progressed on treatment with anti-PD1 checkpoint inhibitors. ONCOS-102 is administered in combination with checkpoint inhibitor (CPI) pembrolizumab (Keytruda, Merck & Co). The trial aims to show that ONCOS-102 can activate the immune response in anti-PD1 refractory patients, trigger relevant T-cell production and enhance infiltration into the tumour. The goal is to allow the patients to benefit from treatment with CPI again.

Part 2 of the Phase I melanoma trial is now fully enrolled. These patients are on an extended ONCOS-102 treatment regime compared to Part 1, in which the patients received three injections of ONCOS-102 at week 1 followed by eight doses of Keytruda. In Part 2, the patients will continue to receive doses of ONCOS-102 in combination with Keytruda, which means they will receive a total of 12 ONCOS-102 injections rather than three (Exhibit 1).

We described the results from Part 1 (n=9) in detail in our previous reports. As a quick reminder, the results showed that:

Together, these findings suggest that the intratumoural injection of ONCOS-102 can cause systemic anti-tumour immune responses. These were hard-to-treat patients and, if such results were confirmed in a large randomised trial, it would be perceived as very positive, in our view.

The rationale for combining an oncolytic virus with a checkpoint inhibitor is to overcome resistance to the CPI, eg by releasing tumour antigens via direct tumour cell lysis, priming an immune response and increasing T-cell infiltration. Continued injections of the virus could enhance and maintain these mechanisms to maximise the potential for overcoming resistance.

Targovax reported randomised data from this Phase I/II study (n=31) on 22 January 2020. The open-label trial compared ONCOS-102 plus standard of care (pemetrexed/cisplatin) versus standard of care treatment in first- and second-line settings.

The key clinical response endpoint of mPFS was 8.4 months (active arm) vs 6.8 months (control) and above the historical control of 5.7–7.3 months. The median progression free survival (mPFS) results are still early, with many patients not included in the analysis (update data to be released later this year). In first-line patients, mPFS was 8.9 months vs 6.8 months (Exhibit 2). Data for the second-line group were still not mature enough for analysis.

Overall response rates (ORRs) in first-line patients were 30% in the experimental arm vs 33% in the control arm (the experimental arm had more advanced patients). ORRs in second-line patients were 11% in the experimental arm (n=9) vs 60% (n=5). The response in the control arm was clearly unusually high and likely the result of a small sample. This negatively skewed analysis of the ORRs in the overall population. Nevertheless, these ORR data compare well to historical controls of c 20% (Exhibit 3).

Tumour biopsy results showed that 10 out of 15 evaluable patients in the experimental group had increased tumour-infiltrating CD8+ T-cells. Nine of these 15 patients had increased PD-L1 expression in the tumour. While the control group was small (data not yet mature), infiltration in the active arm was very pronounced in some cases, indicating ONCOS-102 activity, in our view. These immunological data in combination with the clinical response show that the mechanistic effect of ONCOS-102 is potentially associated with clinical improvement.

Mesothelioma is one of the most difficult cancers to treat, with classic chemotherapy still being the standard of care. Given the aggressive nature of the cancer and a lack of innovative treatment options, we believe an accelerated approval is possible in this indication. Pemetrexed was approved based on a single trial (Vogelzang et al, 2003), as the FDA acknowledged that it was a large trial in a challenging indication, which is unlikely to be replicated (Hazarika et al, 2005). More detailed analysis is in our last published report.

Targovax intends to present more mature data from the Phase I/II study later this year, likely before the summer. Meanwhile, it has started working on the next stage. The next trial will assess ONCOS-102 in a triple combination including standard chemotherapy and CPIs (likely to become a new standard of care in the near future). In addition, Targovax indicated that it is already in discussions with a prospective pharma partner for a study collaboration, although the extent of the possible partnership is not yet clear.

The readout from Part 2 of the Phase I melanoma trial will be the key catalyst expected in H220. Patients are being administered significantly extended dosing of ONCOS-102 in this part of the study compared to patients in Part 1.

The fairly large Phase I/II trial (n=78) sponsored by the Ludwig Institute for Cancer Research and the Cancer Research Institute is being conducted in patients with peritoneal disease who have failed prior standard chemotherapy and have histological confirmation of epithelial ovarian cancer or metastatic colorectal cancer (CRC). ONCOS-102 is being studied in combination with MedImmune’s checkpoint inhibitor durvalumab (Imfinzi). With its Q420 results, Targovax reported that the trial, which is being run at the six top US hospitals, is progressing well. The safety and dose escalation cohorts have been completed without no concerns, and patient recruitment into the experimental part is ongoing. Targovax expects to present some data from this trial during 2020, although this is in the hands of the investigator. In our view, this collaboration is the most likely of the two ONCOS-102 collaborations to translate into a commercial opportunity in the near term. We reviewed this opportunity in more detail in our July 2019 update.

In second-generation ONCOS viruses, Targovax was able to add a second transgene (the first-generation ONCOS-102 has granulocyte macrophage colony stimulating factor, GM-CSF). Depending on the second transgene (not disclosed), these new viruses have different properties and are optimised to inhibit tumour growth and vascularisation, counteract the immunosuppressive tumour microenvironment and have enhanced cell-killing properties. Targovax also presented some in vivo data from its studies with the ONCOS-210 and 212 viruses and we expect more data in the near future, including more details about positioning in the clinic and which indications will be prioritised.

Targovax reported income of NOK2.23m in Q419, which was a fee from IOVaxis Therapeutics for an exclusive option agreement for clinical development and licensing of the Targovax mutant RAS vaccines TG01 and TG02 in China, Hong Kong, Macau and Singapore. If exercised, the licence has a potential value of up to $100m in development and commercial milestones, in addition to double-digit royalties

Operating expenses were NOK41.6m in Q419, which was slightly lower than NOK42.2m in Q418. The FY19 operating loss of NOK150.3m was slightly higher than NOK146.1m in FY18, as clinical trials are progressing. We expect similar activity in 2020 and 2021. Targovax had cash and cash equivalents of NOK70m at the end of Q419. In January 2020, it raised NOK101m via a private placement, which secured funding for 2020, according to our model and in line with the company’s guidance. The funding gap in 2021 is covered in our model by increasing long-term debt (as per our principles; Exhibit 6).

Our valuation is virtually unchanged at NOK1.53bn or NOK20.1/share versus NOK1.51bn or NOK19.9/share previously, which is based on a risk-adjusted NPV analysis using a 12.5% discount rate, including NOK166m net cash. We continue to exclude other long-term debt of NOK50.4m in Finnish government grants from our valuation, as repayment is only required if the products are sold or launched. Upcoming Phase I melanoma trial results and more data from the Phase I/II mesothelioma trial are potential catalysts in the near term.