Mendus — Potential disruptor to AML maintenance setting

Mendus’s active clinical pipeline is focused on utilising its capabilities and experience in allogeneic cell therapies and dendritic cell biology to address serious unmet medical needs for cancer patients (Exhibit 1).

The company’s lead asset, vididencel, is an off-the-shelf cellular immunotherapy, which is administered via intradermal injection. The product is derived from a proprietary leukemic cell line, which is rendered immunogenic by the cytokine-induced expression of dendritic cell costimulatory molecules. The final product is irradiated and stored frozen. On administration, vididencel is phagocytosed (‘eaten’) by skin-resident, antigen-presenting cells, which then trigger a broad immune response against known and unknown tumour antigens, such as WT1, RHAMM and PRAME. Because the product is based on a cell line, it allows for scalable, centralised manufacturing. Mendus has secured a manufacturing alliance with Sweden-based NorthX Biologics for large-scale manufacturing of vididencel in accordance with good manufacturing practice.

Mendus recently presented the long-term, follow-up data from its ADVANCE II trial, which explored vididencel as monotherapy in AML maintenance and, given the encouraging data, the next step for its clinical development is the upcoming CADENCE combination trial, expected to launch in H124. Vididencel is also being investigated as a potential maintenance therapy for ovarian cancer in the ongoing ALISON trial, for which updates are expected throughout H124.

The company’s second asset, ilixadencel, is an immune system primer comprising pro-inflammatory activated allogeneic dendritic cells intended for intratumoural administration. When injected into a tumour, these dendritic cells are expected to initiate local recruitment and activation of the patient’s dendritic cells, as well as natural killer cells and T-cells, to drive an anti-cancer response. Mendus completed long-term follow-up of the MERECA trial in metastatic renal cell carcinoma (mRCC) in December 2023. The data showed no significant survival difference between the ilixadencel plus sunitinib treatment arm versus the sunitinib-only control arm of the trial and management has decided not to pursue this indication further. However, the company is gearing up to launch a Phase II proof-of-concept trial in STS, expected to commence in H124.

Mendus’s key strategic focus is the clinical development of vididencel as a potential disruptor in the AML maintenance setting. Patients diagnosed with AML initially go through induction chemotherapy, with the objective of killing as many leukaemia cells in the blood and bone marrow as possible. Chemotherapy-unfit patients are typically treated with venetoclax and azacitidine and, while some patients may achieve complete remission (CR) with such treatments, the risk of relapsing remains high for all AML patients. Maintenance therapies aim to completely eradicate residual cancer cells to reduce the probability of relapse, leading to durable clinical remissions.

An important concept in AML maintenance is that of measurable residual disease (MRD), which refers to the presence of cancer cells below the threshold of detectability for conventional testing methods. Therefore, a patient that has achieved CR may still be MRD positive (MRD+). MRD serves as a prognostic biomarker and represents a key relapse risk factor for AML patients.

Currently, allogeneic haematopoietic stem cell transplantation (allo-HSCT) is the only potentially curative treatment option for AML patients who have responded to initial therapy, but they must be healthy enough to undergo this procedure. The lack of a matched transplant donor also represents a key limitation with this treatment option. For patients ineligible for allo-HSCT, there are only two approved therapeutic options: Onureg, which is the current standard of care for AML maintenance, and Vanflyta, which was approved by the FDA for the treatment of AML patients carrying the FLT3-ITD mutation (c 37% of all AML patients) in July 2023. However, despite these therapeutic options, disease progression and relapse remain an ongoing medical need. Furthermore, safety is a key concern. Mendus is developing vididencel to address this, aiming to provide a safe and effective treatment option to prolong survival (Exhibit 2).

Immunotherapy holds promise as a desirable option for AML maintenance, as the approach is generally safe and has the potential to lead to durable clinical responses. However, while some immunotherapies, such as immune checkpoint inhibitors, have found success in extending survival for patients with solid tumours, in blood-based cancers such as AML their effectiveness has so far been limited (for example, nivolumab failed to improve survival in a Phase II study) and remains an ongoing clinical dilemma. To further corroborate this challenge, we highlight below some additional cases of recent failures in the clinic, including those from big pharma:

Given the encouraging data to date for vididencel, it is our opinion that Mendus has a unique offering in an immunotherapy with the potential to improve AML patient outcomes.

