F Full report Equity Research France 360_CR 360 Report
OSE Immunotherapeutics
France | Pharma & biotech | MCAP EUR 95.9m
20 February 2017
x
Kepler Cheuvreux and the issuer have agreed that Kepler Cheuvreux will produce and disseminate
investment research on the said A few tricks up its issuer as a service to the issuer. sleeve Buy (None) What’s it all about? Target price EUR 9.00 OSE Immunotherapeutics is a biotechnology company specialised in Current price EUR 6.71 Up/downside 34.1% immunotherapy for the treatment of autoimmune diseases and cancer. Change in TP none Our analysis suggests positive optionality for the company thanks to its Change in EPS none 2016E none strong and diversified pipeline. Its strategy consists of out-licensing its non-core assets to rapidly monetise them while externalising all clinical Main author development costs to minimise the related opex. The company’s leading Thomas Guillot product, Tedopi (currently in phase III), aims to reach the market in 2020, Equity Research Analyst and we estimate peak sales of half a billion euros for this asset. Our in- [email protected] depth valuation of the company suggests that the street is only including +33 1 70 98 85 27
Tedopi, while the company has three under-the-radar, early-stage assets Pharma & biotech research team with significant potential. Biographies at the end of the report
IMPORTANT. Please refer to the last page of this report for keplercheuvreux.com “Important disclosures” and analyst(s) certifications. This research is the product of Kepler Cheuvreux, which is authorised and regulated by the Autorité des Marché Financiers in France. OSE Immunotherapeutics Buy TP EUR 9.00
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Investment case summary We initiate coverage on OSE Immunotherapeutics with a Buy rating. Tedopi is an asset in late-stage development for the treatment of NSCLC in 2L/3L. We believe that Tedopi is likely to gain value until the phase III results are released in 2018, as momentum is set to increase. Moreover, pending Tedopi’s results, we think the advancement of early-stage assets will also add value to OSE Immunotherapeutics. Key findings of the report We recommend buying OSE Immunotherapeutics, as we believe Tedopi is not fairly valued right now, and early-stage assets are not even included in the company’s value: We agree with the market that most of the company’s value is in the Tedopi asset, which presents a risky profile inherent to all therapeutic vaccines in oncology. However, even with a 33% probability of success, we are convinced that the market is not assigning a fair value to Tedopi. Moreover, we believe that the street does not value the potential of early-stage assets like FR104 (phase I in partnership with J&J) and also overlooks Effi-7 (at pre-clinical stage, in partnership with Servier), which is under the market’s radar screen. Also, the proprietary product Effi-DEM is a first-in-class candidate targeting an innovative pathway, with similar potential to that of the current CKI blockbusters. Although not yet clinically validated, we believe Effi-DEM is likely to boost OSE Immunotherapeutics’ value in the near future. Valuation model Our in-depth valuation is based on the potential of: 1) a cautious positioning of Tedopi in third-line treatment of NSCLC HLA-A2 positive patient population; 2) FR104 solely in RA (while not taking into account other potential indications); and 3) Effi-7 in the treatment of ulcerative colitis. We adopt a discount rate of 15%, in line with our biotech universe. Our valuation stands at EUR9 per share, and we initiate coverage on OSE Immunotherapeutics with a Buy rating.
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OSE Immunotherapeutics Buy TP EUR 9.00
Company summary Market data OSE Immunotherapeutics is a biopharmaceutical company specialised in the development of Bloomberg OSE FP immunotherapy dedicated to the treatment of cancer and auto-immune diseases. The company's Reuters OSE.PA main asset is Tedopi, a therapeutic vaccine developed in NSCLC, currently in phase III, with pivotal Market cap (EUR) 95.9m results expected in late 2018. Other clinical-stage assets include FR104 which has been out-licensed Free float (%) 52.0 No. of shares outstanding (m) 14 to J&J as well as Effi-7 in which Servier has an opt-in license option. 3m avg. daily vol (EURm) 0 Management Key shareholders YTD abs. performance -5.2% Dominique Costantini, CEO Emile Loria 30.6% 52-week high (EUR) 8.15 Dominique Constantini 13.0% Alexis Peyroles, COO 52-week low (EUR) 5.70 Maryvonne Hiance, VP, Strategy Guy Chateain 1.9%
Strengths Weaknesses One of the fews that has a phase III immunotherapy asset Tedopi is a highly risky development Already monetised non core early-stage assets Early-stage nature of the rest of the pipeline Effi-DEM is a promising candidate Need to sign commercial deal for Tedopi Experienced management Opportunities Threats Tedopi will provide solid value creation if successful Strong competitive environment for Tedopi in NSCLC NSCLC is a large market Phase III failure for Tedopi/Effi-dem Out-licensed candidates bring cash in-flow (FR104/Effi-7) Pricing anticancer therapies Strong balance sheet
