Oxford Biomedica — Driving innovation in a thriving CGT industry

OXB is a pioneer and global leader in the development and manufacture of commercial-scale lentiviral vectors (LVVs), a critical component of cell and gene therapies (CGTs). An investment in OXB gives a broad exposure to this nascent industry, which holds potential to revolutionise the treatment of a wide range of conditions. OXB’s contract development and manufacturing organisation (CDMO) is world class and validated by its extensive partnering deals. OXB now has 18 CDMO partner programmes in place; new deals further expand the contract base, and the expansion of existing partnerships often signal progress into clinical stage development by partners and the potential for higher-value contacts down the line. We expect further platform deals to be announced in 2021. OXB’s origins lie in the discovery and early-stage development of cell and gene therapies; the 2018 out-licensing of AXO-Lenti-PD to Sio Gene Therapies in a deal worth up to $842.5m is validation of its discovery platform. We expect a burgeoning OXB to increase its focus on its own suite of CGT products (the group has five proprietary CGT assets in preclinical development), which are focused on multiple areas of high unmet need as well as leading the industrialisation of vectors through world-class innovation.

During 2020 OXB signed a licence and clinical supply agreement (LSA) with Juno Therapeutics (part of the Bristol Myers Squibb group). It grants Juno a non-exclusive licence to OXB’s LentiVector platform for its application in a number of novel CAR-T and TCR-T programmes. This is a significant deal, albeit early stage, in terms of multiple programmes and further diversifies OXB’s revenue streams. The deal covers four products (targets are undisclosed by OXB) and, based on Juno’s disclosed clinical pipeline, we assume it covers early clinical-stage assets as well as preclinical ones. Deal terms include a $10m upfront payment from Juno received in FY20, up to $86m in potential development and regulatory milestones (spread across four assets and multiple indications), up to $131m in potential sales-related milestones and an undisclosed royalty on net sales of products using its LentiVector platform. In the near term the key revenues will be from commercial development, which will move to batch revenues, but as these assets move towards approval, deals extending to commercial manufacturing supply provide further upside. OXB is now the preferred LVV partner for two out of the three founders of CGT and CAR-Ts (Novartis, Juno/BMS and Kite/Gilead).

In August 2020, Beam Therapeutics signed a development, manufacture and licence agreement (DMLA) granting it a non-exclusive licence to OXB’s LentiVector platform for application in next-generation CAR-T programmes in oncology. A three-year clinical supply agreement (CSA) is also in place for OXB to provide clinical trial material to Beam, in return for LVV development and clinical trial manufacturing supply payments. US biotech Beam Therapeutics is focused on developing precision genetic medicines utilising its proprietary base editing technology, a highly innovative next-generation CGT technology. We believe that this collaboration will enable OXB to work towards next-generation products. The pipeline is very early stage (preclinical) and focused on a range of therapeutic areas: hemoglobinopathies, oncology, liver disease, ophthalmology and the central nervous system (CNS). OXB is currently undertaking work on one preclinical asset with Beam; we note the agreement allows for the parties to initiate additional projects in the future. While OXB has not disclosed the exact details of the project it is working on, we believe the relevant product appears to be the engineered allogeneic (or off-the-shelf) CAR-T products, via multiplex editing of T-cells from healthy donors. Given the preclinical nature of Beam’s assets and its novel technologies (base editing and allogenic CAR-T), the time to market is longer than more recent deals such as that with Juno.

