Vididencel in AML remains the key focus...

ADVANCE II’s latest results further established the long-term efficacy of vididencel in immune-responsive patients. The Australasian Leukaemia & Lymphoma Group (ALLG)-sponsored CADENCE trial (vididencel in combination with the standard of care) is progressing slightly slower than expected and, while the data from CADENCE was planned to contribute to the registrational dossier for vididencel, Mendus maintains that the pivotal study will stay on track regardless. A key part of this is the large-scale manufacturing of the product, which remains in place to be pivotal-stage ready by H225, courtesy the company’s alliance with NorthX Biologics.

… with opportunities to expand its application

We see key opportunities in additional settings, including a synergistic combination with azacitidine and venetoclax for AML, as well as in chronic myeloid leukaemia. While Mendus is planning exploratory Phase II studies, these may be contingent on securing a partner and progress with the AML study. Beyond haematological cancers, Mendus also has an active programme for vididencel in ovarian cancer (OC), which reported a positive update. The next readout will be in Q425 and will inform next steps for the programme.

Valuation: SEK1.9bn or SEK37.8 per share

Based on the likely design for the registrational trial, we have adjusted our market assumptions to include only measurable residual disease (MRD+) patients as target population (vs both MRD+ and MRD- previously) for vididencel in AML. All other long-term assumptions and estimates have been kept unchanged. Accounting for this change, the latest net debt position and model roll-forward, our valuation adjusts slightly to SEK1.9bn or SEK37.8 per share (SEK2.0bn or SEK39.0/share previously). Year-end net cash of SEK101.1m provides a runway into early 2026.

Pipeline designed to improve survival for cancer patients

Mendus’s active clinical development pipeline aims to utilise the company’s capabilities and expertise in allogenic cell therapies and dendritic cell biology to create a pipeline intended to improve outcomes for cancer patients (Exhibit 1).

See below for an executive interview we recently conducted with Erik Manting, CEO at Mendus, primarily focused on lead asset, vididencel. We discussed some key takeaways from Mendus’s updates at the American Society of Hematology conference (ASH 2024) in haematological cancers, its clinical plans and manufacturing capabilities as the AML programme edges closer to the pivotal stages of development, as well as vididencel’s potential in OC. We also covered the key milestones that investors should watch out for moving into 2025.

Vididencel: Focus firmly on pivotal-stage readiness in 2025

Vididencel is a cellular immunotherapy that can be administered by an intradermal injection. The product is derived from Mendus’s proprietary DCOne cell line and does not require a patient’s own biological material (allogenic). This may offer notable potential advantages compared to patient-derived cell therapies (autologous), in that the final end-product may be produced in large batches, offering improved scalability, tighter control in the supply chain and less susceptibility to external logistical shocks and challenges than for products dependent on sourcing input material from patients. Further, the final vididencel end-product may be stored frozen, meaning it is an off-the-shelf therapy, allowing for simple administration and wide accessibility. Vididencel is in clinical development targeting AML maintenance as the primary target indication.

A key component of Mendus getting prepared for the pivotal stages of development (and subsequent commercialisation) is ensuring it has the appropriate manufacturing capabilities to produce vididencel. The company has been proactive in this regard, as in mid-2023, it entered into a strategic cell therapy alliance with NorthX Biologics, a Sweden-based specialised contract manufacturing organisation, to co-establish a dedicated large-scale cell manufacturing facility, with a production process that could reliably produce the precise biologically active product. As per Mendus’s FY24 report, this strategic alliance is advancing as planned, with multiple consecutive large-scale production runs completed successfully and the production of clinical-grade material and pivotal-stage readiness for the lead programme on track for H225, consistent with prior guided timelines.

Vididencel in AML maintenance

The latest data from the clinic, presented at ASH 2024, came from the Phase II ADVANCE II trial, an international, multi-centre, open-label, proof-of-concept study designed to assess vididencel as a monotherapy with the aim of prolonging survival for AML patients as a maintenance treatment. The study includes 20 participants who had previously responded to induction chemotherapy and achieved complete remission (CR), but still had MRD+ (which is associated with higher relapse rates); all patients were ineligible for haematopoietic stem cell transplantation (HSCT, the only curative option for AML but not unavailable for the majority of patients). As of 4 November 2024, the median follow-up for all patients was 41.8 months. According to this survival data, median relapse-free survival and overall survival had not been reached, since the majority of patients were alive and free of disease. The results showed that 13 of 20 patients were still alive and 11 were still in CR as of the cut-off date. We believe that the latest data demonstrate the durable effect of vididencel on this patient population, and lay a robust foundation for the subsequent stages of clinical development. For a more detailed discussion of this data, and a more comprehensive overview of the company’s activity and strategy, we direct readers to our recently published outlook note.

