Oxford BioMedica — Golden age for LentiVector as Axovant signs deal

Healthcare

Oxford BioMedica

Golden age for LentiVector as Axovant signs deal

Corporate update

Pharma & biotech

8 June 2018

Price	913.5p
Market cap	£600m

Net debt (£m) at end December 2017 (excluding March 2018 £20.5m gross capital-raise and $30m Axovant upfront)		22.5

Shares in issue	65.7m
Free float	79%
Code	OXB

Primary exchange	LSE
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	25.8	24.0	190.4
Rel (local)	18.9	17.3	181.1

52-week high/low

15.0p

5.0p

Business description

Oxford BioMedica’s (OXB) LentiVector technology underpins the company’s strategy. OXB generates significant revenue from partners that utilise its technology, notably Novartis, Bioverativ, Orchard Therapeutics and Immune Design. OXB is in partnering discussions about internally developed assets. OXB-102 will start a Phase II shortly.

Next events

EU DLBCL/pALL Kymriah approval	H218
OTL-101 BLA submitted	H218
CMB305 Phase III initiated	H218

Analysts

Dr Daniel Wilkinson	+44 (0)20 3077 5734
Dr Susie Jana	+44 (0)20 3077 5700

healthcare@edisongroup.com

Edison profile page

Oxford BioMedica is a research client of Edison Investment Research Limited

Oxford BioMedica (OXB) has signed an out-licensing deal with Axovant for its Parkinson’s disease (PD) gene therapy AXO-Lenti-PD (previously OXB-102) worth up to $842.5m. Axovant plans to accelerate it rapidly into the clinic, with a Phase I/II dose escalation study in advanced PD patients to be initiated by year end. In addition to OXB’s numerous other partnerships, notably the recently signed Bioverativ deal and the ongoing collaboration with Novartis on its launched CAR-T Kymriah, this deal demonstrates OXB’s continuing world-leading status in lentiviral technology. We now include the Axovant deal in our model and value OXB at £614m.

Year end	Revenue (£m)	PBT* (£m)	EPS* (p)	DPS (p)	P/E (x)	Yield (%)
12/16	27.8	(20.0)	(29.35)	0.0	N/A	N/A
12/17	37.6	(11.5)	(14.14)	0.0	N/A	N/A
12/18e	72.6	4.5	9.88	0.0	92.5	N/A
12/19e	82.9	7.7	14.81	0.0	61.7	N/A

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

Commercial revenue opportunity significant

The out-licensing deal for OXB’s AXO-Lenti-PD (previously OXB-102) adds to a growing and diversified revenue base. The deal includes $30m upfront ($5m as a prepayment for manufacturing-related activities), $55m in development milestones and $757.5m in commercial milestones in addition to tiered royalties of 7-10%. AXO-Lenti-PD is a re-engineered version of OXB’s gene therapy ProSavin, which was tested in a Phase I/II open-label study in 15 patients and demonstrated statistically significant improvements in motor behaviour. AXO-Lenti-PD has been engineered to increase dopamine production compared with ProSavin, which could lead to a more efficacious gene therapy product.

Lentiviral expertise continues to be recognised

OXB’s experience in providing commercial-grade LentiVector for Novartis’s Kymriah has validated both its technology and its manufacturing capabilities. This expertise continues to attract partners, as evidenced by the recent announcement of the Bioverativ collaboration to develop gene therapies for haemophilia patients (>$100m in milestones plus royalties). These partnerships and others continue to grow OXB’s revenues, driven in the near term by escalating sales of Kymriah. Furthermore, key inflection points from partnered assets OTL-101 (Orchard Therapeutics, BLA submission in H218) and CMB305 (Immune Design, Phase III clinical trial in synovial sarcoma initiation) could provide further inflection points.

Valuation: £614m or £9.35/share

Our increased valuation of OXB is £614m (£9.35/share) vs £513m previously. We now include the Axovant out-licensing deal in our valuation, but all other assumptions remain unchanged. We include the deals with Novartis, Bioverativ, Immune Design, Orchard Therapeutics and Sanofi, and OXB’s non-partnered assets OXB-201, OXB-202 (corneal graft rejection) and OXB-302 (cancer) in our valuation.

AXO-Lenti-PD: Sector primed for next-gen ProSavin

AXO-Lenti-PD is a lentiviral-based gene therapy, which aims to programme non-dopaminergic cells in the brain to produce dopamine that will correct levels that have declined due to Parkinson’s disease. Dopamine plays a critical role in movement and co-ordination and a reduction in its levels leads to the characteristic and progressive features of PD: tremor, slowness of movement and rigidity.