In May 2020, OXB signed an initial one-year clinical and commercial supply agreement with AstraZeneca (AZN) for AZD1222 (also known as Vaxzevria), a COVID-19 vaccine developed by a consortium led by the Jenner Institute, Oxford University. In September 2020, OXB announced an 18-month supply agreement with AZN for the large-scale manufacture of the vaccine. This is under a three-year master supply and development agreement, which has the option to extend the supply period for a further 18 months into 2022/23. OXB received £15m upfront from AZN as a capacity reservation fee. In May 2021 OXB provided an update on the current 18-month supply agreement, such that following the successful manufacture of large-scale batches of the COVID-19 vaccine, AZN had increased the number of batches for H221. This has translated to a significant upgrade in revenue guidance by OXB. Management now expects cumulative revenues from AZN by the end of 2021 to be in excess of £100m (previously £50m) and as a result expects significant growth in group operating EBITDA in FY21. AZD1222 has now been approved worldwide ex US. We expect the COVID-19 pandemic to continue for the foreseeable future and eventually expect the virus to become endemic such that annual vaccinations will be necessary. Thus, contingent on the expected continuation of the vaccine programme, the COVID-19 vaccine manufacturing requirements could then become an annuity-like revenue stream for OXB. We note that OXB would have the capabilities to manufacture other COVID-19 vaccines: J&J’s adenoviral vector (Ad26) vaccine would make the most sense. Based on the encouraging early data of continued vaccine efficacy against new and emerging variants, and given the not-for-profit pricing of the AZN vaccine ($3–$4 a dose vs mRNA vaccine (from Pfizer/BioNTech and Moderna) pricing of c $20 per dose), we believe good demand will continue from a global perspective. We therefore assume AZN will extend the vaccine supply agreement for an additional 18 months (to September 2023) and increase our forecasts for vaccine-related revenues to £87.5m (vs £15.0m previously) and £87.5m in (vs £7.0m previously) in FY21 and FY22, respectively. For the first time we include vaccine-related revenues of £55.0m in FY23.

AZD1222 relies on adenoviral vector technology, and OXB has leveraged its LVV expertise to provide adenoviral vectors. This highlights the company’s vast experience in vector manufacturing, as well as its flexibility and capabilities beyond the LVV space. Additionally, through improved processing, OXB is now able to produce more doses per batch. OXB has the expertise to further optimise the process and could improve the efficiency and yield further. We highlight that OXB increased its vector manufacturing capacity significantly ahead of the pandemic with its state of the art 84,000 sq ft manufacturing facility Oxbox coming on stream. Through a combination of internal and external investment it now has four suites dedicated to manufacturing the vaccine. OXB has successfully managed its capacity such that manufacture of adenovector for the COVID-19 vaccine has not had an impact on any of its current partnerships or its ability to sign new ones.

As a supplier of vector, OXB’s near-term revenues are driven by both the supply of LVVs and royalties (we estimate 2%) on Kymriah, a CD19-targeting CAR-T that is approved for paediatric B-cell precursor acute lymphoblastic leukaemia (pALL) and diffuse large B-cell lymphoma (DLBCL). In December 2019 the collaboration with Novartis (NOVN) was extended such that OXB is now working on six different LVVs for use in NOVN’s CAR-T products, and OXB will also receive commercial development fees on the five programmes in development. There are now five FDA-approved CAR-T products (NOVN’s Kymriah; Gilead’s Yescarta and Tecartus; and Bristol Myers Squibb’s Abecma and Breyanzi). As this field continues to expand, we expect OXB to garner more deals as one of very few CDMOs with experience developing an FDA-approved CGT.

NOVN reported Kymriah sales of $474m FY20 (vs $278m in FY19) across approved indications of pALL and DLBCL. Line extensions will further drive Kymriah uptake. In August NOVN released positive data from the interim analysis of the pivotal Phase II ELARA trial evaluating Kymriah in relapsed or refractory (r/r) follicular lymphoma; and the data will form the basis of US and EU regulatory submissions (expected in H221). Kymriah has been granted regenerative medicine advanced therapy (RMAT) designation by the FDA for r/r follicular lymphoma, which will enable an accelerated review process. We note the FDA approved Gilead’s Yescarta in r/r follicular lymphoma in March based on a 91% overall response rate in the Phase II ZUMA-5 study.

The data readout from the Phase III BELINDA study in first relapse DLBCL is expected in H221 and if favourable could enable regulatory submission for this indication. Recently published durability data for Kymriah in various refractory B-cell lymphomas has gone someway to answering questions around durability, as all patients who achieved remission lasting one year impressively remained in remission after five years. Kymriah consensus sales are estimated at more than $1.1bn by 2025 (EvaluatePharma). For valuation purposes we include pALL, DLBCL and r/r follicular lymphoma.

