Transgene — Multiple assets in the clinic as data readouts near

Transgene now has nine ongoing clinical trials, which are expected to readout in the next 12-18 months; readouts from these trials are set to inform the company’s future strategy. As Exhibit 1 demonstrates, these cover a range of cancers and combinations. All trials have initiated except for two TG4010 trials in non-small cell lung cancer (NSCLC) (first-line in combination with chemotherapy plus nivolumab and separately as a neo-adjuvant monotherapy), which are expected to initiate within the next six months. We expect the following data readouts in 2018:

Current cash to the end of 2018 will enable these data readouts, while future financing and strategy will be influenced heavily by these aforementioned data packages. We note that in addition to the trials Transgene is undertaking, its partner SillaJen is expecting to shortly begin recruitment of a Phase I trial testing Pexa-Vec in combination with a PD-1 inhibitor (Regeneron: REGN2810) in metastatic or unresectable renal cell carcinoma. Meanwhile in an investigator-led Phase I/II trial, the National Cancer Institute (NCI) is testing Pexa-Vec in combination with CTLA-4 immune checkpoint inhibitor tremelimumab (AstraZeneca) and PD-L1 immune checkpoint inhibitor durvalumab (AstraZeneca) in refractory colorectal cancer patients.

Looking to the future, Transgene recently launched Invir.IO, a next-generation oncolytic virus platform. The most advanced research candidates are based on the company’s Vaccinia virus strain. To date, it has demonstrated potential in various mouse models, including in the expression of key immune components and promotion of cancer cell death. On the back of the launch of Invir.IO, Transgene announced a collaboration with Randox (no financial terms disclosed) to develop viruses for use in solid tumours, where it will look to vectorise Randox’s single domain antibodies.

Lung cancer is one of the, if not the most diagnosed cancer globally. In 2012, 1.8m new cases were diagnosed worldwide (Globocan). Of lung cancer cases, between 85% and 90% are non-small cell (NSC), with annual sales in this subset indication of $11.5bn in 2016, and forecast to grow to $26.7bn in 2022 (EP Vantage). Despite the significant money invested into lung cancer treatment, mortality remains high, with 1.6m deaths worldwide in 2012 (19% of total cancer deaths). In England and Wales, the five-year survival of lung cancer patients is only 9.5% (Cancer Research UK).

Treatment paradigms continue to shift, noticeably over the last few years with the approval of immune checkpoint inhibitors (ICIs), a broad class of drugs that aim to enable a patient’s immune system to detect and subsequently kill cancer cells. However, these treatments work only in a small subset of patients and the majority of patients see no or limited response. To improve the efficacy of the ICIs and address larger patient populations, combination therapies are being tested across multiple drug classes. TG4010 is a therapeutic vaccine that induces an immune response against tumour cells that express the MUC1 protein (IL-2 stimulates the immune response). In the Phase IIb TIME trial in NSCLC, TG4010 in combination with chemotherapy led to improvements in progression-free survival and overall survival. New immunology data are expected to be presented from the TIME trial at the Society for Immunotherapy of Cancer Meeting 2017 on 8-12 November. Transgene currently has three TG4010 trials on which it is focused:

At the 2017 American Association for the Study of Liver Diseases (AASLD) Liver Meeting, Transgene presented initial data on the treatment of hepatitis B patients with TG1050. TG1050 is a therapeutic vaccine for the treatment of chronic hepatitis B that expresses three antigens of the hepatitis B virus (HBV). Patients treated to date received a single administration at either 109, 1010 or 1011 virus particles. Four patients were in each dose group with one of those receiving placebo and only immunogenicity data was available for presentation. Response against HBV antigens was measured at baseline and weeks two, four and 12 after administration of TG1050. Patients were determined as responders for an antigen if the response doubled or an increase of 500 and above in spot forming cells (sfc) was observed. Nine of 10 patients eligible for evaluation had at least one antigen achieve a response, while four of 10 patients had a response in at least three antigens. Early safety data indicates that TG1050 is well tolerated as all adverse events presented to date were grade 1 or 2. While this earlier data highlights that TG1050 appears to have a positive safety profile and creates an immune response, we await the full data package next year, which will better inform the market on its potential, in particular TG1050’s ability to reduce the presence of hepatitis B virus.