Key financials (please see the end of this report for full financials) Per share data (EUR) 2015 2016E 2017E 2018E 1 year performance 2011 EPS adj and fully diluted -0.01 0.28 -0.66 -0.70 Cash flow per share -0.41 0.51 -0.78 -0.85 8.5 Book value per share 4.44 3.92 2.92 2.87 DPS 0.00 0.00 0.00 0.00 8.0
Valuation 7.5 P/E adjusted and fully diluted na 23.7 na na P/CF na 13.1 na na 7.0 P/BV 2.2 1.7 2.3 2.3 Dividend yield (%) 0.0% 0.0% 0.0% 0.0% 6.5 FCF yield (%) -4.3% 7.6% -11.7% -12.6% EV/Sales 25.3 3.9 na na 6.0 EV/EBITDA na 19.9 na na EV/EBIT na 19.9 na na 5.5 Feb 16 May 16 Aug 16 Nov 16 Feb 17 Price DJ Stoxx 600 (rebased) Income statement (EURm) Sales 5.1 20.3 0.0 0.0 % Change +chg 300.1% -chg na EBITDA adjusted -3.8 4.0 -11.2 -12.1 EBIT adjusted -3.8 4.0 -11.2 -12.1 Adjusted EBIT margin (%) -74.1% 19.7% na na Net profit reported -0.2 4.0 -9.4 -10.0 Net profit adjusted -0.2 4.0 -9.4 -10.0
Cash flow statement (EURm) CF from operating activities -5.9 7.3 -11.2 -12.1 Capex 0.0 0.0 0.0 0.0 Free cash flow -5.9 7.3 -11.2 -12.1
Balance sheet (EURm) Intangible assets 61.1 45.6 57.5 83.9 Tangible assets 0.1 0.1 0.1 0.1 Fin. & other non-current assets 0.1 0.1 0.1 0.1
Total shareholders' equity 63.4 56.0 41.7 41.0 Pension provisions 0.0 0.0 0.0 0.0 Liabilities and provisions 21.9 19.4 34.3 49.3
Net financial debt -9.0 -16.3 -5.1 7.0 Working capital requirement 8.1 4.0 -1.0 -6.0 Invested capital 8.2 4.1 -0.9 -5.9
Ratios ROE na 6.8% -19.2% -24.3% ROIC na 43.7% -477.6% na EV/IC 15.6 19.6 na na Gearing -14.2% -29.1% -12.2% 17.1%
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OSE Immunotherapeutics Buy TP EUR 9.00
Investment case in six charts
Chart 1: OSE Immunotherapeutics portfolio Chart 2: Overall survival of phase II with Tedopi
Immune activation and regulation 1.0 Survival function Censored 0.8
Tedopi® FR104 0.6 Effi-DEM 0.4
EFFi-7 survival Cumulative Cancer 0.2 Autoimmune Inflammatory diseases 0 Allograft rejection Immunosuppression 200 400 600 800 1,000 Time survived (days)
Source: OSE Immunotherapeutics Source: Kepler Cheuvreux
Chart 3: Mechanisms of action Effi-DEM Chart 4: Mechanisms of action FR104
Source: Kepler Cheuvreux Source: Kepler Cheuvreux
Chart 5: Mechanisms of action Effi-7 Chart 6: SOP (EURm)
160 EUR17m EUR131m 140
120 EUR12m EUR6m EUR97m
100
80
60
40
20
- rNPV Tedopi rNPV FR104 rNPV Effi-7Net cash position Base case
Source: Kepler Cheuvreux Source: Kepler Cheuvreux
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OSE Immunotherapeutics Buy TP EUR 9.00
Contents
Investment case in six charts 4 Investment case summary 7 Paving the way for value creation 7 Cancer immunotherapy: the core focus 7 FR104 and Effi-7: already monetised 8 Initiating coverage with a Buy rating and a TP of EUR9 8
Paving the way for value creation 9 An attractive pipeline emerged from the merger 9 Unity is strength 10 Strategy: quickly provide value creation from non-core assets 11
Cancer immunotherapy: the core focus 12 Tedopi: a multi-epitope cancer vaccine 12 Tedopi target NSCLC: the largest cancer market 14 Promising phase II needs to be confirmed 18 Effi-DEM: the future immune-oncology blockbuster? 26
FR104 and Effi-7: already monetised 34 FR104: a ground-breaking opportunity in autoimmune diseases 34 J&J: a landmark partner for FR104 36 FR104: looking to grab a piece of the large RA market 37 Competitive environment in CD80/CD28 pathway 41 Effi-7: already monetised to Servier, the right strategic option? 43
Deconstructing the forecasts 48 Cancer drug pricing 48 Tedopi: a place in 2L/3L NSCLC 49 FR104 in RA 51 Effi-7: next milestone payment in five years 53 Initiating coverage with a Buy rating 55 Main risks for Tedopi: finding the right partner for EU/US commercialisation 55 Main assumptions of our rNPV for Tedopi 56 rNPV of Tedopi in NSCLC (EUR97m) 57 rNPV of FR104 in RA (EUR12) 58 rNPV of Effi-7 in UC (EUR6m) 60 SOP summary 61
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OSE Immunotherapeutics Buy TP EUR 9.00
Appendices 62 Shareholders 62 Key people 62 Immune system functions 63 Use of the immune system to fight diseases: immunotherapy 65 Immunotherapy applied to cancer 66 Immunotherapy applied to autoimmune diseases 71
Research ratings and important disclosures 76 Legal and disclosure information 79
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OSE Immunotherapeutics Buy TP EUR 9.00
Investment case summary We initiate coverage on OSE Immunotherapeutics with a Buy rating and a target price of EUR9. Even though we perceive Tedopi as a highly risky asset (we believe the product has a 33% chance of succeeding), we think that OSE Immunotherapeutics’ main candidate is currently undervalued. Moreover, we feel confident about the prospect of early-stage candidates. We think that the pipeline is likely to drive value creation until the end of 2018 and the phase III results of Tedopi, which will be a landmark event for the company. Until then, we think that the advancement of Effi-DEM, FR104 and Effi-7 will provide momentum for the company.
