Immunicum — Primed for value appreciation

Immunicum is a cell therapy company listed on Nasdaq Stockholm and based in Stockholm, Sweden, with R&D activities in Leiden, the Netherlands. It was formed in 2002 based on research originally carried out at Sahlgrenska University Hospital in Gothenburg, Sweden, but by the end of 2020 the company had finalised a transformational merger with DCprime, a Dutch biotech developing complementary technology. The combined entity now aims to become a global leader in off-the-shelf, allogeneic cell-therapies, building on its expertise in DC biology.

In its current form, Immunicum has two Phase II assets in development for cancer: ilixadencel and DCP-001. Ilixadencel is an intratumoural immune primer based on activated allogeneic DCs derived from healthy donors and is being developed for use in conjunction with other established cancer therapies that either directly target or amplify the immune response against solid tumours. DCP-001 is an intradermal vaccine against cancer relapse that DCprime derived from a proprietary cell line. DCP-001 aims to boost the immune system’s ability to control residual disease during cancer remission, preventing or delaying recurrence in solid and blood-borne cancers. Exhibit 1 details all indications for which these two assets have been investigated so far.

Immunicum now has two off-the-shelf, cell-based immunoncology assets which, from the perspective of the company’s strategy, are complementary. However, the positioning is different (relapse versus treatment), so the therapies will not compete with each other. The R&D strategy aims to accumulate proof-of-concept clinical data in larger cancer indications before seeking an out-licensing deal that would support late-stage development. In smaller indications, Immunicum could continue the development until registration. Specifically, to date:

There are two immune system types: innate and acquired. Innate immunity is inborn, non-specific and provides the ability to defend against infections; acquired (adaptive) immunity is specific to a pathogen and responsible for long-lasting immunity. The latter is subdivided into an antibody-based immune response (humoral) and a cellular response involving T-cells. T-cells can sense and kill infections or tissue that become abnormal and cause the risk of a tumour developing.

There are several subsets of T-cells, but the two major ones are CD4+ (also called ‘helper’) and CD8+ (‘killer’), indicating which CD glycoprotein they express. CD4+ T-cells are involved in the coordination of other immune cells that participate in the immune response. CD8+ T-cells can directly attack and kill other cells which, for example, have been infected with viruses or become malignant. Another important class of immune cells is DCs, which aid in ‘directing’ T-cells. In a malignant process, as cancer cells die, they can release tumour-associated antigens (also called neoantigens), which DCs can pick up, process and present to the T-cells, which will direct them to specifically target cancerous cells.

Ilixadencel is an immune primer made up of pro-inflammatory activated allogeneic DCs and intended for intratumoural administration. These are derived from healthy donors and activated ex vivo using a potent cocktail (COMBIG), which induces DCs to produce chemokines (CCL4/5 and CXCL10) that aid in the recruitment of other immune cells and cytokines (IL-1β & TNF-α). When injected into the tumour, ilixadencel DCs causes local recruitment and activation of the patient’s immature DCs, natural killer cells and T-cells. Maturation of recruited bystander DCs within the tumour microenvironment (driven by ilixadencel) results in uptake of tumour-associated antigens. Cross-presentation of these by DCs to CD8+ ‘killer’ cells makes the latter cytotoxic and capable of targeting cancer cells displaying the same tumour-associated antigens. Recognition of the ilixadencel DCs by the immune system as foreign (to the patient or host) also helps this inflammatory process, cancer cell death and tumour-associated antigen release (Karlsson-Parra et al, 2018). The positioning of ilixadencel is to stimulate the cancer immunity cycle at the height of tumour burden and mount an anti-cancer immune response that can be sustained throughout subsequent treatment course(s), be it surgical resection, radiotherapy, chemotherapy or immunotherapy. If the cancer immunity cycle is efficiently initiated, then both the primary tumour and metastases can be targeted (abscopal effect).

