OSE Immunotherapeutics — Strong momentum in deal flow

Partnered programmes have been a key component of OSE’s development plan and we believe that the two deals in H124 will provide further impetus to this growth strategy by not only expanding the company’s product pipeline but also providing nondilutive capital, which could be deployed to advance its in-house assets. We present a summary of the recent partnership deals below.

In February 2024, OSE announced a global licence and collaboration agreement with AbbVie to develop OSE-230, a novel monoclonal antibody, for the treatment of chronic inflammation. OSE-230 is a product from the company’s myeloid platform and has been designed to activate ChemR23, a G-protein coupled receptor target. It is understood that ChemR23 activation may offer a novel mechanism of action for the treatment of inflammation by modulating the function of macrophages and neutrophils. Previously (October 2020), OSE shared encouraging preclinical data showing that OSE-230 successfully targeted receptors associated with restoring tissue homeostasis. The antibody therapy demonstrated inflammation resolution in vivo in models for acute inflammation, chronic colitis, type 1 diabetes and multiple sclerosis. AbbVie has now assumed full development of the asset, against which OSE received upfront payment of US$48m (c €44m) with the potential to earn up to US$665m further in milestone payments. OSE is also eligible to receive potential tiered royalty payments based on global net sales of the treatment. In April 2024, the licensing agreement cleared the required review of US regulatory bodies.

OSE’s previous partnership with BI has focused on the evaluation and development of BI 765063 and BI 770371, two immuno-oncology anti-SIRPα monoclonal antibodies. These candidates are designed to inhibit the checkpoints between tumour cells and myeloid cells. BI 765063 is being explored in a Phase Ib study in various combinations for the treatment of head and neck squamous cell carcinoma and hepatocellular carcinoma. For BI 7770371, the first clinical results were presented in October 2023 for the ongoing open-label, dose escalation/dose expansion Phase I study in patients with solid tumours. Updates on this programme (including plans for a potential Phase II programme) are anticipated within 2024. As of March 2024, OSE had received €65m from a possible €1.1bn in development, regulatory and sales-related milestone payments.

More recently, in May 2024, OSE announced a considerable expansion of the initial collaboration and licence agreement, with two new projects planned. The first project aims to expand the utility of BI 765063 and BI 770371 to the potential application of addressing cardiovascular-renal-metabolic diseases; BI intends to launch an investigatory Phase II trial by end-2024. The second project will form a new preclinical programme to develop immune-cell activating treatments based on OSE’s cis-targeting anti-PD1/cytokine platform. Under the new collaboration terms, BI will make a one-time payment of €25.3m to OSE as a partial royalty buyout to expand the deal terms for BI 765063 and BI 770371. Furthermore, BI has the option for an additional buyout on further development, potentially triggering another one-time payment to OSE and an additional sales milestone. For the new programme for immune-cell activating treatments based on the cis-targeting anti-PD1/cytokine platform, BI will pay €13.5m upfront and a further potential €17.5m in near-term milestone payments for the purchase of the novel, cis-targeting anti-PD-1/cytokine asset in preclinical stage. We note that for the previous agreement, the original terms for up to €1.1bn in development, regulatory and sales milestone payments remain in place.

In addition to its partnering deals with AbbVie and BI, OSE also has an ongoing partnership with transplant medicine specialist Veloxis Pharmaceuticals (an Asahi Kasei company) for FR104/VEL101. The compound, which is under development, is an anti-CD28 monoclonal antibody with a dual mechanism of action, directly blocking CD28-mediated T cell activation and at the same time indirectly allowing for CTLA-4 mediated immunosuppressive functions. Adequate immunosuppression is central to successful organ transplants and FR104’s dual action may provide differentiation to other available immunosuppressants. The deal with Veloxis was signed in April 2021, transferring global development, manufacturing and commercial rights to Veloxis for FR104 in all transplant indications. The deal terms included €7m in upfront payment, up to €308m in milestones and tiered royalties on sales. Of this, OSE has already received €13.9m in milestones to March 2024. Note that OSE continues to hold the right to develop FR104 in autoimmune indications. Veloxis is preparing for a Phase II study evaluating FR104 for prophylaxis of organ rejection in organ transplant patients.

FR104 is also being tested in a Phase I/II trial (FIRsT study) as a maintenance therapy for patients following kidney transplant, in collaboration with the University Hospital of Nantes, the trial sponsor. OSE recently reported positive top-line data from the study at the Annual American Transplant Congress held in Philadelphia. The study included a total of 10 kidney transplant patients at low risk of rejection, of which eight evaluable patients were treated with FR104 over a one-year treatment protocol after transplantation. Notably, Tacrolimus (a calcineurin inhibitor), the standard of care immunosuppressant to prevent organ rejection, was discontinued for these patients six-months post transplantation. The final results demonstrated a desirable safety for the treatment with no cases of acute rejection in the eight evaluable patients over the one-year treatment period, even after the discontinuation of Tacrolimus. Calcineurin inhibitors, while effective immunosuppressants, come with significant side-effects (including renal failure and neurotoxic effects) and a safer alternative such as FR104 could present an effective treatment alternative, in our opinion. OSE expects the study results to guide dose selection for a subsequent Phase II trial.

We have updated our FY24 revenue estimates for the €38.8m in upfront payments from the updated BI deal as well as €8.4m in non-dilutive public funding from Bpifrance (a French public sector financing institution). Note that our estimates already reflected the €44m payment received earlier from AbbVie. We also expect the company to receive the €17.5m in near-term milestone payments (for the purchase of the cis-targeting anti-PD-1/cytokine asset) in 2025 and we have therefore adjusted our FY25 top-line estimates to reflect this. Our revised revenue estimates for FY24 and FY25 are €103.7m and €82.7m, respectively. We have kept our operating expense estimates unchanged as we expect the partners to shoulder the expenses related to further development activities for the partnered programmes. We now estimate OSE to bring in €74.2m and €52.9m in operating profit for FY24 and FY25, respectively (€27.4m and €35.7m previously).

OSE had gross cash of €18.7m at the end of FY23 (net debt of €23.2m including €41.9m in interest-bearing liabilities), which has been bolstered by the upfront payments from AbbVie and BI as well as the non-dilutive funding received for Tedopi. We expect the c €91m in additional funds to extend the company’s cash runway into 2027, in line with management guidance. This does not consider further licensing or milestone-related inflows from partners, which should widen the runway further.

Reflecting these adjustments, our valuation for OSE upgrades to €413m or €19/share, from €317m or €14.6/share previously. Exhibit 1 presents a breakdown our valuation for the company.