Paving the way for value creation OSE Immunotherapeutics was set up in June 2016 with the merger between Effimune and OSE Pharma. This led to the creation of a strong player in immunotherapy with a diversified range of solid blockbuster therapeutic candidates. The diversification of its pipeline allowed the company to reduce the development risk inherent to immunotherapy. Thanks to the merger, OSE Immunotherapeutics is now developing its portfolio both for autoimmune and oncology conditions. The company’s leading asset is Tedopi, a therapeutic vaccine provided by OSE Pharma and developed in lung cancer. The candidate is currently in phase III of development with clinical data expected as soon as 2018. Effimune provided the rest of the portfolio, which is made up of: 1) Effi-DEM, a preclinical-stage new generation of checkpoint inhibitors developed in oncology; 2) FR104, a clinical-stage candidate developed in rheumatoid arthritis and out-licensed to J&J; and 3) Effi-7, a preclinical-stage candidate developed in autoimmune diseases and out-licensed to Servier. Cancer immunotherapy: the core focus OSE Immunotherapeutics mainly focuses on immunotherapy applied to oncology. The company currently has two proprietary owned products under development: 1) Tedopi, a therapeutic vaccine currently in phase III for the treatment of lung cancer; and 2) Effi-DEM, a preclinical stage immunotherapy, modulating the tumour microenvironment. Tedopi’s phase III results are expected in late-2018. If positive, the product is likely to boost the value of OSE Immunotherapeutics. That said, we question the prospects of the asset, due to: 1) the notoriously risky field of therapeutic vaccines applied to oncology; 2) the fierce competitive environment of late-stage NSCLC candidates; and 3) the lack of clinical evidence with statistical significance shown in phase II by Tedopi. However, we are optimistic about Effi-DEM’s prospects. We believe Effi-DEM is an under-the-radar asset with the potential to become a blockbuster. Although not yet clinically validated, based on the scientific literature and preclinical data, we believe targeting SIRPαpathway holds promise.
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OSE Immunotherapeutics Buy TP EUR 9.00
FR104 and Effi-7: already monetised FR104 and Effi-7 are two monoclonal antibodies developed for the treatment of autoimmune diseases. Both assets have already been out-licensed to partners by OSE Immunotherapeutics. A partnership agreement has been reached with J&J in relation to FR104, providing a EUR10m opt-in option payment to OSE Immunotherapeutics in July 2016. In the event of clinical success, FR104 is likely to become a blockbuster with solid activity both in rheumatology and in transplant complication management. FR104 is no longer a source of cost and now represents a cash inflow opportunity for OSE Immunotherapeutics. Indeed, following its opt-in options, J&J will fund all the development costs as of now. Therefore, FR104 is now a potential source of cash-in for OSE Immunotherapeutics. OSE Immunotherapeutics secured EFFI-7 through an out-license deal with Servier in December 2016 with an opt-in option after the completion of phase II. Funding until phase II is also partly secured thanks to a consortium led by OSE Immunotherapeutics. We believe these two assets will provide sufficient funding to the company to finance EFFI-DEM development, therefore significantly derisking the group’s profile. Initiating coverage with a Buy rating and a TP of EUR9 Our valuation of OSE Immunotherapeutics focuses on three candidates: Tedopi, FR104, and Effi-7. Even though we do not include Effi-DEM, due to its preclinical early-stage development, we have emphasised the potential of this candidate and will look closely at its future development. We think that OSE Immunotherapeutics is likely to out-license Tedopi in all territories and will only retain milestone payments and royalties based on commercial performance. Hence, we do not see any commercial structure or facility emerging from the company for Tedopi. For FR104, we forecast the royalties and milestones resulting from the J&J partnership. We are confident that even though the development time will be lengthy, the candidate has a good chance of reaching blockbuster status in the event of clinical success, due to its potential in in a broad range of autoimmune conditions. The next major milestone will be the positive or negative outcome of the phase III trial of Tedopi in 2018. In the event of clinical or regulatory failure, we think that the company is likely to pursue the development of Effi-DEM, thanks to the financing provided by FR104, and to a lesser degree by Effi-7. We think that the current valuation does not include the potential of early-stage assets, but it also undervalues Tedopi. We initiate coverage with a Buy rating and a target price of EUR9.
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OSE Immunotherapeutics Buy TP EUR 9.00
Paving the way for value creation OSE Immunotherapeutics was created in June 2016 through the merger of Effimune and OSE Pharma, establishing a strong player in immunotherapy with a diversified range of solid blockbuster therapeutic candidates. The diversification of its pipeline allowed the company to reduce the development risks inherent to immunotherapy. Thanks to the merger, OSE Immunotherapeutics is now developing its portfolio both for autoimmune and oncology conditions. Its leading asset is Tedopi, a therapeutic vaccine provided by OSE Pharma and developed in lung cancer. The candidate is currently in phase III of development with clinical data expected as soon as 2018. Effimune provided the rest of the portfolio, which is made up of: 1) Effi-DEM, a preclinical stage new generation of checkpoint inhibitors developed in oncology; 2) FR104, a clinical-stage candidate developed in rheumatoid arthritis and out-licensed to J&J; and 3) Effi-7, a preclinical-stage candidate developed in autoimmune diseases and out-licensed to Servier.
An attractive pipeline emerged from the merger OSE Pharma history OSE Pharma was founded in April 2012 by Emile Loria and Dominique Costantini. The two managers created the structure to further develop Tedopi, a lung cancer therapeutic vaccine that has been under clinical-stage development since 2003. Tedopi was developed first by Epimmune before a takeover by IDM pharma in 2005, followed by Takeda in 2007. Following the acquisition of IDM by Takeda, some of IDM’s assets, including Tedopi, were deprioritised, and their development halted. Emile Loria decided to pursue the development of Tedopi. Thanks to positive phase IIb results in specific lung cancer populations, OSE Pharma decided to seek financing to start a phase III trial and carried out an IPO in March 2015, raising EUR21.1m. Effimune history Effimune was founded in 2007 in Nantes, France. The company is a spin-off of Effimune brought INSERM and the Institute of Transplantation, Urology and Nephrology (ITUN) in three assets: FR104, Effi-7 and Nantes. Effimune is specialised in immune regulation for clinical application in auto- Effi-DEM immune, transplants, and immuno-oncology (IO). Thanks to its preliminary research highlighting key immuno-regulator receptors, Effimune managed to develop three product candidates: FR104, Effi-7, and Effi-DEM. Effimune sought to raise EUR5m in 2015 and up to EUR20m in 2016 to speed up its internal development pipeline. According to the street, due to the lack of financing solutions and tough equity market conditions, Effimune agreed to merge with OSE Pharma to form OSE Immunotherapeutics, a leading group with two areas of expertise: immunology and oncology.