Conversely, DCP-001 is given during tumour remission (intradermally). DCP-001 cells are derived from the proprietary DCOne platform and consist of a leukaemia cell line, which has been shifted into a DC phenotype with a cocktail of cytokines (GM-CSF, IL-4 and TNF-α) and subsequently matured (PGE2, TNF-α and IL-1β). As a result, the leukemic DCOne cells endogenously expresses multiple common tumour-associated antigens and they are highly immunogenic. Once injected, these cells are phagocytosed (ingested) by the hosts DCs, which in turn cross-present the antigens from the original leukaemia cell line, stimulating a tumour-specific T-cell response.

DCOne cells express multiple common tumour-associated antigens such as WT-1, RHAMM, PRAME and MUC-1, which are also expressed by other blood-borne and solid tumours. This suggests that in addition to leukaemias, DCP-001 could have an anti-tumour effect in other cancers that express these antigens. Ovarian cancer (now in Phase I) was the first solid tumour indication investigated in preclinical models beyond leukaemia (now in Phase II) (Nagasawa et al, SITC 2020), but there is potential to expand into other types as well. The treatment setting for DCP-001 is to administer it during cancer remission with the aim of priming the immune system and boosting its ability to control residual disease, thereby preventing or delaying recurrence.

Through the merger, Immunicum has gained DCP-001, a Phase II asset which has diversified its pipeline offering beyond ilixadencel. DCP-001 is administered during cancer remission with the aim of priming the immune system, thereby preventing or delaying recurrence in solid and blood-borne cancers. As such, Immunicum is primarily developing DCP-001 for use as maintenance therapy in cancers where patients are at high risk of tumour recurrence, initially looking at both acute myeloid leukaemia (AML) and ovarian cancer. Immunicum has also highlighted the potential to move DCP-001 into earlier treatment lines, if used in combination with standard-of-care regimens.

With the merger, Immunicum has also gained the platform technology, DCOne. It could have broader utility to strengthen other T-cell therapies, such as CAR-Ts, either therapeutically to help deepen and prolong clinical responses, or to improve their manufacturing process.

ADVANCE-II is an ongoing, open-label Phase II trial investigating DCP-001 as a potential relapse vaccination in AML patients who are in their complete remission but still have MRD. The goal of this study is to investigate the effect DCP-001 has on the MRD status and whether remissions can be lengthened. Interim results presented at ASH 2020 (5–8 December) included data from the 10 patients in the first lower-dose cohort. Five patients in the higher-dose cohort had started, but not completed the vaccination schedule. Results presented at ASH last year showed that:

For decades, AML treatment relied largely on intensive chemotherapy and allogeneic hematopoietic stem cell transplantation (HSCT), which is unsuccessful in 60–80% of patients due to the persistence of MRD (van de Loosdrecht et al, 2018). Over the past few years, several new therapies have been approved, so the treatment paradigm is likely to change. However, having reviewed the emerging treatment options, we believe the survival benefit of the new therapies is limited, especially in elderly patients, so the unmet need in AML is likely to persist.

AML normally originates in the bone marrow (where new blood cells are made), but often quickly moves into the blood, resulting in uncontrolled growth and accumulation of malignant white blood cells, which fail to function normally and interfere with the production of normal blood cells. AML is the most common type of acute leukaemia in adults and affects around 40,000 patients in Europe and the US (new cases per year). Less than one-third of all AML patients survive for five years, while for 65+ year-olds this rate drops to 10–15%.

Until recently, the standard-of-care treatment for AML was primarily based on chemotherapy (cytarabine with anthracycline or mitoxantrone), followed by a stem cell transplant where appropriate. The goal of treatment is to reduce the blasts in the bone marrow to below 5% and return the blood cell counts to normal levels. A bone marrow transplant is generally recognised as the only curative treatment option but is not always appropriate.

Rydapt (midostaurin, Novartis) was the first novel targeted therapy approved in April 2017 and specifically targets FLT3 for the treatment of adults with newly diagnosed FLT3-ITD AML in combination with standard-of-care chemotherapy. In the Phase III trial, overall survival was increased from approximately two years to just over six years. Consensus forecasts Rydapt sales of c $240m in 2026 (source: EvaluatePharma). In November 2018, the FDA approved gilteritinib (Xospata, Astellas) as monotherapy for adults with FLT3-positive AML in a relapsed or refractory setting. Consensus forecasts Xospata sales of c $790m in 2026.