AXO-Lenti-PD is based on OXB’s first-generation gene therapy for PD patients, ProSavin (OXB-101). ProSavin was tested in an open-label Phase I/II trial, with most recent data published in 2014, which studied the long-term safety and tolerability of ProSavin. The trial tested 15 patients at three dose levels (low dose, 1·9 × 107 transducing units [TU]; mid-dose, 4·0 × 107 TU; high dose 1 × 108 TU). No serious adverse events were reported, with drug-related adverse events typically mild in nature, most commonly increased on-medication dyskinesias and on-off phenomena. A common measure of Parkinson’s patients is a comprehensive multi-question assessment of a patient’s motor and non-motor symptoms called the Unified Parkinson’s Disease Rating Scale (UPDRS). The scale is divided into multiple parts, a key component of which is part III, where a clinician evaluates a patient’s motor abilities (eg speech, hand movements, tremor at rest) with scoring from 0 to 4, where a score of 0 is normal and 4 signifies severe problems. Improvements in UPDRS-III after taking ProSavin were tracked over 48 months and can be seen in Exhibit 1.

Exhibit 1: Mean UPDRS-III (OFF) score over time

Source: Oxford BioMedica

While ProSavin demonstrated improvements in motor behaviour and a safe profile, further clinical trials were not undertaken, primarily because of funding limitations and a lower efficacy than could be achieved with standard, commercially available oral therapies (eg L-DOPA, a precursor of dopamine that can cross the blood-brain barrier). AXO-Lenti-PD (previously OXB-102) aims to address these shortfalls in efficacy by redesigning the genetic payload of the vector. Both ProSavin and AXO-Lenti-PD contain the same genes, but the specific ordering and stoichiometry of gene expression has been altered (Exhibit 2) to improve both dopamine and L-DOPA production levels. A core property of lentiviral vectors is their high gene capacity, which enables three genes to be inserted that express three critical enzymes (tyrosine hydroxylase [TH], cyclohydrolase 1 [CH1] and aromatic L-amino acid decarboxylase [AADC]) needed for dopamine synthesis.

Exhibit 2: Differences between ProSavin and AXO-Lenti-PD

Source: Oxford BioMedica

Axovant plans to initiate a Phase I/II trial by year end for advanced-stage Parkinson’s patients. This will consist of two parts. In the first part (A), patients will be tested across three dose levels with the lowest dose tested being the previous highest dose (1 × 108 TU) from the ProSavin trial. Once a dose has been selected, Part B of the study will be initiated. Additional patients will be enrolled into either the treatment arm or a sham arm (imitation surgical procedure). All patients will receive LentiVector via a one-time MRI-guided stereotactic delivery to the brain striatum. Endpoints have not yet been defined, but improvements in UPDRS scores and reduction of oral L-DOPA use are likely to be key.

We note that US-based gene therapy company, Voyager Therapeutics, has an AAV-based PD gene therapy in Phase I/II trials (VY-AADC). However, unlike AXO-Lenti-PD, which directly produces dopamine, VY-AADC has to be taken with oral L-DOPA, which is then converted into dopamine by the inserted enzymes. Clinical efficacy results have been mixed, but at the more optimal dosing of 900µl per putamen, encouraging efficacy data have been announced.

Valuation: £614m or £9.35/share

Our increased valuation of OXB is £614m (£9.35/share) vs £513m previously. We have updated our valuation to include the Axovant out-licensing deal, and moved forward our anticipated launch of AXO-Lenti-PD (previously OXB-102) in the US and EU to 2022 from 2024. We assume Axovant will aim to move it through the clinic rapidly and aim to launch the therapy on the back of Phase II data with an accelerated approval. However, we note that insufficient data or failure to achieve an accelerated approval could cause these timelines to slip significantly. We retain our previous assumptions for PD in relation to incidence, peak penetration and price as described in our recently published outlook report. We forecast peak sales of $1.96bn across the US and EU. Axovant has announced that OXB will receive tiered royalties based on net annual sales, with 7% on net sales up to $1bn, 8% between $1bn and $2.5bn, 9% between $2.5bn, and 10% over $4bn. As such, we currently assume that a peak royalty rate of 8% is achieved. We assume that OXB receives the majority of development milestones ($50m of the total $55m announced) and a significant proportion of the commercial milestones over its lifetime ($500m of total $757.5m announced). We note that AXO-Lenti-PD has yet to be tested in humans and, while it builds on a positive data package from ProSavin, it could fail to reach the market as a result of limited efficacy or unforeseen safety concerns. We currently assume a 20% chance of success for AXO-Lenti-PD. We note that Axovant also now owns the rights to ProSavin. However, no development plans have been discussed.

All of our other product assumptions and deal metrics remain unchanged; however, we assume increased costs particularly in relation to administrative expenses as the company rapidly expands to continue to meet increasing demand for its lentiviral technology. We have updated the exchange rates and note that OXB recently consolidated its shares in issue by a factor of 50. The company now has 65,701,066 shares in issue. For extensive details of our valuation, please see our recently published outlook note, Validation achieved, growth expected.