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OSE Immunotherapeutics Buy TP EUR 9.00
A diversified pipeline Thanks to the merger, OSE Immunotherapeutics has a well-diversified pipeline, both in oncology and autoimmune diseases.
Chart 7: OSE Immunotherapeutics’ pipeline
Product Mechanism of action Indications Clinical Phase Status Related party Preclinical I II III Reg. Oncology Tedopi Multi-epitope cancer vaccine NSCLC - HLA-A2+ Expected registration: 2019 Tedopi + CKI(1) Multi-epitope cancer vaccine NSCLC - HLA-A2+ Expected phase II start: 2017
Effi-DEM SIRP-α inhibitor Solid tumours Expected start clinical stage: H2 2018 Autoimmune diseases FR104 Anti CD-28 Rheumatoid arthritis Expected start phase II: H2 2017/2018 Effi-7 Anti IL-7 Ulcerative collitis Expected start clinical stage: H2 2018
Note: (1) checkpoint inhibitors (PD-1/PD-L1) Source: Kepler Cheuvreux, OSE Immunotherapeutics
Unity is strength In February 2016, OSE Pharma announced its intention to merge with Effimune. The purpose of the merger was to create a balanced portfolio in immunotherapy. At the time, OSE Pharma only had one asset, Tedopi, in late-stage development in lung cancer, while Effimune had three early-stage candidates. The merger resulted in a balanced and less risky pipeline portfolio. The all-stock operation closed in June 2016. It resulted in an entity named OSE Immunotherapeutics and 71%-owned by ex-OSE Pharma shareholders and 29% owned by ex-Effimune shareholders. Whereas OSE Pharma solely focused on oncology, Effimune has specialised in restoring the balance of the immune system for oncology and autoimmune diseases. Thanks to the acquisition of Effimune, OSE Pharma has significantly expanded its pipeline toward other mechanisms of action and other targeted therapeutic areas.
Chart 8: OSE Immunotherapeutics aims to rebalance the immune system
Immune activation and regulation
Tedopi® OSE FR104 Immunotherapeuti Effi-DEM cs aims to modulate the immune system to tackle severe EFFi-7 Cancer immune-related Autoimmune conditions Inflammatory diseases Allograft rejection Immunosuppression
Source: OSE Immunotherapeutics
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OSE Immunotherapeutics Buy TP EUR 9.00
Strategy: quickly provide value creation from non-core assets We estimate that OSE Immunotherapeutics has sufficient funding until end-2018 with a cash position that we estimate at c. EUR19m. After that, all will depend on the outcome of Tedopi.
The positive cash position has been made possible thanks to the IPO in 2015 Cash is sufficient (EUR21.1m raised) and the monetisation of the proprietary assets to partners until the results of Tedopi in phase III through licensing (EUR20.25m added in 2016).
OSE Immunotherapeutics has adopted a cash-in strategy by out-licensing its non- core assets at an early stage of development. Hence, the company has decided to partner up for its autoimmune diseases candidates FR104 (J&J) and Effi-7 (Servier) while keeping the rights for its oncology pipeline (Tedopi and Effi-DEM). While derisking the company’s profile, this strategy also has its limitations, as OSE Immunotherapeutics retains a smaller percentage of the value of these assets at an early stage.
Table 1: Value share figures for Biotech/Pharma deals Licensor Licensee (OSE Immunotherapeutics) (Servier / J&J) Preclinical (Effi-7) 10-20% 80-90% IND (FR104) 20-40% 60-80% Phase IIb/III 40-60% 40-60% Approval 60-80% 20-40%
Source: Bogdan and Villiger
OSE Immunotherapeutics has chosen to outsource most of its R&D development costs, which gives the company flexibility in its resource allocation. Thus, to perform its clinical trials and manufacture its drug candidates, OSE Immunotherapeutics uses contract research organisations (CROs) and contract manufacturing organisations (CMOs). For example, for Tedopi, the phase III trial is conducted by CRO Simbec Orion, while production of Tedopi is outsourced to PPL (APIs) and Bacinex (formulation). To limit its R&D expenses, OSE Immunotherapeutics has chosen to pay its services provider with stock options. We expect this type of payment to be moderately dilutive for the company in the near future.
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OSE Immunotherapeutics Buy TP EUR 9.00
Cancer immunotherapy: the core focus OSE Immunotherapeutics mainly focuses on immunotherapy applied to oncology. The company currently has two proprietary products under development: 1) Tedopi, a therapeutic vaccine currently in phase III for the treatment of lung cancer; and 2) Effi-DEM, a preclinical stage immunotherapy, modulating the tumour microenvironment. Tedopi’s phase III results are expected in late-2018. If positive, the product is likely to boost the value of OSE Immunotherapeutics. That said, we are cautious on the asset’s prospects, due to: 1) the notoriously risky field of therapeutic vaccines applied to oncology; 2) the fierce competitive environment of late- stage NSCLC candidates; and 3) the lack of clinical evidence with statistical significance shown in phase II by Tedopi. However, we are optimistic about Effi-DEM, which we believe is an under-the- radar asset with the potential to become a blockbuster. Although not yet clinically validated, based on the scientific literature and preclinical data, we believe that targeting the SIRPαpathway holds promise.