Outside of the FLT3-targeted therapy space, Venetoclax (BCL-2 inhibitor, Venclexta, AbbVie/Roche) has generated significant interest. In November 2018, the FDA granted accelerated approval for use in combination with azacitidine or decitabine or low-dose cytarabine for the treatment of 75+ year-old patients with newly diagnosed AML. Venetoclax has been demonstrated to have efficacy similar to standard-of-care chemotherapy regimens, but with a much better safety tolerability profile. Consensus forecasts Venetoclax sales of c $1.4bn in 2026 for AML. Other novel drugs that the FDA approved over the last few years include:

Despite these advances, novel drugs rarely extend survival by more than a few months, so survival rates remain poor and the unmet need in AML remains high. Most of these novel drugs were approved over the last few years, so the clinical treatment paradigm and guidelines are still in the development stage which makes it an interesting indication to follow.

The ongoing ADVANCE-II trial investigates DCP-001 as a potential relapse vaccination in AML patients who are in their complete remission but still have MRD. Until recently, standard of care for most patients with AML achieving a complete response was observation without maintenance therapy with some exceptions despite efforts to find effective treatment options in this setting. However, in September 2020 the FDA approved of Onureg (oral azacitidine) after the QUAZAR AML-001 clinical study (n=472) demonstrated that Onureg improved overall survival in maintenance setting. This is the biggest advance in AML maintenance at the moment and may change the treatment paradigm (Reville and Kadia, 2021). Consensus now forecasts $713m in sales by 2026 in AML (EvaluatePharma).

Clinical trials evaluating maintenance cytotoxic chemotherapy in AML in the past have consistently failed to show a benefit in overall survival. Many other treatments, such as targeted therapies, are still being tested in this setting (Sederstrom, 2020). So, like induction and consolidation (primary AML chemotherapy), maintenance setting is also changing. Immunicum will make final decision about positioning and more precise late-stage R&D plans once the ADVANCE-II data are released. EvaluatePharma calculates the total market value of AML drugs at c $1.6bn in 2021, which is forecast to grow to c $7.4bn by 2026.

The Phase I ALISON study is evaluating DCP-001 for first-line maintenance therapy in high-grade serous ovarian cancer, the most prevalent histology type, representing c 70% of all new cases. The single-centre, open-label study will recruit c 17 patients who have completed (neo)adjuvant chemotherapy and surgery. Patients will receive four bi-weekly vaccinations with 25 million cells per DCP-001 vaccination and two additional booster vaccinations with 10 million cells per vaccination. Patient follow-ups will be conducted for 24 months. The primary endpoint of the study is change from baseline of DCP-001 vaccine antigen-specific T-cells in peripheral blood after treatment. Key secondary endpoints include safety and tolerability as well as recurrence-free survival (RFS) and overall survival (OS) during the follow-up period. If successful, this will be the first validation that the DCP-001 platform also has potential utility beyond AML and may have an effect in solid tumours. In June 2021, Immunicum recruited the first patient into the ALISON trial and initial data are expected around mid-2022.

The National Cancer Institute estimates that 21,410 new cases of ovarian cancer were diagnosed in 2020 and c 13,770 women will die from the disease. In key European markets, c 33,400 women were diagnosed in 2020 (GLOBOCAN). Ovarian cancer is characterised by having minimal, non-specific or no symptoms at all, therefore most cases are diagnosed at an advanced stage. Prognosis in ovarian cancer is closely related to the stage at diagnosis, thus the overall prognosis for these patients remains poor (OS across all stages is 46%).

The treatment involves aggressive debulking surgery followed by chemotherapy and novel cancer-targeted therapies. The surgery is considered curative only for a small percentage of patients (certain histology type-tumours in stage I), so most will receive some form of chemotherapy after the surgery (neoadjuvant chemotherapy is also being used).