Vididencel is now being investigated in the ALLG-sponsored CADENCE trial. Mendus aims to leverage ALLG’s experience in the AML space, while utilising its extensive clinical trial network to facilitate the progress of the study. CADENCE (expected n=140 and will include MRD+ and MRD- patients) is an adaptive, randomised, multi-centre, Phase II clinical trial investigating vididencel in combination with oral azacitidine, the only approved drug for AML maintenance. It will consist of two stages, the first of which will assess safety in 40 patients and the second will assess efficacy in 100 patients. We note that, since ALLG is responsible for the trial, Mendus will have little control over how it runs. Management has communicated that the data from CADENCE will contribute to the registrational dossier for vididencel in AML and has emphasised that it is not reliant on CADENCE. Mendus will be aiming to advance the programme to pivotal-stage readiness from H225 as planned.

In January 2025, Mendus announced the receipt of positive feedback following its end-of-Phase 2 meeting with the FDA and the EMA on its proposed design (including patient population, control arm and primary and secondary endpoints) and strategy for the proposed pivotal trial. As part of its FY24 results update, Mendus shared some further insights into how its preparations for the registrational trial are progressing (Exhibit 2).

We note that while both MRD+ and MRD- patients face the risk of disease relapse and may benefit from vididencel treatment, this is being explored in the CADENCE trial. We understand that for the registrational trial, the decision to focus on the MRD+ sub-population was driven by a greater expectation to observe a more significant effect from vididencel, increasing the probability of a more successful readout, while also mitigating the requirement for a higher number of patients. For reference, the registrational QUAZAR trial for oral azacitidine enrolled c 500 patients, whereas Mendus’s planned registrational trial aims to recruit 150–200 patients, which should streamline the process, in our view. Overall, it is our opinion that Mendus’s lead programme is in a good position and we believe the next material update will be confirmation that the company is indeed pivotal-ready in H225.

Vididencel in OC

Beyond the lead AML programme, Mendus has other pipeline programmes positioned to deliver potential additional upside to its value proposition. Accordingly, Mendus is also exploring vididencel in OC in the Phase I ALISON trial. This is a single-centre Phase I study conducted by the University Medical Center Groningen. It is designed to assess vididencel as a maintenance therapy for high-grade serous ovarian carcinoma, an aggressive form of OC associated with a high risk of recurring tumours that are typically unresponsive to first-line treatments. The latest data from the clinic was presented in December 2024. This update confirmed that 12 out of 17 of the evaluated patients displayed vaccine-induced responses, confirming that vididencel stimulates immune responses against OC antigens, providing a potential basis for an effective anti-tumour response. Further, the at week 22 timepoint, while stable disease was observed in two of five of the patients who did not display vaccine-induced immune responses (VIRs), eight out of 12 of the patients with VIRs had stable disease. Overall, we believe these results highlight the potential of vididencel, as an active immunotherapy, to prolong disease-free survival and overall survival for patients with OC following first-line treatment. Vididencel was also found to be safe, with only mild adverse reactions at the site of injection, which are typical for such treatments. The next update is anticipated in December 2025 and management has communicated that it will determine the next steps for this programme after this point. In our view, while this is not a priority for Mendus, the early data is supportive of OC as an opportunity to maximise the commercial potential of vididencel in the long-term.

Preclinical data supports potential expansion opportunities

Mendus presented two preclinical abstracts during the ASH 2024 conference. The key takeaway from these was that preclinical data supported the potential synergy between vididencel, azacitidine and venetoclax in AML, as well as a possible further application to chronic myeloid leukaemia. Management estimates that these have addressable market opportunities of $2.7bn and $5.5bn, respectively and, while we acknowledge that there is only early-stage data in these spaces at present, they do represent potentially attractive prospects. While Mendus is in the process of planning exploratory Phase II studies, given the associated expenses, we believe that the pursuit of these expansion opportunities may require Mendus to engage an appropriate strategic partner in order to progress. We look forward to further updates on these but do not currently include them in our valuation.

Ilixadencel: A partnering opportunity

Ilixadencel is an intratumoural immune primer backed by preclinical and clinical data supporting its application in solid tumours. With vididencel being the company’s lead asset, we understand that ilixadencel was being investigated on more of an exploratory basis. Mendus had been working collaboratively with Institut Bergonié to evaluate ilixadencel (in combination with regorafenib and avelumab) in patients with soft tissue sarcoma as part of a Phase I/II basket trial, whereby the company had aimed to obtain further data in this patient population, with costs for participation limited to providing the candidate. However, in December 2024, it was announced that Institut Bergonié had decided to terminate the arrangement. While disappointing, we note that the reason for termination stems from Bayer’s decision to no longer supply regorafenib, and was not reflective of ilixadencel’s potential. Given the advanced stages of development for vididencel in AML maintenance, management took the decision to cease further internal development efforts for ilixadencel. Instead, management is now considering other strategic options, with potential partnering/licensing opportunities being the preferred option. In our view, this represents a logical strategic decision and we believe the candidate still has the potential to progress through the clinic, should a suitable partnering opportunity come into fruition.

A more detailed background to the candidate can be found in our recently published outlook note and, for details on the changes we have made to our underlying assumptions for our valuation, we direct readers to our prior update note.