Tedopi: a multi-epitope cancer vaccine Tedopi is a cancer vaccine that is being developed in non-small lung cancer (NSCLC) and currently in phase III of development with final results expected in 2018. Historical development Tedopi, also named OSE-2101, was initially developed by Epimmune between 2001 and 2006. The development of the project was led by Emile Loria, one of the founders of OSE Pharma. In 2006, Epimmune merged with IDM Pharma before being taken over by the Japanese pharmaceutical company Takeda in 2009. Over 2011-12, Emile Loria decided to acquire OSE-2101’s IP from Takeda and the technology dedicated to this asset (named Memopi) to launch OSE Pharma. Mechanism of action Tedopi has been engineered to selectively target the Human Leukocytes Antigen (HLA) of class I (HLA-A2). HLA is a similar name for major histocompatibility complex (MHC). MHC are cell-surface proteins responsible of the interaction of antigen-presenting cells (APC) and effector lymphocytes cells (like CD4+ or CD8+).
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Chart 9: Major histocompatibility complex (MHC) class I and II
CD8+ CD4* T cell T cell
Diverse TCR
Peptide Glyco
MHC MHC Class I Class II Antigen-presenting cell
Source: Nature
HLA-A2 is a serotype (subcategory) of MHC type I, which is the MHC that triggers the education of the CD8+ T cells. This serotype is present in 45% of the population, according to OSE Immunotherapeutics. Due to this moderate frequency, Tedopi has received orphan drug status in the US. Tedopi is an off-the-shelf therapeutic vaccine comprising nine epitopes that address five well-known tumour-associated antigens (TAAs). The tenth synthetic peptide is the pan-DR epitope (PADRE), a well-known helper T-Lymphocyte (HTL) epitope included to increase the magnitude and duration of cytotoxic T-lymphocyte (CTLs) responses. All these epitopes were designed to selectively recognise the HLA-A2 serotype. Accordingly, Tedopi was designed to induce CTL responses against TAAs frequently observed in NSCLC (non-small cell lung cancer), such as: Carcinoembryonic antigens (CEA): glycoproteins involved in cell adhesion, which is present in c. 70% of lung cancers. P53: Protein p53 is common in cancer and gained functions that help to contribute to malignant progression. The mutation of p53 is present in 40- Tedopi targets five 50% of NSCLC (Korst & Crystal, 2003). TAAs evenly found in NSCLC HER-2/neu: HER2 is a member of the human epidermal growth factor receptor (HER/EGFR). This glycoprotein is involved in cellular expansion for some cancer cells. This mutation is found in 22-50% of NSCLC (Korst & Krystal, 2003). MAGE-2 (melanoma-associated antigen 2): MAGE-2 genes are almost universally expressed in body tissues. MAGE-3 (melanoma-associated antigen 3): Like MAGE-2, this antigen is expressed in many types of cancer. All of these mutations are considered as poor prognosis factors for the development of the cancer, notably in NSCLC. The originality of Tedopi’s formulation is its ability to generate an immune response against ten epitopes present in five antigens while traditional therapeutic vaccine formulations only target one antigen.
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Moreover, Tedopi does not induce B-cell responses, contrary to therapeutic vaccines based on one or several antigens and only trigger T cell responses thanks to its specific traits. A notorious, high-risk field Note that cancer vaccine therapies have suffered numerous setbacks over the past Numerous therapeutic decade due to the insufficient response they provided. Many companies have faced vaccines failed to reproduce early-stage clinical development setbacks, in particular in peptide-based vaccines. promises
Table 2:Recent outcome of peptide-based cancer vaccine Product Company Formulation Cancer Status Outcome Cause GV1001 KAEL-GemVax Co Telomerase peptide-based Pancreatic cancer Abandoned (June 2013) Failure Efficacy vaccine Stimuvax Merck KGaA / NSCLC Abandoned (December 2012) Failure Efficacy Oncothyreon MUC1-antigen specific NeuVax Galena Biopharma HER2-directed cancer Breast cancer Discontinued (June 2016) uncertain Efficacy immunotherapy PAS Cancer Advances Anti-G17 & (Gly) G17 vaccine Pancreatic cancer PIII completed results uncertain n.a. GIST PIII completed results uncertain n.a. IMA901 Immatics Multipeptide cancer vaccine Renal cell carcinoma PIII (September 2015) Failure Efficacy Elpamotide/ OTS-102 OncoTherapy Science VEGFR2 epitope based vaccine Pancreatic cancer PIII Failure Efficacy
Source: Kepler Cheuvreux
Only one cancer vaccine has been approved so far by the FDA: Provenge (by Dendreon, which is now part of Valeant), for its use in prostate cancer. However, the commercial prospects of the vaccine have been limited due to manufacturing and logistical issues that have impeded the commercialisation of the product. Immatics, a German company that developed a multi-epitope based vaccine like Tedopi, failed to reproduce positive phase II results in its pivotal phase III. The setback was due to the change of phase III design compared to phase II. Tedopi target NSCLC: the largest cancer market Tumour grades at a glance Tumours are an evolving disease and patients are screened according to their grade. An early diagnosis The tumour grade refers to the description of a tumour based on what cancer cells significantly increases and tumour tissue look like. This provides doctors with valuable indications about the overall chances of how quickly a tumour is likely to grow and spread to other parts of the body. While survival some types of cancer have their own grading systems, tumours are generally graded as 1, 2, or 3. A low-grade cancer is likely to grow and spread more slowly than a high- grade one.