Despite optimal surgery and appropriate first-line chemotherapy, most patients will relapse and therefore maintenance therapy is considered following standard-of-care, platinum-based chemotherapy. In this so-called first-line maintenance setting, two approved PARP inhibitors have become standard of care and are forecast to generate c $4bn in sales by 2026 in this setting alone (EvaluatePharma).

TP53 mutations in high-grade serous ovarian cancer, the target population in the ALISON study, are highly prevalent and can be considered characteristic in c 96% of tumours, but also homologous recombination deficiencies (HRD), which occur in c 50%, including mutations to BRCA, which occurs in c 20% (The Cancer Genome Atlas Research Network, 2011). Although HRD+ patients were the original target population for PARP inhibitors, these have been shown to be efficacious irrespective of HRD status have been broadly adopted for first-line maintenance. As such, we anticipate that these PARPs could provide an efficacy benchmark or control for subsequent trials, but Immunicum has also highlighted that combination regimens with PARPs remain a possibility.

The management team is currently reviewing the development strategy for ilixadencel, and we expect some key decisions to be made and communicated in the coming months. Following completion of the Phase II MERECA trial, which tested ilixadencel in combination with standard-of-care chemotherapy versus chemotherapy alone, the currently ongoing Phase Ib ILIAD trial is testing the combination of ilixadencel with CPIs. Against the backdrop of the changing treatment for kidney cancer, we believe that safety data from the ILIAD trial will pave the way for designing the next efficacy trial with ilixadencel. ILIAD will also open a pathway for targeting other major cancer indications.

Immunicum has identified another indication, gastrointestinal stromal tumours (GIST), as a suitable target for ilixadencel. The strategy here is somewhat different. GIST is a rare cancer, so the advantages include regulatory support and shorter development timelines (eg an accelerated approval pathway), a smaller trial (less dependency on finding a partner), which translates into a faster route to market. The Phase I/II trial in GIST is complete. Immunicum plans a Phase II efficacy study and to initiate discussions with the FDA for accelerated approval.

Before the merger, the Phase II MERECA trial for ilixadencel was the most advanced clinical trial in Immunicum’s R&D pipeline. The latest update from the MERECA study in February 2021 provides promising efficacy signals and establishes part-clinical proof of concept for ilixadencel.

As a reminder, MERECA is an open-label study in RCC evaluating safety and efficacy of intratumourally administered ilixadencel pre-nephrectomy, followed by sunitinib post-nephrectomy. This is compared to surgery and sunitinib post-nephrectomy. However, since the MERECA study started enrolment, the treatment landscape in first-line RCC has evolved beyond sunitinib significantly (Exhibit 7). Checkpoint inhibitors have broadly become adopted as standard of care in this setting, given the substantial survival benefits that have been demonstrated across several Phase III studies (Exhibit 7). Consensus forecasts that ongoing uptake of PD-(L)1 agents in RCC will grow into a >$6bn opportunity in 2026 (EvaluatePharma).

In spite of this, ilixadencel has been granted a regenerative medicine advanced therapy (RMAT) designation by the FDA and advanced therapy medicinal product (ATMP) certification by the EMA, based on the MERECA data and Immunicum is in discussions with the regulators to determine the next development steps for ilixadencel in RCC. It has not yet presented a preliminary design and we understand that all options are on the table, including out-licensing certain rights.

The Phase Ib/II ILIAD study is the first trial where Immunicum is combining ilixadencel with Merck KGaA’s anti-PD-1 checkpoint inhibitor, Keytruda (pembrolizumab, anti-PD-1), therefore the safety and tolerability data will be of particular interest as they could define the scope in which ilixadencel could be used. Enrolment into the dose escalation part of the trial (Phase Ib) completed in December 2020, with 21 patients enrolled. Immunicum has not provided a breakdown of which tumour types have been enrolled, but the trial can recruit patients with either advanced head and neck cancer (HNSCC), gastric adenocarcinoma (GA) or non-small cell lung cancer (NSCLC). At the last safety update in July 2021, no dose-limiting toxicities were observed. Longer-term, follow up safety data and the first assessment of responses to treatment from the Phase Ib portion of the ILIAD study are expected in Q421.