Exhibit 3: Financial summary

	£'000s	2016	2017	2018e	2019e
Year end 31 December		IFRS	IFRS	IFRS	IFRS
PROFIT & LOSS
Revenue		27,776	37,590	72,549	82,867
Cost of Sales		(11,835)	(18,442)	(27,788)	(31,069)
Gross Profit		15,941	19,148	44,761	51,797
R&D		(24,299)	(21,611)	(24,657)	(26,601)
Administrative expenses		(5,957)	(7,276)	(11,278)	(12,969)
Other operating income		3,002	4,071	0	0
EBITDA		(7,638)	(1,293)	13,981	18,990
Depreciation		(3,340)	(4,113)	(5,135)	(6,748)
Operating profit (before amort. and except).		(10,978)	(5,406)	8,846	12,242
Amortisation		(335)	(262)	(20)	(16)
Exceptionals		0	0	0	1
Operating profit		(11,313)	(5,668)	8,826	12,227
Net Interest		(8,994)	(6,093)	(4,353)	(4,510)
Other		0	0	0	1
Profit Before Tax (norm)		(19,972)	(11,499)	4,493	7,732
Profit Before Tax (reported)		(20,307)	(11,761)	4,473	7,717
Tax		3,666	2,744	2,000	2,000
Profit After Tax (norm)		(16,306)	(8,755)	6,493	9,732
Profit After Tax (reported)		(16,641)	(9,017)	6,473	9,717

Average Number of Shares Outstanding (m)		56	62	66	66
EPS - normalised (p)		(29.35)	(14.14)	9.88	14.81
EPS - reported (p)		(29.95)	(14.56)	9.85	14.79
Dividend per share (p)		0.00	0.00	0.00	0.00

Gross Margin (%)		57.4%	50.9%	61.7%	62.5%
EBITDA Margin (%)		(27.5%)	(3.4%)	19.3%	22.9%
Operating Margin (before GW and except) (%)		(39.5%)	(14.4%)	12.2%	14.8%

BALANCE SHEET
Fixed Assets		29,501	28,421	37,266	48,003
Intangible Assets		657	2,954	2,954	2,954
Intangible Assets		1,330	97	77	62
Tangible Assets		27,514	25,370	34,235	44,987
Current Assets		27,441	36,981	57,956	59,649
Stocks		2,202	3,332	3,807	4,256
Debtors		6,904	17,088	23,852	27,244
Cash		15,335	14,329	28,810	26,662
Other		3,000	2,232	1,488	1,488
Current Liabilities		(9,316)	(21,762)	(24,492)	(25,840)
Creditors		(6,003)	(8,690)	(11,420)	(12,768)
Provisions		0	0	0	0
Deferred income		(3,313)	(13,072)	(13,072)	(13,072)
Long Term Liabilities		(35,011)	(37,494)	(38,811)	(40,176)
Long term borrowings		(34,389)	(36,864)	(38,181)	(39,546)
Other long term liabilities		(622)	(630)	(630)	(630)
Net Assets		12,615	6,146	31,919	41,636

CASH FLOW
Operating Cash Flow		(5,979)	(1,551)	9,472	16,497
Net Interest		(3,258)	(10,800)	(3,074)	(3,183)
Tax		4,131	4,530	2,744	2,000
Capex		(6,458)	(1,969)	(14,000)	(17,500)
Acquisitions/disposals		0	0	0	0
Financing		17,497	385	19,300	0
Dividends		0	0	0	0
Other		47	8,399	38	38
Net Cash Flow		5,980	(1,006)	14,481	(2,148)
Opening net debt/(cash)		17,900	19,054	22,535	9,371
HP finance leases initiated		0	0	0	0
Other		(7,134)	(2,475)	(1,317)	(1,364)
Closing net debt/(cash)		19,054	22,535	9,371	12,884

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Oxford BioMedica and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Equities

Equities by Sector

Sectors

Thematics

Latest

Healthcare-focused trusts: A sector on the mend

MediaWatch – One step forward, two steps back

ConsumerWatch – Don’t look down

Audiovisual

Latest

Recce Pharmaceuticals – executive interview

VEON – executive interview with CFO Joop Brakenhoff

VEON – executive interview with CEO Kaan Terzioğlu

About Edison

About Edison

Careers

Oxford Biomedica (LSE: OXB)

Oxford BioMedica — Golden age for LentiVector as Axovant signs deal

Healthcare

Healthcare

Latest

VietNam Holding — First redemption tender a success

OSE Immunotherapeutics — Full Lusvertikimab results reflect potential in UC

Murray Income Trust — Income focus keeps paying dividends

AUSTRIACARD — Solid Q324 supports FY24 outlook

HELLENiQ ENERGY — Margins troughed in Q3, expect Q4 improvement

More on Oxford Biomedica

Oxford Biomedica — COVID vaccine and Kymriah news encouraging

Oxford Biomedica — Driving innovation in a thriving CGT industry

Oxford BioMedica — Vector innovation key to cell and gene evolution

Oxford BioMedica — COVID-19 vaccine collaboration agreement

Latest from the Healthcare sector

OSE Immunotherapeutics — Full Lusvertikimab results reflect potential in UC

SIGA Technologies — Strong order book moving into Q424

Sareum Holdings — SDC-1801 prepping to enter Phase II

Cereno Scientific — New SEK250m financing secures runway into 2026

Findel — Outstanding success with online-led strategy

Subscribe to Edison