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Chart 10: Cancer grades Chart 11: Cancer stages
1 1 2
Grade 1 Stage 1 Cancer cells look Stage 2 very similar to The cancer is small and normal cells and The cancer has grown but has not spread anywhere are growing has not spread slowly 2 else
Grade 2 3 Cancer cells look 4 3 unlike normal Grade 3 cells and are growing more Stage 4 Stage 3 quickly than Cancer cells look The cancer has spread The cancer is larger and very abnormal normal from where it started to may have spread to the and are growing quickly at least one other body surrounding tissues organ and/or the lymph nodes
Source: National Cancer Institute Source: National Cancer Institute
Cancers in the initial stage (grade 1) are the least malignant tumours and are associated with long-term survival. Cancer cells tend to be growing slowly and exhibit an almost normal appearance. Importantly, surgery alone can be an effective treatment for this grade of tumour. Grade 2 cancer cells look slightly abnormal and The higher the grade, tumours grow faster than in the previous grade. The distinction between grades 2 the more dangerous and 3 is not always clear-cut. Nevertheless, the cells of a grade 3 tumour look very the tumour different to normal cells and grow fast in disorganised, irregular patterns. Grade 3 cancer cells start to spread to nearby healthy tissue. NSCLC at a glance NSCLC (non-small-cell lung cancer) represent 85% of total lung cancer. Tobacco smoking is by far the leading cause of lung cancer. According to the American Cancer Society, 80% of lung cancers are thought to be linked to smoking. The number of cases has reached 560,000 patients in the world’s seven major markets (the US, Japan, France, Germany, Italy, Spain and UK). Globally, it represents nearly 1.8m cases. Lung cancer accounts for 20% of all cancer-related deaths and is involved in 1.6m deaths each year, three times more than breast and colorectal cancers combined (1.3m deaths). There are three main kinds of NSCLC depending on the type of cancer cell: adenorcarcinoma (non-squamous cells), squamous cell carcinoma, and large cell lung cancer. Despite the recent improvement in the treatment and management of NSCLC thanks to the emergence of immunotherapies, there is still a high unmet medical need for late-stage cancer (IIIB/IV).
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Table 3: NSCLC treatment and overall survival Stage Treatment Five-year survival rate at diagnosis Stage Ia Surgery, consisting of removing either the affected part of the lung or the whole lung. If surgery is not 49% possible, radiotherapy is recommended Stage Ib Surgery, possibly followed by chemotherapy. If surgery is not possible, radiotherapy is recommended 45%
Stage II Surgery followed by chemotherapy. If surgery is not possible, radiotherapy is recommended 30%
Stage IIIa Chemotherapy, possibly combined with surgery or radiotherapy 14% Stage IIIb Chemotherapy combined with radiotherapy, surgery is an exception 5% Stage IV Chemotherapy may be combined with other types of treatments (“targeted therapy” on particular 1% mutations for instance)
Source: Cancer.gov, OSE Immunotherapeutics
According to the NIH, 57% of patients are diagnosed with lung cancer at a later stage when survival chances are lower. Tedopi aims to target the large NSCLC market for the second and third-line treatment of advanced stage lung cancer. Treatment of late-stage NSCLC Usually, early-stage (stage I to II) treatment of NSCLC starts with removal surgery if the tumour is found to be resecable and the patient is able to tolerate surgery. Patients often receive radiotherapy and/or chemotherapy or targeted therapy to avoid tumour relapse. In the event of tumour progression, physicians usually use chemotherapy as a combination of platinum-based agents (cisplatin or carboplatin) and other chemotherapy agents called taxans (e.g. Taxotere from Sanofi). The recent approval of CKIs (checkpoint inhibitors) has led the guideline writers to significantly change their recommendations. Previously, Taxotere (docetaxel) was considered to be a standard second-line option and was often used for subsequent therapy in patients whose cancer had progressed on first-line platinum-based chemotherapy regimens. Fierce competition in late-stage NSCLC Checkpoint inhibitors (CKIs) are the new standard of care in 2L The competitive landscape in immune-oncology (IO) is extremely complex and fast- moving. Nowadays, the new standards of care in 2L are the CKIs as part of the new immuno-therapy paradigm. In the US, the NCCN guidelines have recommended CKIs as preferred agents against Taxotere (docetaxel) based on improved overall survival rates, higher response rates, longer duration of response, and fewer adverse events compared with docetaxel therapy. The European guidelines also indicated a preference for the use of CKIs in the event of positive PD-L1 histology. NSCLC treatments: a personalised approach Another aspect of the market to bear in mind is the upcoming maturity of targeted therapies. NSCLC may be classified according to the mutations as follows:
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Chart 12: NSCLC types
KRAS+ adenocarcinoma 12% EGFR+ adenocarcinoma 11% 35% ALK+ adenocarcinoma
HER2+ adenocarcinoma 4% 1% BRAF+ adenocarcinoma 1% Unknown adenocarcinoma
large cell carcinoma 19% 18% squamous cell carcinoma
Source: Roche
Non-squamous cell carcinomas (adenocarcinoma) represent almost 65% of NSCLC. Within this category, the past couple of years have seen the emergence of targeted therapies, which are usually developed along with a biomarker to diagnose the mutation. Targeted treatments are being developed to overcome the aberrant oncogenic pathways of these mutant genes. Several epidermal growth factor receptor (EGFR) and anaplastic lymphoma kinase (ALK) inhibitors have now been approved that demonstrate a large magnitude of durable overall response rate (ORR) in patients with NSCLC who harbour certain EGFR mutations and ALK rearrangements. For instance, Iressa from AstraZeneca has been approved as the first-line treatment of advanced EGFR+ NSCLC. Other gene-mutation-related treatments have been approved (e.g. Xalkori for ALK+ cancer) or are being developed (e.g. Tafinlar for BRAF mutations in NSCLC). A new generation of treatment is also emerging: Tagrisso from AstraZeneca is a new generation of targeted therapies for second-line EGFR specific T790M gene mutation adenocarcinoma. The Aura3 phase III enrolled 419 patients and data showed an impressive improvement in progression-free survival after 5.7 months compared to chemotherapy. For patients with brain metastasis, PFS was 8.5 months with Tagrisso versus 4.2 months for the chemotherapy-based regiment. AstraZeneca is beginning the life-cycle management phase of this new therapy and is planning to develop the Tagrisso in 1L EGFR-positive mutation.