Post period end in April 2021, OXB signed a three-year development and supply agreement with Boehringer Ingelheim for the manufacture and supply of various types of viral vector, building on the original partnership. In 2018, OXB signed an option and licence agreement that granted Boehringer Ingelheim an option to license the exclusive global rights over OXB’s LVV technology to manufacture and commercialise a long-term inhaled formulation gene therapy for patients with cystic fibrosis (developed with the UK Cystic Fibrosis Gene Therapy Consortium and Imperial Innovations). This new agreement highlights encouraging progress in its partnership with Boehringer Ingelheim and importantly moves beyond LVV to other vector types (undisclosed), likely adeno-associated viruses (AAV) and adenovirus.

In July 2020 OXB expanded its partnership with a three-year clinical supply agreement (CSA) for the manufacture and supply of AXO-Lenti-PD with Sio Gene Therapies (previously Axovant). The 12-month data from cohort one of the Phase I/II SUNRISE-PD study demonstrated a 37% improvement in motor function from baseline as assessed by the UPDRS Part III ‘OFF’ score (this followed an improvement of 29% at six months on the same scale).

The next steps will be to enrol patients into the volume expansion cohort three, before the planned commencement of a randomised, sham-controlled portion of the study, initially expected to start enrolling patients in 2021. However, delays in CMC data and third-party fill/finish issues have caused the development of a suspension-based manufacturing process for AXO-Lenti-PD to take longer than expected. OXB has commenced manufacturing of several GMP batches for use in future clinical trials. Sio Gene Therapies now does not expect the AXO-Lenti-PD Phase II EXPLORE-PD study comparing the highest dose versus a sham surgical procedure to start enrolling patients before the end of 2021. We therefore take these timelines into account and prudently delay our AXO-Lenti-PD launch date by two years to 2026.

We note that competitor in the Parkinson’s disease (PD) gene therapy space Voyager Therapeutics’ Phase II RESTORE-1 study with VY-AADC (AAV gene therapy) was halted by the FDA after reviewing certain patient imaging data (MRI abnormalities in some patients). We believe Sio Gene Therapies will aim to launch the therapy based on the SUNRISE-PD and EXPLORE-PD trials plus historical ProSavin data..

OXB continues to innovate within its platform capabilities and its proprietary gene therapy R&D pipeline by making significant advances in technology in its platform to drive the industrialisation of vectors towards better yield and lower cost of production. One example is its successful transition to Process B bioreactor vector production for Kymriah (a tenfold increase in yield and efficiency over Process A) during 2019. To move further along the efficiency pathways, the group has continued to focus on developing, refining and enhancing its technology through advances such as its next-generation Transgene Repression in Vector Production (TRiP) manufacturing system, SecNuc technology and LentiStable cell lines that provide improved vector yields and scalable, cost-effective manufacturing. OXB is now progressing Process C from the laboratory to the larger-scale GMP setting. Process C will incorporate a menu of technologies including bioreactors, U1 and U2 processes (which improve productivity and vector quality), TRiP and SecNuc. Further development that incorporates the use of LentiStable producer cell lines (Process D) is also ongoing. Additionally, ongoing investment in high-throughput automation and robotics is streamlining production, reducing costs and enabling faster screening and analytical testing. This is particularly important as the time to product release is one of the current rate limiting steps of manufacturing.

The COVID-19 vaccine partnership has enabled OXB to gain exposure to manufacturing adenoviral vectors on 1,000L scale, which is significantly larger than the current LVV manufacturing scale (200L). OXB is using the downstream process outlined by the consortium, which uses similar purification techniques (such as hollow fibre and anion exchange purification) to LVV manufacturing. This valuable knowledge exchange will stand OXB in good stead if it was to pursue the manufacturing of adenoviral vectors in the future. Additionally, OXB has acquired knowledge of scaling up from 200L to 1,000L, which it can apply to LVV manufacturing. We note OXB’s current preference for LVV manufacturing as it is able to incorporate its IP into manufacturing contracts, which leads to higher royalty rates. However, OXB has demonstrated that its TRiP technology works in AAV and adenovirus, and the majority of its other technologies, for example SecNuc, may also be applied. Thus, OXB could attract potential partners due to its superior technologies that are also applicable to these vectors.