The most recent clinical programme for vididencel was the ADVANCE II trial, an international, multi-centre, open-label, proof-of-concept Phase II trial (n=20) investigating vididencel as monotherapy to prolong survival for AML patients, compared to Onureg (current standard of care). All patients included in this trial had initially achieved CR following induction chemotherapy, but all were MRD+.

The latest update came in the form of long-term survival data presented at the American Society of Hematology 2023 meeting (December 2023), demonstrating durable clinical remissions in the majority of patients following vididencel treatment. As of 24 November 2023, the median follow-up was 31.6 months (range of 6.6–60 months) and at this stage, median overall survival (OS) had not yet been reached, with 14/20 patients still alive and 11/14 patients still in CR (Exhibit 3). In terms of relapse-free survival (RFS), median RFS stood at 30.4 months and the RFS rate after two years was 56% (Exhibit 4). Estimated two-year and three-year OS rates were 74.9% and 64.7%, respectively.

Furthermore, immunomonitoring data, based on patient skin and blood samples collected as part of the trial, showed strong immune responses associated with the durable clinical remissions. We believe this supports vididencel’s mode of action as an immunotherapy with the potential to improve immunity against residual cancer cells. For more detail on both the survival and immunomonitoring data, please see our prior update note.

We note that Onureg is the only approved AML maintenance treatment. Its approval was based on the QUAZAR AML-001 trial, which included both MRD+ and MRD- AML patients. In this trial, for MRD+ patients, Onureg showed a median RFS of 7.1 months versus 2.7 months with placebo, and median OS of 14.6 months versus 10.4 months for placebo. For MRD- patients, median RFS was 13.4 months with Onureg versus 7.8 months with placebo, and median OS was 30.1 months with Onureg versus 24.3 months with placebo, demonstrating the differences in risk for MRD+ compared with MRD- patients. However, it is our opinion that the overall poor survival outcomes emphasise the need for improved maintenance therapies in AML, especially for patients unable to undergo allo-HSCT. We view Mendus’s forthcoming combination trial as an opportunity to strengthen the evidence of vididencel’s potential to provide a more effective treatment option.

The upcoming ALLG AMLM22 CADENCE trial will be an adaptive, randomised, multi-centre Phase II clinical trial consisting of two stages, aiming to recruit a total of 140 patients. Importantly, the CADENCE trial will recruit both MRD+ and MRD- patients. This decision was made because relapse rates also remain high in MRD- AML patients, as we understand that false negatives are common in measurements of MRD, meaning that relapse is a risk for all AML patients. The decision to include both MRD+ and MRD- patients also ensures that the clinical development path for vididencel will follow the path taken by Onureg more closely, which we believe may help on the regulatory front. The first stage, involving 40 patients, will assess the safety of vididencel in combination with Onureg, compared to Onureg alone. The second stage will involve an additional 100 patients and aims to evaluate the efficacy of the combination. We note that management’s plans for a pivotal programme will likely be dependent on the interim readout of safety from the first 40 patients (Exhibit 5). In the combination treatment arm, patients will receive four biweekly intradermal injections of vididencel, followed by three booster injections up to six months after commencing treatment. All patients will be monitored over 18–24 months and we understand that management may expand the study into a pivotal trial, which could extend its duration by 24–36 months; however, this is subject to interim data being supportive. For the CADENCE trial, Mendus will benefit from the Australasian Leukaemia and Lymphoma Group’s (ALLG’s) experience in AML, as well as its clinical trial network, to ensure that the study progresses smoothly. In our view, the collaboration with ALLG represents a positive development in supporting the advancement of vididencel through the clinic.

Following the positive clinical data from ADVANCE II, we note that in November 2023 Mendus published a detailed overview and analysis of the Phase I vididencel clinical trial in HemaSphere. The publication provided additional insights into the encouraging potential of vididencel as a maintenance therapy for AML patients, while suggesting that the cancer vaccine may be combined with Onureg to provide better patient outcomes. In September 2023, vididencel was awarded Fast Track designation by the FDA as a potential maintenance therapy in AML. The benefits of Fast Track designation include more frequent interactions with the FDA for an expedited approval process and a ‘rolling review’ for its market application. Vididencel also benefits from orphan drug designation in the US and EU. We believe the above provides a strong foundation, both on clinical and regulatory fronts, for vididencel as a potential treatment option in the AML maintenance setting.

The CADENCE combination trial represents a strategic priority for Mendus and an important step forward in the clinical development of vididencel. We understand that interim data from this trial, as well as the previous ADVANCE II trial, will be used to inform the plan for registrational studies. Manufacturing is a key component of the preparation process, particularly in the cell-based therapies sector.