Subject to data from the Phase Ib portion of ILIAD being positive, enrolment into the Phase II portion of the study can initiate and enrol up to 150 patients with either HNSCC or GA. During the Phase II portion of the study, ilixadencel will be investigated in combination with Pfizer/Merck’s anti-PD-L1 checkpoint inhibitor, Bavencio (avelumab), according to the agreement announced in November 2018. Although the involvement of Merck and Pfizer appears to be limited to supply, we believe it provides a degree of external validation of the technology and rationale behind ilixadencel, as we assume the partners conducted due diligence before committing to supply avelumab.

The FDA has granted both Fast Track Designation and Orphan Drug Designation to ilixadencel for its potential use in GIST. These were granted based on the results from the Phase I/II open-label, single-arm trial, which evaluated the safety and efficacy of ilixadencel in unresectable or metastatic GIST patients with tumour progression during ongoing second or later lines of treatment with TKI therapy. Patients were treated with two intratumoural doses of ilixadencel in combination with ongoing TKI treatment. Ilixadencel was administered in combination with sunitinib, regorafenib or similar TKI. Immunicum had initially planned to conduct a larger study, but due to the rarity of the disease, enrolment was stopped at six patients. The released top-line results include:

GIST is a relatively rare cancer and accounts for less than 1% of all gastrointestinal (GI) tumours, and is therefore a small indication compared to others in Immunicum’s R&D pipeline. When diagnosed with GIST, most patients appear to have localised disease so surgery is the mainstay of curative treatment, but 40% of resected tumours recur and spread (Schvartsman et al, 2017). TKIs became standard-of-care chemotherapy, but GIST remains one of the most chemotherapy-resistant solid malignancies. Imatinib is the TKI of choice for first-line treatment, but 50% of patients develop resistance within two years. Other TKIs, sunitinib or regorafenib, were shown to have a benefit in subsequent lines of therapy, but median survival at this stage is typically several months (Feng and Morris, 2014).

The findings in this study showed that two out of six patients had partial regression (patients who received ilixadencel in conjunction with the second or third line of standard TKIs). This could be an indication that ilixadencel helped to overcome resistance to TKIs in these patients but, since the patient sample was small, efficacy claims would need to be investigated in a larger population. As with other trials Immunicum has carried out, the benefit of this study is the fact that ilixadencel will gather data in multiple tumours and more evidence of mechanism of action can be accumulated (eg specific tumour immune response, tumour infiltration).

Immunicum is subject to typical biotech risks, including the unpredictable outcome of trials, regulatory decisions, the success of competitors, financing and commercial risks. Our model assumes that both DCP-001 and ilixadencel will be out-licensed and therefore our valuation is sensitive to the timing of potential licensing and actual deal terms, although typically the timing of licensing deals is difficult to forecast.

Immunicum has not yet established clinical proof of concept for DCP-001, albeit initial data from ADVANCE-II are promising. Therefore, near-term R&D sensitivities are largely tied to top-line data from the ongoing Phase II in AML expected in Q421. Although Immunicum has established clinical proof of concept for ilixadencel with the Phase II MERECA data, the treatment landscape in RCC has evolved beyond the combinations explored in the study. Therefore, Immunicum will now likely need to replicate proof-of-concept studies for ilixadencel to become attractive to potential partners. This will largely hinge on safety and tolerability data from the Phase Ib ILIAD study expected in Q421.

With the recent capital raise complete, we believe Immunicum has a cash runway for the near term based on its current plans. Further funding will depend on its ambitions to broaden clinical its programmes for the two assets and partner interest, which could alleviate the need for dilutive financing

We value Immunicum at SEK1.95n or SEK9.76 per share, based on a risk-adjusted NPV analysis using a 12.5% discount rate, including cash of SEK212m at end-Q221. Following the merger, we have extensively revised our valuation in line with the updated strategy. We include four indications in our valuation model, as discussed in detail above. However, we note that Immunicum has been accumulating data in several other cancers, including hepatocellular cancer (Phase I) and the ongoing ILIAD trial in multiple solid tumours. So, when it comes to the next set of trials, the company will have options. We believe, the late-stage R&D strategy will be finalised after evaluation of the totality of the data, which is when we will review our valuation model.

