Ultimovacs — Gathering steam with multiple inflections in FY23

Ultimovacs is a clinical-stage biotechnology company developing novel immunotherapies against cancer. More specifically, it is focused on the development of a cancer vaccine with universal application, UV1. This vaccine triggers an immune response through recognition of human telomerase reverse transcriptase (hTERT), a protein that is estimated to be overexpressed in up to 90% of human cancers but not in healthy tissues. Aiming to demonstrate the combinational synergies between UV1’s immune priming ability and immune checkpoint inhibitors (ICIs), which can turn ‘cold’ (immunosuppressive) tumours to ‘hot’ (vulnerable to the immune system), Ultimovacs is pursuing the development of UV1 in combination with well-known ICIs, in multiple indications. These include ipilimumab, nivolumab, durvalumab and pembrolizumab.

While the expected INITIUM and NIPU updates represent important near-term readouts for UV1, three further Phase II studies are currently ongoing: FOCUS (head and neck cancer), DOVACC (ovarian cancer) and LUNGVAC (NSCLC). However, the timelines for these have been pushed back to H124, H224 and H225, respectively (previously end FY23, end FY23 and end FY24, respectively), driven by slower-than-expected enrolment due to regulatory requirements. We do not expect this to influence the ultimate potential of the cancer vaccine.

In addition to UV1, Ultimovacs is also evaluating the safety and tolerability of the first product candidate from the company’s second technology platform, TET (tetanus-epitope targeting). Patient enrolment for the Phase I TENDU trial (prostate cancer) was completed in mid-December 2022 and is expected to readout in H223.

In what is set to be a busy year of clinical activity for Ultimovacs, the most significant near-term catalysts for the company are top-line data from the INITIUM and NIPU studies in H123. The primary endpoint for the studies is progression-free survival (PFS), with overall survival (OS), objective response rate (ORR), duration of response (DOR) and safety being key secondary endpoints.

The Phase II INITIUM trial in metastatic malignant melanoma, fully sponsored by Ultimovacs, completed patient recruitment in June 2022 (n=156). The trial is randomised, where 78 patients receive first-line treatment with nivolumab (anti-PD-1) and ipilimumab (anti-CTLA-4), while the other 78 patients receive the combination of nivolumab, ipilimumab and UV1. Patients in the active arm will receive eight UV1 vaccinations over four cycles of nivolumab and ipilimumab. In the control arm, the patients will receive four cycles of nivolumab and ipilimumab. Subsequently, all patients in both arms will proceed to maintenance therapy (nivolumab every four weeks).

The randomised NIPU trial in metastatic pleural mesothelioma (n=118, two arms with 59 patients in each) completed patient enrolment in January 2023, with patients receiving the same combination treatment as in the INITIUM trial (UV1 plus ipilimumab plus nivolumab), but as second-line treatment. The objective of the study is to achieve a meaningful PFS after the progression on first-line standard platinum-doublet chemotherapy. Patients recruited in the trial must not have undergone previous treatment with ICIs (naïve). Bristol Myers Squibb (BMS) is supporting the study with the provision of its ICI therapies.

The existing standard of care for the treatment of metastatic melanoma depends on whether a tumour contains a driver BRAF mutation (ICIs are more commonly used in metastatic melanoma when there is no BRAF mutation). Around 40–50% of all metastatic melanomas have the driver BRAF mutation, in which case BRAF inhibitors are used in combination with MEK inhibitors to decrease MAPK-driven acquired resistance (dabrafenib/trametinib or vemurafenib/cobimetinib). In patients with no BRAF mutation, the guidelines from the National Comprehensive Cancer Network recommend single-agent immunotherapy with pembrolizumab or nivolumab or combination therapy, with nivolumab plus ipilimumab as the first choice (Exhibit 2). In February 2022, Opdualag was the second ICI combination treatment approved for first-line metastatic melanoma.

As melanoma is one of the most immunogenic tumour types, melanoma patients who are eligible to receive immunotherapy often respond well to ICI treatments. In contrast, historically, attempts to develop cancer vaccines as immunotherapies have been met with disappointing results. However, with the evolution of ICIs, there is potential for a synergistic relationship between ICIs and cancer vaccines, with the former making tumour cells vulnerable to attack by the immune system cells and the latter priming the body’s immune cells to fight tumours. In our view, this combinational approach opens the potential for cancer vaccines to begin realising their clinical utility.

What we believe represents one the most significant clinical validations of Ultimovacs’ technology, to date, is the long-term survival data the company reported in October 2022 from its open-label Phase I study (UV1-103) in metastatic melanoma. The trial is investigating UV1 in combination with Merck’s ICI, pembrolizumab (Keytruda), in the first-line setting. The three-year OS rate from patients in cohort one of the study was 71% (12/17). This result builds on the consistently high OS rates already observed from the trial: 85% (17/20) after one year and 80% (16/20) after two-year follow-up. The UV1-103 trial had previously met its primary endpoints for safety and tolerability, and the latest data from cohort one patients demonstrate the long-term clinical efficacy of UV1. Of note, the three-year OS rate from the KEYNOTE-006 study investigating pembrolizumab as a monotherapy in first-line patients with metastatic melanoma was 51%.

