Mendus — Planning the route forward for vididencel in AML

Mendus (OMX: IMMU)

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Research: Healthcare

Mendus — Planning the route forward for vididencel in AML

Mendus’s Q123 report provided an insight into the strategic next steps for its lead cancer vaccine, vididencel (DCOne), as the company pursues a clinical path in the acute myeloid leukaemia (AML) maintenance setting. Following the positive results from the Phase II ADVANCE II study, Mendus intends to initiate a follow-on Phase II study in H223, investigating the combination of vididencel with oral azacitidine (current standard of care, SoC) as an AML maintenance treatment regime. It had previously been reported that Mendus may look to explore vididencel as a maintenance treatment in patients post-hematopoietic stem cell transplantation (HSCT). However, with no maintenance therapy indicated in post-HSCT, to date, and the potential for synergistic efficacy enhancements with SoC oral azacitidine, we view Mendus’s prioritisation of the combination study as a sensible strategic decision. We have adjusted our forecasts, but our valuation of Mendus remains largely unchanged at SEK1.8bn or SEK9.19/share (previously SEK1.8bn or SEK9.07/share).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Mendus

Planning the route forward for vididencel in AML

Q123 results

Pharma and biotech

15 May 2023

Price

SEK1.42

Market cap

SEK285m

SEK10.4/US$

Net debt (SEKm) at 31 March 2023 (excluding lease liabilities)

46.0

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

(6.8)

(30.4)

(26.0)

Rel (local)

(6.7)

(29.9)

(30.5)

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 Phase II combination study initiation

H223

Vididencel mRFS data in ADVANCE II

Q423

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’s Q123 report provided an insight into the strategic next steps for its lead cancer vaccine, vididencel (DCOne), as the company pursues a clinical path in the acute myeloid leukaemia (AML) maintenance setting. Following the positive results from the Phase II ADVANCE II study, Mendus intends to initiate a follow-on Phase II study in H223, investigating the combination of vididencel with oral azacitidine (current standard of care, SoC) as an AML maintenance treatment regime. It had previously been reported that Mendus may look to explore vididencel as a maintenance treatment in patients post-hematopoietic stem cell transplantation (HSCT). However, with no maintenance therapy indicated in post-HSCT, to date, and the potential for synergistic efficacy enhancements with SoC oral azacitidine, we view Mendus’s prioritisation of the combination study as a sensible strategic decision. We have adjusted our forecasts, but our valuation of Mendus remains largely unchanged at SEK1.8bn or SEK9.19/share (previously SEK1.8bn or SEK9.07/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

(133.6)

(0.67)

0.0

N/A

N/A

12/24e

0.0

(145.3)

(0.72)

0.0

N/A

N/A

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

Combination study next on the AML horizon

Mendus is looking to make further inroads in AML maintenance with the initiation of a Phase II combination study. The company has communicated that the planned study may have potential to expand into a pivotal (registrational) trial. We note that there are limited competitive technologies in the AML maintenance pipeline with ongoing studies primarily focused on repositioning more recently approved AML treatments (venetoclax, azacitidine, gilteritinib), representing an opportunity for vididencel to offer market differentiation, in our view.

Financing on hand provides runway to Q224

Mendus has secured financing commitments worth up to a total of SEK210.0m. The facility consists of a remaining SEK15.0m shareholder loan from Van Herk Investments and SEK195.0m of convertible debt from Negma Group available for drawdown at the discretion of Mendus. With a gross cash position of SEK37.5m at end-Q123 and quarterly operating cash burn of SEK33.5m, the company will likely have to access the debt facility in Q223 to continue to fund its operations. If Mendus fully exercises the committed financing available, we believe it should provide an operating cash runway to Q224, based on our projected burn rates.

Valuation: SEK1.8bn or SEK9.19 per share

Our valuation of Mendus remains relatively unchanged at SEK1.8bn or SEK9.19/share, including net debt of SEK46.0m at end-Q123. The increased net debt position has been offset slightly by rolling our valuation model forward.