Vididencel is an off-the-shelf, non-patient-specific cancer vaccine. Importantly, the cell line-based approach with vididencel allows for scalable manufacturing, as the product may be frozen, which enables simple administration by intradermal injections. In our view, this offers a significant practical advantage, in contrast to patient-specific treatments that are associated with manufacturing bottlenecks, as it allows efficient patient access. To support this, Mendus has a manufacturing agreement with NorthX Biologics for the production of vididencel for both the upcoming CADENCE trial and subsequent potential registrational studies, as well as commercialisation. The agreement provides an opportunity to establish a dedicated facility to produce vididencel, putting Mendus in a strong position for the later stages of clinical development, in our view. We note that the manufacturing process for vididencel has been validated by an Advanced Therapy Medicinal Product certificate from the European Medicines Agency.

Beyond AML, Mendus is focused on the clinical development of vididencel in ovarian cancer. In the ongoing Phase I ALISON trial (expected n=17), the cancer vaccine is being assessed as a monotherapy in ovarian cancer patients after primary treatment. The primary endpoint of the study is the number of patients with vaccine-induced antigen-specific T-cell responses (VIRs) following treatment.

The latest update, presented at the Society for Immunotherapy of Cancer Annual Meeting (1–5 November 2023) showed that nine of the 13 patients enrolled had completed treatment (up to week 22) and nine of the 13 were still alive, with four of the 13 patients showing disease recurrence prior to week 22. Of the eight evaluable patients, six showed VIRs (75%). Furthermore, immune responses against tumour-associated antigens absent in vididencel were also observed, suggesting that vididencel may elicit broader immune responses than initially anticipated. While we acknowledge that the interim readouts represent a small sample size, we believe the immune responses are an encouraging indicator that the trial is on track to meet its primary endpoint.

Patient enrolment for ALISON was announced as complete in the company’s end-of-year pipeline update. We expect further readouts from the ALISON trial throughout 2024, including a detailed analysis of the survival data in H224.

In December 2023, Mendus announced the completion of the Phase II MERECA trial, an international, multi-centre, open-label, randomised study to assess the safety and efficacy of ilixadencel in mRCC (n=86). Of the 86 patients enrolled, 56 were treated with ilixadencel (intratumoural administration) followed by surgery (kidney tumour removal) and standard treatment with sunitinib; the remaining 30 patients were treated with sunitinib only. However, the long-term results showed no significant survival differences between the treatment and control arms. While median OS was 35.6 months with ilixadencel versus 25.3 months with the control, at five years post-treatment 32.1% of the patients in the ilixadencel group were still alive, compared to 26.7% in the control group. While the results were in favour of ilixadencel treatment, the lack of statistical significance has led management to decide not to pursue mRCC further. However, Mendus will continue the clinical development of ilixadencel in STS.

Mendus is gearing up to commence a Phase II trial for ilixadencel in STS, as management believes there is a greater opportunity in this group of tumours, which appear more challenging to manage with immunotherapies. Mendus has already received Fast Track and orphan drug designations from the FDA. The upcoming proof-of-concept Phase II study in STS aims to confirm clinical efficacy and safety in a relatively limited number of patients, and is expected to commence in H124. We believe that readouts from this trial could define the potential of ilixadencel and expect updates as the trial progresses throughout 2024.

As a pre-revenue company, Mendus does not report any revenues. In FY23, it reported other operating income of SEK29.6m (FY22: SEK3.4m), primarily related to patent transfer revenue and grants for the previously charged innovation loan from the Dutch enterprise agency RVO. Total operating expenses decreased by 5% during the year to SEK130.3m (FY22: SEK137.1m), although the figure was above our estimate of SEK120.5m. R&D activity picked up pace in Q423 (expenses of SEK37m versus SEK28m in Q422), driving the full-year expense to SEK92.7m (FY22: SEK87.0m). Notably, R&D as a percentage of operating expenses rose to 71% during the year versus 64% in FY22. We attribute this to increasing investments in preparation for the upcoming ALLG AMLM22 CADENCE trial for lead drug vididencel in combination with the standard of care Onureg, which is expected to commence in Q124, as well as a new Phase II trial evaluating the second asset, ilixadencel, in a new indication, STS, of which gastrointestinal stromal tumours (GIST) is a subset (trial expected to start in H124). General and administrative expenses declined by 24% to SEK37.1m (FY22: SEK48.9m). Operating loss improved to SEK100.7m (FY22: SEK133.7m), although the bulk of this improvement can be attributed to the contribution from other operating income. In contrast to the improvement in operating loss, cash outflow from operating activities increased to SEK166.4m, up 52% over SEK109.3m in FY22. This can be attributed to SEK64.4m in prepaid expense incurred by Mendus for the vididencel programme over the year.