The first recurrent glioblastoma patient has been treated in the Phase I/IIa trial of TG6002 in combination with 5-flucytosine (5-FC). The trial is an open label dose escalation study with an accelerated titration 3+3 design. Primary endpoints are defining the number of patients with dose limiting toxicities and assessment of tumour progression at six months. Secondary endpoints include, among others, selecting the recommended Phase IIa dose and overall survival. TG6002 has been designed by Transgene to induce both cancer cell death and allow the local production of the chemotherapy 5-FU. TG6002 causes the expression of the Fcu1 gene in cancer cells that it infects; this then leads to the local conversion of 5-FC (administrated in conjunction with TG6002) into the chemotherapeutic agent 5-FU. The Phase I/IIa trial is expected to enrol 78 patients with an estimated primary completion date in 2019. Initial safety data is anticipated in 2018.

Transgene has treated the first patient in its Phase Ib/II trial of TG4001 in combination with avelumab for the treatment of HPV positive cancers. The trial will be funded by Transgene while Pfizer and Merck will provide avelumab and co-design the Phase I and II cohorts of the study, which will be open-label and enrol up to 50 patients; primary endpoints will include dose limiting toxicities (in Phase I) and overall response rate (in Phase II). Details on the trial design, financial terms, IP rights or other aspects of the agreement have not been disclosed. Avelumab is approved in Merkel cell carcinoma and metastatic urothelial cell carcinoma in the US.

Pexa-Vec is in five ongoing Transgene initiated clinical trials, with three data readouts expected in 2018, notably two of which are individually with the immune checkpoint inhibitors nivolumab (first-line HCC) and ipilimumab (solid tumours). The three readouts expected are:

We note that Pexa-Vec (in combination with sorafenib) is in an ongoing Phase III study (PHOCUS) in first-line hepatocellular carcinoma conducted by its partner SillaJen. Initial overall survival data is expected in 2019. SillaJen has responsibility for conducting and funding the study and worldwide rights. Transgene retains development and commercialisation rights in Europe. In addition to PHOCUS, SillaJen expects to shortly begin recruitment of a Phase I trial testing Pexa-Vec in combination with a PD-1 inhibitor (Regeneron: REGN2810) in metastatic or unresectable renal cell carcinoma.

Transgene reported cash, cash equivalents and financial assets of €40.0m as of 30 September 2017. The company has access to a further €10m from the EIB loan that can be drawn down before the end of 2017. The EIB loan is for five years, with the interest repayable from 2019 and the capital in 2021. Operating revenue for the first nine months of 2017 was €4.9m (2016: €6.4m). This was mainly as a result of revenue from collaboration and licence agreements including the Servier collaboration. The company expects to have sufficient funds to conduct its pipeline development activities through 2017 and 2018 with a cash burn of €30m anticipated by the company in 2017 (company reported cash burn for FY16 was €30.6m). As of Q317, Transgene’s cash burn was €16.2m, indicating a significant rise in cash burn is expected in Q417. We expected this to predominately be a result of increasing clinical trial activity. Our model predicts current cash reach until end 2018.

Our rNPV valuation of Transgene is €207m or €3.7/share (vs €208m or €3.7/share). Our key inputs and assumptions are summarised in Exhibit 2 below. We have now added TG4001 and TG6002 to our valuation following the recent clinical trial initiations and we model that both are out-licensed following Phase I. We utilise oesophageal cancer as our model indication for TG4001. We additionally note that we expect a higher penetration and price for TG6002 than typical, as if successful in clinical development it would address a significant unmet need. We have additionally updated our net cash following Q3 results. For a more detailed overview of our valuation, please see our previously published outlook note, Building a strong immunotherapy portfolio.