Merck and Moderna released highly encouraging results in December 2022 from a Phase II study (KEYNOTE-942) investigating the jointly developed, personalised mRNA vaccine (mRNA-4157/V940) in combination with Merck’s ICI, Keytruda, for the treatment of stage III/IV melanoma. Notably, the combination therapy reduced the risk of tumour recurrence, or death, in patients by 44% compared to Keytruda alone. The partners intend to initiate a Phase III study in melanoma in 2023 with the intention of moving into additional tumour indications. While we caution against direct read-across between studies, the results provide further clinical validation for the application of cancer vaccines in the treatment of advanced melanoma and an encouraging precedent for the INITIUM study.

While personalised therapy approaches may offer improved efficacies, with treatments tailored to an individual’s specific disease profile, it is likely that, from a cost and manufacturing perspective, patient-specific vaccines will encounter manufacturing issues similar to those faced by patient-specific cell therapies. Today, personalised cell therapies continue to struggle with production bottlenecks and timely supply of treatments, a serious issue for patients with aggressive cancers. In our view, the operational infrastructure to support the mass production of personalised treatments is not currently in place and may not be for quite some time. In the case of cancer vaccines, which aim to target larger patient populations across a broad range of indications, we believe more universal approaches looking to provide timelier, upfront access to treatment for patients offer significant potential to differentiate in the market.

With the advantages that ‘off-the-shelf’ therapies such as UV1 might possess, we believe this makes the upcoming readouts from the INITIUM study of even greater significance. Should UV1 demonstrate statistically significant improvements in PFS versus the nivolumab/ipilimumab combination, it not only may potentially disrupt existing first-line ICI treatment regimens, but, in our view, would provide UV1 with a distinct competitive advantage over personalised vaccine approaches and open up potential licensing opportunities. Positive clinical data may heighten the interest of BMS, whose ICI combination, nivolumab plus ipilimumab, is being used alongside UV1 in the INITIUM trial. BMS has publicly voiced support for the continued development of cancer vaccine technology and, if BMS looks to compete with Merck and Moderna’s mRNA candidate in melanoma, UV1 may be viewed as an attractive asset, provided upcoming clinical study readouts are positive.

We value Ultimovacs based on a risk-adjusted net present value (rNPV) analysis using a 12.5% discount rate, including net cash of NOK425.3m. Our current valuation is wholly attributable to the five ongoing Phase II trials for UV1 and excludes other early-stage clinical (such as the Phase I TENDU trial) and preclinical assets, each of which offers upside on successful clinical progress. The rNPV valuation for all five indications is based on a similar bottom-up approach (for further details, see our initiation report). Following the announcement of the adjustment in the timelines for three of the Phase II readouts, as described earlier, we have updated our estimates for the clinical development timelines for these three programmes, pushing out the approval and launch estimates for each of these by around six months to a year. We continue to assume that a global out-licensing deal for UV1 across all indications will be secured by end-2024. Our updated valuation now stands at NOK7.4bn or NOK216 per share (NOK7.9bn or NOK231 per share previously).

Total operating expenses for FY22 came in at NOK183.6m, a 12.1% increase year-on-year and higher than our estimate of NOK170.5m. This increase was primarily driven by a 15% growth in payroll expenses, specifically related to higher share-based payments. External R&D expenses remained broadly unchanged compared to the previous year (NOK95.2m versus NOK96.7m in FY21) likely due to patient enrolment on certain trials temporarily slowing down, as highlighted in the previous sections. Net cash flow from operating activities stood at NOK167.7m in FY22 (NOK125.8m in FY21, although the figure was affected by the release of working capital in FY21). Management expects operating expense levels to rise in the coming years, as patient enrolment to the remaining Phase II trials increases. We have updated our FY23 estimates for R&D and other operating expenses to reflect this guidance and have now introduced FY24 estimates as we roll forward our model by a year. Ultimovacs ended the year with a net cash position of NOK425.3m, which management expects to be sufficient to fund operations to mid-2024, by which time we expect to see progress on the partnering/licensing front for the most clinically advanced assets, should trial outcomes be positive. Since our model assumes an out-licensing deal by end-2024, we estimate that the company would be required to raise c NOK150m in funds in H224. We account for this raise as illustrative debt in our model. Alternatively, if the funding is realised through an equity issue instead (assuming at the current trading price of NOK128/share), Ultimovacs would have to issue 1.25m shares, resulting in our per share valuation coming down to NOK208.5 from NOK216 currently (shares outstanding would increase from 34.4m to 35.7m).