In Q120, OXB completed a review of its internal pipeline and identified priority candidates for development. This includes OXB-302 (haematological cancers), OXB-203 (wet age-related macular degeneration (AMD)), OXB-204 (LCA10), OXB-401 (liver indication) and OXB-103 (ALS). OXB-302 (CAR-T 5T4) remains the priority candidate in preparation to enter clinical-stage testing in the next 18 to 24 months. Importantly the industrialisation of vectors will be critical in the developmental pathway of these assets as they move towards the clinic. For CGT targeting the liver, high loads of vector are required, thus manufacturing will be reliant on the ability to produce in huge quantities of 1,000L plus, at higher purity and a lower cost of production.

For OXB’s own assets, the aim is to generate data in proof-of-concept Phase I/II trials. After that OXB could elect to continue development into Phase III or out-license at that stage. We note that out-licensing at proof-of-concept data would return higher economic value than deals made at an earlier stage, such as with AXO-Lenti-PD. Furthermore, with the strengthened balance sheet after the AZN vaccine deal, OXB is in a position to look for bolt-on acquisitions that complement the pipeline or enhance technology capabilities. OXB will assess partnering opportunities with academic institutions or companies and will also look at potential in-licensing opportunities that are further on in the clinic; these will likely be assets that are ready to enter the clinic. OXB has expressed a particular interest in liver indications such as haemophilia, where AAV therapies have shown proof of concept and LVVs have inherent advantages based on their ability to integrate into the host genome, potentially enabling a one-off treatment for any age.

OXB has highlighted expected newsflow for the year (Exhibit 1). OXB is one of few global LVV manufacturers with capacity in a thriving cell and gene therapy industry and management expects to both increase the number of partners and expand the number of programs with existing partners. Discussions and feasibility studies with multiple potential partners are ongoing. With three suites dedicated to manufacture of the AZN COVID-19 vaccine, OXB expects total cumulative revenues from this program to exceed £100m by the end of FY21. There is potential for the original 18-month clinical supply agreement signed September 2020 to be extended for vaccine supply in FY22 and FY23. We anticipate an update in H221 and note that OXB could look to increase the number of dedicated suites depending on the demand for vaccines.

OXB is pursuing a hybrid model and plans to progress internal candidates from its proprietary gene therapy portfolio towards the clinic (see above). With the strengthened balance sheet, OXB could acquire complementary assets and technologies as it looks to further its position as a world leader in LVV and develop its presence in other vectors (adenoviral vectors and AAV). While we note the Boehringer Ingelheim partnership has moved beyond LVV, the first partnership that focuses on other vectors specifically will be a key inflection point for the company, vastly increasing its addressable market and further diversifying revenue streams.

OXB has been investing for growth in Oxbox and Windrush Court as vector manufacturing capacity continues to be constrained globally. Investment in Oxbox has enabled OXB to capitalise on the opportunity of manufacturing the AZN COVID-19 vaccine. All four suites in the first phase of development are now fully operational, with almost half of the facility (39,000 sq ft) still available for future expansion. OXB is also expanding its laboratory space and work is currently ongoing at Windrush Court (32,000 sq ft) to convert office space to GMP laboratories to meet the expected near-term demand in commercial development and analytics. OXB has also invested in offices and GMP laboratories at the Windrush Innovation Centre (32,000 sq ft), which will focus on innovation and technological advances to support both the product pipeline and the LentiVector platform. With the conversion of office space in Windrush Court underway, the group has taken a lease on a new 11,000 ft site within the Oxford Business Park, near to Oxbox, as a new corporate head office.

Our revised valuation is £846m (£10.27/share), from £711m (£8.92/share) previously. Our valuation is based on a risk-adjusted net present value (NPV) of partnered products plus contributions from OXB’s propriety CGT portfolio for OXB-302 (haematological cancers) and OXB-203 (wet AMD), Exhibit 2.