We have made very minor adjustments to our FY24 estimates based on Mendus’s FY23 performance and increased visibility on the company’s plans for its pipeline assets. We raise our R&D estimates slightly (SEK85.4m vs SEK84.8m previously), but maintain our estimates for general and administrative expenses at SEK34m. Overall, our operating loss estimates improve slightly to SEK121.2m (SEK123.5m previously). We also introduce FY25 estimates, projecting an operating loss of SEK124.9m, primarily driven by higher R&D expenses assumed for the year.

Mendus ended the year with a net cash position of SEK119.9m (gross cash of SEK120.8m adjusted for SEK0.85m in debt from Region Västra Götaland as conditional credits), supported by the SEK317m (gross) fund-raise in August 2023 through a combination of a rights issue (SEK227m) and a directed issue to Flerie Invest (SEK90m). Additionally, the company paid off the SEK50m shareholder loan to Van Herk Investments via a debt-to-equity conversion as part of the financing transaction. We expect the current cash position to provide a runway through FY24, past the initiation of clinical trials in AML and STS and Phase I readout from the ALISON study evaluating vididencel in ovarian cancer (expected in H224). As part of the August 2023 funding, Mendus had also issued attached warrants (TO3), which vest between 15 and 29 March 2024 and can be converted at a price of SEK0.48/share. Full conversion could net the company SEK90.6m in additional proceeds, although we note that the warrants remain out-of-money as of now (current share price SEK0.43). If converted fully, we estimate that the additional capital will extend the company’s runway through Q325. Management had previously indicated that, if available, these additional funds will also be utilised to conduct a futility analysis of the CADENCE combination trial (vididencel + Onureg). As indicated above, the combination trial is expected to continue for 18–24 months from its initiation timeline of Q124 and we therefore assume that Mendus will be able to finalise a licensing deal by FY26. Assuming no contribution from the warrants exercise, we estimate that Mendus will need to raise another SEK125m in funding in FY25. Should the licensing deal not come through, the company will be required to raise a combined SEK300m through FY26 and FY27, according to our calculations.

Our valuation for Mendus is based on a sum-of-the-parts calculation of its clinical programmes and includes an rNPV calculation for vididencel in AML and ovarian cancer, and ilixadencel in STS (our model assumes GIST as a specific indication based on the company’s initial data). With increased clarity from management on the likely clinical pathway for Mendus’s assets, we have revisited our valuation assumptions for all three clinical programmes. While we maintain our underlying assumptions (patient populations, launch timelines and probability of success) for vididencel in ovarian cancer and ilixadencel in GIST, we have now expanded the target patient population for vididencel in AML in our model to include MRD- patients (in addition to MRD+ patients previously), highlighted by management at the KOL event held in December 2023 (please see our prior note for more detail). This changes our peak sales estimates to $980m for vididencel in AML maintenance (vs $680m previously). However, we have conservatively extended the launch timeline for the treatment by a year, to 2028 from 2027 previously. This is driven by clarity on the plans for the Phase II combination study with Onureg which, as explained above, is expected to last 18–24 months. Mendus has indicated that, based on the ADVANCE II and CADENCE trial data, it will seek to finalise a registration path for vididencel in 2025. We keep our probability of success unchanged for this indication as we believe that data from both the monotherapy and combination trials should support effective labelling of the drug, which will dictate eventual commercial success. Overall, we adjust our valuation for Mendus to SEK2.05bn or SEK2.38/share (from SEK2.18bn or SEK2.52/share previously). This includes the benefit from rolling forward our model and adjusting for the latest net cash figure of SEK119.9m. A breakdown of our valuation is shown in Exhibit 6.

As indicated above, assuming Mendus takes its assets to commercialisation on its own, we estimate that it will need to raise a total of SEK425m between FY25 and FY27 before reaching profitability in 2028. If this is actioned through an equity issue, the company will be required to issue 988.4m shares (at the current share price of SEK0.43), which will lead to the total number of shares outstanding increasing to 1.85bn and our per-share valuation diluting to SEK1.03/share.