We use a bottom-up approach to calculate the market sizes and average industry data for the basis of our other assumptions (eg probability of success, eligible patient population and pricing – see Exhibits 9, 10 and 11). We have allocated R&D spend to each of the projects as clinical trial costs to obtain the true rNPV value. We then assume a full out-licensing deal in 2024, with the partner taking over Phase III development and commercialisation. We also separately value other opportunities for Immunicum’s DCOne technology (please see page 4 for details) to reflect its broader potential. For that we allocated a portion of benchmarked licensing income and discounted those milestones to present, as described below. The success probabilities in our model are based on historical averages and the amount of data in each indication.

The partnering strategy is a key element in our rNPV valuation of Immunicum. We note that partnering deals can vary widely from co-development and co-commercialisation to full out-licensing globally or for specific territories. Immunicum’s strategy will depend on the strength of the data. The timing of any deal is uncertain, but in our model we assume a global out-licensing deal in 2024.

Theoretically, both DCP-001 and ilixadencel could be evaluated in many different cancer types, so we have used historical licensing deal details for assets for which the deal terms stipulated many potential indications. Based on deals that have occurred since 2015 for Phase III-ready immunoncology assets (Exhibit 11), we assume an upfront payment of c $250m and milestones totalling up to c $1.4bn. We allocate one-third of the milestones to R&D-related payments such as completion of the Phase III trial and NDA approval; the rest are commercial milestones. We assume tiered royalty rates of 12–15% on sales. The deal values are split proportionally (using peak sales) and allocated to all four projects to get a true rNPV per share value.

Furthermore, we also value the DCOne technology separately and allocate 20% of the deal value described above to this technology. Milestones are then spread over a period of 10 years, risk-adjusted and discounted to present. This results in DCOne technology value corresponding to c 17% of the total valuation.

Also worth mentioning is the Vaccibody deal with Genentech/Roche. Vaccibody is a Norwegian biotech, which recently listed on the Oslo Stock Exchange’s Merkur Market on 7 October 2020, only a few days after it had signed a licensing and collaboration agreement with Genentech/Roche for $715m, with an impressive $200m upfront. Vaccibody is developing a cancer vaccine technology (which was still in Phase I at that time) using tumour-specific antigens, which is highly personalised for each patient, but the treatment process involves complicated logistics. The approach is different from DCP-001 and ilixadencel in the sense that Immunicum’s therapies are off-the-shelf with much more simple logistics and convenience. However, Immunicum’s approach is somewhat similar in ilixadencel’s case, as it is also expected to prime the anti-cancer immune response with neoantigens using a tumour as a source, which results in a highly specialised response.

The merger of Immunicum and DCprime completed on 21 December 2020. For accounting purposes, the transaction was deemed a reverse acquisition. For this reason, the accounts before the merger include only the financial results of DCprime (until 21 December 2021) and are combined thereafter. This means that the financial results for FY20 include DCprime for the entire financial year and Immunicum’s results for the last 10 days of 2020. The reported results for FY21 and our estimates include the consolidated group. Following the merger, Immunicum has SEK532m booked as intangible assets as at end-Q121.

Immunicum reports no income, while the H121 operating spend was SEK72.1m (comparison with the previous period is not relevant). It had cash of SEK211m at the end of H121. In June 2021, Immunicum carried out a direct share issue raising SEK141m gross. Van Herk, the majority owner of DCprime and the largest shareholder of Immunicum after the merger (43%), supported the share issue subscription pro rata.

Immunicum does not provide guidance, but we model operating spending of SEK134m and SEK133m in 2021 and 2022. This implies that existing funds are sufficient until the end of 2022. According to Edison principles, instead of share issues for our financial forecasts we use illustrative long-term debt, which currently stands at SEK125m in 2023 (assumes stable R&D costs).