The main changes relate to the AZN COVID-19 vaccine partnership (outlined above), timing of AXO-Lenti-PD launch (now forecast 2026 instead of 2024) and the Sanofi/Bioverativ partnership. We have removed both the preclinical haemophilia A (Factor VIII) and B (Factor IX) assets (previously 55.7p/share and 19.0p/share respectively). Due to the early stage of these assets, they had a disproportionate weighting in the terminal value; we have therefore brought forward the end of the forecast period to better reflect the current portfolio’s stage of development and the mix of products within it. Based on OXB’s new strengthened balance sheet and diversified business model, we have also increased the terminal value growth rate to 2%. We have also increased the probability of AZN COVID-19 vaccine-related revenues to 100% given its approval globally ex US, and increased the forecast revenue to £87.5m in FY21 (vs £15.0m previously), £87.5m in FY22 (vs £7.0m previously) and £55.0m in FY23 (vs zero previously). We include net cash of £65.9m (80p/share) at 31 March 2021 and a terminal value (£4.26/share). Our valuation does not capture the group’s ability to deliver on new customers and expand existing partnerships, or the long-term potential of the COVID-19 vaccine opportunity. For extensive details of our valuation, please see our Outlook note, Vector innovation key to cell and gene evolution.

OXB reported FY20 total revenues of £87.7m (+37% y-o-y from £64.1m). Licence fees, milestone and royalty (LMR) revenue was reported at £19.2m in FY20 (FY19: £16.8m), benefiting from a £7.8m ($10m) licence fee from the Juno/BMS partnership and contributions for Kymriah royalties (undisclosed). Bioprocessing/commercial development revenues, which are historically more predictable, grew to £68.5m (+45%, FY19: £47.3m), driven by new customers AZN, Beam Therapeutics and Juno/BMS.

Operating expenses increased 23% to £51.7m in FY20 (FY19: £41.9m) as the group invested in headcount, facility costs and related spend on Oxbox and Windrush Court plus the investment required for the development and manufacture of batches of AZN COVID-19 vaccine. The group significantly increased its average headcount to 609 in 2020 compared to 500 in 2019 (673 at FY20 year-end). R&D and bioprocessing costs increased to £29.7m (FY19: £22.6m) and £10.7m (FY19: £7.4m) respectively in FY20. The group reported an operating EBITDA profit of £7.3m and an operating loss of £5.7m. Costs accelerated in H220, after the cash preservation measures put in place in H120 due to general uncertainties of the pandemic. R&D expenses are expected to rise in FY21 as the group invests in its proprietary CGT portfolio as well as development of its platform to accelerate its ambition to industrialise vector manufacturing.

Capital expenditure in FY20 was £13.4m vs £25.8m in FY19, which was driven mainly by the build and fit of Oxbox that completed in December 2019 and expansion of the business as a whole. Capex for FY21 is expected to be higher than FY20 due to the expansion being undertaken at both Windrush Court and Windrush Innovation Centre. OXB reported a cash position of £46.7m at 31 December 2020, following a successful £38.3m (net) equity raise in June 2020. The cash position reported at 31 March 2021 was £65.9m, as cash benefited from the timings of AZN payments relating to the COVID-19 vaccine.

Post period, OXB upgraded guidance for its expected cumulative revenue related to the AZN COVID-19 vaccine to in excess of $100m (from in excess of £50m) by the end of 2021, such that OXB now expects significant growth in group operating EBITDA in FY21 (from FY20 results guidance of operating EBITDA above 2020 levels). We forecast £159.1m in total revenues and a £18.3m operating profit in FY21, as we estimate the top line is set to benefit from £87.5m of AZN COVID-19 vaccine-related revenues. Following OXB’s successful manufacture of large-scale batches of the COVID-19 vaccine and based on the encouraging early data of continued vaccine efficacy against new and emerging variants, we assume that AZN will extend the vaccine supply agreement for an additional 18 months (to September 2023). For FY22, we forecast vaccine-related revenues of £87.5m contributing to total revenues of £173.4m and an operating profit of £27.7m. We highlight that our FY22 vaccine-related revenues (and thus profitability assumptions for the year) are contingent on our assumption that OXB/AZN extend the current vaccine supply agreement. We note that multiple sensitivities remain around this figure, including cost sensitivities in R&D, facilities and personnel, the extent of bioprocessing revenue, milestone payments and the execution of any new deals.