Financials

Being clinical stage, Mendus does not currently generate sales. The company reported other operating income of SEK0.8m in Q424 (SEK3.8m in Q423) and SEK5.0m (FY23: SEK29.6m), which primarily included patent transfer revenue and grants from Oncode PACT, a public-private partnership supported by the National Growth Fund to support preclinical development process of promising cancer treatments.

Total operating expenses increased by 4.2% y-o-y in FY24 to SEK135.7m (FY23: SEK130.3m), although these were lower than our estimate of SEK139.8m. The increase was driven by expenses towards R&D, which after declining in Q324, picked up pace in Q424 (SEK27m vs SEK16m in Q324). A large portion (SEK12m or c 44% of total R&D in the quarter) of this related to the technology transfer of the vididencel manufacturing process to NorthX Biologics. Other R&D expenses were attributed to the vididencel and ilixadencel programmes, as well as DCOne platform. Total R&D expenses for FY24 were SEK101.1m (SEK92.7m in FY23), of which SEK39.1m was ascribed to the NorthX technology transfer. Costs related to the technology transfer were pre-paid by the company in Q323 (c SEK90m) and, therefore, do not impact the cash flow statements. We estimate that, of the SEK90m earmarked for this, over SEK60m has been expensed till the end of FY24 and expect the remaining to be recognised in 2025. Impact from the increased R&D was partially offset by lower general and administrative (G&A) expenses (SEK34.1m vs SEK37.1m) as Mendus continued to implement efficiency measures and streamline operations, in an effort to manage costs. The G&A expenses primarily related to corporate management and finance, as well as financing and investor relation activities. Overall, Mendus reported an operating loss of SEK34.7m in Q424 and SEK130.7m in FY24, versus a loss of SEK17.5m and SEK100.7m in the comparable periods.

Based on the FY24 performance and near-term visibility, we make only minor adjustments to our FY25 forecast. We raise our estimates for R&D slightly to SEK89.3m (vs SEK87.0m previously), while keeping the projections for G&A broadly unchanged at SEK28.4m. Overall, we now expect an operating loss of SEK124.2m in FY25 (vs SEK122.0m previously). We also introduce FY26 estimates. As explained on our previous outlook note, we estimate an outlicensing agreement for vididencel in AML for up to US$825m (SEK8,826m) in total proceeds, including an upfront payment of US$75m (SEK865m). This upfront payment is reflected as licensing revenue in our model, recognised in FY26. We also project lower R&D expenses in FY26 (SEK50m) and G&A expenses of SEK29.3m, translating to an operating profit estimate of SEK778.8m for the year.

Valuation

We value Mendus based on a standard risk-adjusted net present value (rNPV) approach for its clinical programmes, vididencel in AML and OC and ilixadencel in STS. Our assumptions on the market opportunity, pricing and penetration levels across the three programmes has been detailed in our recently published notes (December 2024 and January 2025). While we keep these assumptions broadly unchanged, we have now introduced one modification, based on improved visibility on the design of the planned registrational trial of vididencel in AML. While we were previously including both MRD+ and MRD- patients in our calculation for the target patient population (in line with the ongoing Phase II CADENCE trial), we now understand that the registration study will only test MRD+ patients, which make up c 70% of the overall target patient population. Given that this patient population is expected to derive the maximum benefit from the treatment, we see merit in this strategy and have accordingly adjusted our projections for the target population. We, however, keep our assumptions for the outlicensing deal value unchanged at US$825m (including US$75m as upfront payment and tiered double-digit royalties). Overall, we now expect peak sales of US$780m for vididencel in AML, from US$930m previously. Our rNPV/share for vididencel in AML adjusts to SEK22.95 from SEK24.30 previously.

Taking into account the aforementioned adjustment and incorporating the latest net cash figure (SEK101.1m), our valuation adjusts slightly to SEK1.9bn or SEK37.8/share from SEK2.0bn or SEK39.0/share previously. An asset-wise valuation is presented in Exhibit 3.

Mendus ended FY24 with a net cash position of SEK101.1m (gross cash of SEK101.9m adjusted for SEK0.9m in long-term liabilities (conditional credits from Region Västra Götaland)). Given the lower-than-anticipated operating expenses and our revised cash burn rates, we now estimate Mendus to be funded into Q126, in line with the updated guidance from the company. Given the exact timing of a partnering deal in 2026 may be uncertain, we expect the company would need to raise c SEK50m in Q126, which we reflect as illustrative debt. Should such a deal not materialise and Mendus takes over self-development of vididencel, we estimate the company would need to raise c SEK200m per year between FY26 and FY28, prior to the market launch of vididencel in FY29. If Mendus were to raise these funds (total SEK600m between FY25 and FY28), it would need to issue c 78.9m shares (assuming current trading price of SEK7.6), which will dilute our per-share valuation to SEK.19.4, from SEK37.4 currently (shares outstanding would increase to 129.3m).