Financials

Following the Q123 report, we have updated our financial estimates for Mendus and forecast FY23 operating losses of SEK132m (previously SEK149m), with net cash outflows from operating activities of SEK130m (previously SEK148m). The decrease in operating expenses has been attributed to slightly muted clinical development activities associated with vididencel and ilixadencel, reducing FY23 R&D spend forecast to SEK82.3m, from SEK99.1m. However, we estimate that Mendus’s current quarterly costs are likely to increase in H223 as the company prepares for the initiation of the follow-on Phase II study for vididencel. We therefore expect operating losses to increase in FY24 to SEK136m (previously SEK67.4m), primarily driven by increased R&D expenses to SEK84.4m (previously SEK15.0m) associated with the commencement of the Phase II trial, and forecast operating cash outflows of SEK142m. Changes to our key estimates are summarised in Exhibit 1.

Exhibit 1: Key changes to forecasts

FY23e

FY24e

SEKm

Old

New

Change (%)

Old

New

Change (%)

Operating Expenses

(149.3)

(131.6)

11.9%

(67.4)

(135.8)

-100.3%

-- R&D

(99.1)

(82.3)

17.0%

(15.0)

(84.4)

-462.7%

-- G&A

(46.1)

(45.2)

2.0%

(47.5)

(46.5)

2.0%

- D&A

(4.1)

(4.1)

0%

(4.9)

(4.9)

0%

EBIT

(149.3)

(131.6)

11.9%

(67.4)

(135.8)

-100.3%

Operating cash outflow

(148.0)

(130.3)

12.0%

(73.4)

(141.8)

-93.2%

Source: Edison Investment Research

As such, 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 Q224. If the entire SEK195.0m of convertible debt is used by Mendus, the ensuing stock conversion, assuming a price of SEK1.50/share, would result in the issue of 130.0m shares, diluting existing shareholders by c 65%. 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 SEK425.0m in funding, which we account for as illustrative debt in our model. If this is realised through an equity issue at the current market price, it would result in the issuance of 283.3m shares. If we assume full drawdown of the Negma debt facility (SEK195.0m) and our estimated additional funding requirements (SEK425.0m), Mendus would have to issue c 413.3m shares, resulting in our per share valuation decreasing from SEK9.19/share to SEK3.01/share.

Exhibit 2: Financial summary

Accounts: IFRS, Yr end: December, SEK: Thousands

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)

(45,184)

(46,540)

R&D costs

(47,883)

(85,796)

(87,049)

(82,270)

(84,373)

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)

(127,455)

(130,913)

Depreciation and amortisation

(887)

(992)

(4,139)

(4,131)

(4,939)

Reported Operating Profit/(loss)

(86,028)

(130,100)

(133,684)

(131,586)

(135,851)

Finance income/(expense)

(3,220)

(3,310)

(5,101)

(2,026)

(9,440)

Other income/(expense)

0

0

0

0

0

Exceptionals and adjustments

0

0

0

0

0

Reported PBT

(89,248)

(133,410)

(138,785)

(133,611)

(145,292)

Adjusted PBT

(89,248)

(133,410)

(138,785)

(133,611)

(145,292)

Income tax expense

0

0

0

0

0

Reported net income

(89,248)

(133,410)

(138,785)

(133,611)

(145,292)

 

 

 

 

 

 

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)

(0.67)

(0.72)

Diluted EPS (SEK)

(1.17)

(0.73)

(0.70)

(0.67)

(0.72)

 

 

 

 

 

 

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

48,128

97,233

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

53,489

102,594

Non-current loans and borrowings*

18,982

36,666

22,844

187,844

382,844

Non-current lease liabilities

303

0

23,706

23,706

23,706

Total non-current liabilities

19,285

36,666

46,550

211,550

406,550

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

385,604

240,312

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

Operating Profit/(loss)

(86,028)

(130,100)

(133,684)

(131,586)

(135,851)

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)

(9,440)

Income taxes paid

0

0

0

0

0

Cash from operations (CFO)

(56,626)

(138,031)

(109,331)

(130,300)

(141,815)

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

195,000

Other financing activities

0

0

(2,731)

(29,198)

0

Cash flow from financing activities

50,904

127,027

8,194

140,577

195,000

Increase/(decrease) in cash and equivalents

153,611

(12,330)

(113,462)

6,277

49,105

Cash and equivalents at beginning of period

14,032

167,643

155,313

41,851

48,128

Cash and equivalents at end of period

167,643

155,313

41,851

48,128

97,233

Net (debt) cash

133,782

118,647

(10,191)

(139,716)

(285,611)

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.

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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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