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Neoantigen vaccines: the biggest threat for Tedopi? Neoantigen therapeutic vaccine development is a growing paradigm to restore a specific T cell response against cancer. With advancement in genome sequencing, it is now possible to identify a new class of tumour-specific antigens derived from mutated proteins (called neo-antigens) that are only present in the tumour. This approach differs from that of OSE Immunotherapeutics whose vaccines include tumour-associated antigen epitopes that are usually found in tumour cells but not in We think that every tumour’s phenotype. Meanwhile, Tedopi is likely to have a varied impact on neoantigen vaccines most of the tumours that it targets. are more promising treatments than Conversely, these “neoantigens” should provide highly specific targets for Tedopi but early- antitumour immunity and create more specific T cell responses. Although many stage challenges remain in producing and testing neoantigen-based vaccines customised for each patient, a neoantigen vaccine offers a promising new approach to induce highly focused antitumour T cells aimed at eradicating cancer cells.
Table 4: Neoantigen vaccines under development Company name Product Phase Indication Comments Gritstone Oncology n.a. Research Lung cancer Established in 2015 with a USD102m series A BioNtech IVAC Phase I Breast cancer/ In September 2016, BioNtech signed a deal agreement with Genentech melanoma for the development of its mRNA based neoantigen technology Vaccibody VB10.16 HPV-16 cancer-drive, Raised EUR24m in December 2016 through a private placement therapy Moderna Therapeutics/ n.a. Research n.a. Largest funded-biotech ever with more than USD1.4bn financing Merck Neon Therapeutics NEO-PV-01 Phase I Melanoma, NSCLC and First patients of the phase I enrolled in November 2016 bladder cancer
Source: Kepler Cheuvreux
Overall, we perceive the NSCLC market as a challenging, highly competitive market with the emergence of breakthrough therapy in the near future. A personalised approach (kinase inhibitors), a specific cancer approach (neoantigen vaccines) and the modulation of other immune pathways (tumour microenvironment, NK cells) are likely to lead to a high degree of competition. Most of these treatments will be used in combination and not in monotherapy to strengthen their therapeutic effect. Promising phase II needs to be confirmed
Tedopi has already been developed in two phase I/II clinical trials and one phase II trial for NSCLC patients. The therapeutic vaccine showed a strong overall survival threshold. Phase II showed promising clinical data, with an unconventional design In 2008, Epimmune, the former owner of Tedopi, released the results of the phase II. The trial enrolled 135 patients, of which 64 were found to be HLA-A2+. These patients received Tedopi while the HLA-A2 negative patients served as observation. Hence, Tedopi was used as a second-line treatment in this phase II trial. The primary endpoint was the comparison of overall survival and secondary endpoints included progression-free survival and T-cell response to vaccine epitopes.
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Tedopi was well tolerated during the trial, with no significant adverse events observed in hematopoietic, gastrointestinal, ocular, or neurological functions.
Table 5: Overview of phase II results of Tedopi Arm Number of Median survival p-value 1- year p-value Response rate patients (months) survival (CR&PR) HLA-2 + 64 17.3 not significant 59% not significant 3% (p=0.063) (p=0.089) HLA-2 - 72 12 49% n.a.
Source: OSE Immunotherapeutics
Longer survival was associated with a higher number of positive responses to epitopes in the HLA-A2+ arm. Hence, patients responding to 0 or 1 epitope had an overall survival of 406 ± 58 days. Those responding to two or three epitopes had a median survival of 778 ± 72 days, and those responding to four to five epitopes had a median survival of 875±67 days. Nearly 85% of the tested patients responded to at least two epitopes and 64% of the population responded to at least three epitopes, 39% to four or more, and 18% to five or more out of ten. Even though OSE Immunotherapeutics did not reach the primary endpoints, the company decided to pursue the work done by Epimmune for the following reasons: HLA-2 positive is an unfavourable survival prognosis (Nagata et al, 2009). According to So et al, its expression in NSCLC is likely to be one of the mechanisms of escape from immune surveillance. Hence, OSE Immunotherapeutics suggest the phase II results may have met its primary endpoint if both arms had been HLA-2 positive. A 17.3-month median survival rate is an extended lifetime in late-stage cancer (stage III/IV). To consolidate this argument, OSE Immunotherapeutics emphasised that advanced metastases represented 67% of HLA-2+ group population which is a poor prognosis of disease. A sub-analysis demonstrated potential interest for patients presenting brain metastasis, a poor survival prognosis. Long-term survival was also very interesting, with a 59% survival rate at one year and a 25% survival rate at four years. While the five-year survival rate for stage IV patients is 1% and 5% for stage IIIb, the overall response rate was only 3% (two partial responses). Meanwhile, it seems that Tedopi does not shrink the size of the tumour, contrary to current CKIs, but it manages to control the evolution of metastasis.
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Chart 13: Overall survival of HLA-A2–positive patients who received vaccines
1.0 Survival function Censored 0.8
0.6
0.4 Cumulative survival Cumulative 0.2
0 200 400 600 800 1,000 Time survived (days)
Source: OSE Immunotherapeutics
That said, we bear in mind the controversial phase II design trial due to: The design of phase II 1. The selected patient population: HLA-2 positive versus HLA-2 negative may jeopardise the patients non homogenous, contrary to what was designed in phase III. reading of the results 2. Tedopi being used as a 2L therapy and not compared with a controlled active arm (e.g. in replacement of Taxotere). 3. The tiny sample of population in the phase II (n=135), of which 64 were in the active arm. Hence, we question the capacity of OSE Immunotherapeutics to reproduce the promise seen in phase IIb. Despite these question marks, OSE Immunotherapeutics planned to launch a phase III trial including only HLA-2 patients. What needs to be proved in phase III? First, some definitions: Progression-free survival (PFS): Time from random assignment until death or first documented relapse, categorised as either locoregional (primary site or regional nodes) failure, distant metastasis or death. Overall survival (OS): The percentage of people in a study or treatment group who remain alive for a certain period of time after they started treatment of the disease. Hazard ratios (HR): The ratio of the hazard rate in one group (e.g. a group of treated patients) to the hazard rate in another group (e.g. an untreated control group of patients). The hazard rate is the probability of a specified event, such as death or cancer recurrence, occurring during a short time interval. The hazard ratio, therefore, is a measure of the relative probability of an event occurring at any given point in time. ORR (overall response rate): ORR is defined as the proportion of patients who achieve a complete or partial response against a clinical trial treatment.
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Comparison with current checkpoint inhibitors Checkpoint inhibitors targeting the immune escape system from tumours are now considered as the standard of care for the treatment of second line NSCLC after progression with chemotherapy (e.g. docetaxel). Opdivo from BMS (March 2015) and Keytruda from Merck (October 2015), two anti PD-1, and one anti PD-L1 Tecentriq from Roche (October 2016) received all the approvals in second line, leading to a fierce competitive environment. These nodes were allowed thanks to a significant demonstration of the overall survival benefit we highlight below.
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22 Table 6: Results of CKI used for regulatory approval for the treatment of patients with NSCLC in 2L
keplercheuvreux.c
al
Subtype/Group Therapy Dose n ORR Other Notes
pprov
Company Product Target Phase of Line treatment a Study mOS (months) mPFS (months)
1-yr OS: 42%; HR=0.59 3mg/kg (p<0.05) Clinical benefit present Opdivo 135 9.2 3.5 20% Q2W 18-month OS: 28% regardless of PD-L1 status Checkmate Brain metastases: 7% om III 2L Squamous All comers 017
OSE OSE Immuno
1-yr OS: 24% 75mg/kg BMS Opdivo PD-1 docetaxel 137 6.0 2.8 9% 18- month OS: 13% Q3w Brain metastases: 6% 1-yr OS: 51%; HR= 0.73 3mg/kg (p<0.05) HR shows a 27% diminution Opdivo 292 12.2 2.3 19% Q2W 18- month OS: 39% of risk of death Checkmate Non- III 2L All comers Brain metastases: 12%
057 squamous 1-yr OS: 39% 75mg/kg docetaxel 290 9.4 4.2 12% 18- month OS: 23% Q3w Brain metastases: 12% PD-L1+ as All doses Approval in 2L based on 41% determined Keynote- (2mg or ORR in patients with PD-L1 II/III 2L All NSCLC by FDA- Keytruda 495 10.7 3.0 19% Brain metastases: 10% 001 10mg/kg, tumour proportion score approved Q3w/Q2w (TPS)>50% test 1-yr OS: 43.2%; OS HR= 0.71 (p<0.05) Keytruda 2mg or Q3w 345 10.4 3.9 18% Merck Keytruda PD-1 mOS pts with TPS>50%: PD-L1+ as 14.9 determined 1-yr OS: 52.3%; Keynote- by FDA- Stable brain metastases in 14- III 2L All NSCLC 10mg/kg, OS HR= 0.61 (p<0.05) 010 approved Keytruda 346 12.7 4.0 18% 16% of the total population Q3w mOS pts with TPS>50%: test 17.3 (TPS>1%) 1-yr OS: 34.6% 75mg/kg
docetaxel 343 8.5 4.0 9% mOS pts with TPS>50%: Buy Q3w 8.2
1-yr OS: 55% PD-L1+ as 1,200 mg mOS HR:0.73 (p<0.05) determined Tecentriq 425 13.8 2.8 14% mOS for patients with PD-L1 Q3w 18- month OS: 40% PD- by FDA- expression>1% was 15.7 Roche Tecentriq III 2L OAK All comers Brain metastases: 9% L1 approved months for Tecentriq vs. 10.3 1-yr OS: 41% test 75mg/kg months for docetaxel docetaxel 425 9.6 4.0 13% 18- month OS: 27% (TPS>1%) Q3w Brain metastases: 11%
Notes: TPS: tumour proportion score; mOS: median overall survival; mPFS: median progression-free survival; ORR: overall response rate; HR: Hazard Ratio Source: Kepler Cheuvreux T
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Keytruda have shown higher amplitude of difference versus OSE Immunotherapeutics in overall survival in the Keynote-010 based on TPS> 50%. Hence the OS was 17.3 months in the highest dose-range arm versus 8.2 months in the compared arm. The overall response rate is much higher in the CKI arms than in the phase II study including Tedopi. Usually, regulatory agencies (FDA and EMA) focus on the comparison of OS for the approval of oncology drug candidates. But it is worth notice that all recent CKI approvals were also based on the partial/complete response rate and the duration of response (the percentage of patients whose cancer shrinks or disappears after treatment). A meta-analysis of ORR, PFS and OS in advanced NSCLC trial (Blumenthal et al) realised by the FDA, recently showed a patient-level association between response and PFS and OS and a trial-level association between ORR and PFS, but not OS. Accordingly, FDA guidance suggests that PFS is not well-correlated with overall survival (OS) in NSCLC. OS is increasingly the gold standard with regulators and IO companies – Roche developing Tecentriq has stated that it thinks it is the strongest, most reliable endpoint in PD-L1 trials, and the one most likely to show the true measure of patient benefit. Therefore, we think Tedopi will need to show similar mOS while reaching statistical significance versus the controlled arm in its phase III trial in order to get the nod from the regulatory agencies. Atalante 1: the phase III pivotal trial OSE Immunotherapeutics started the pivotal phase III Atalante 1 trial in January 2016. The design of the trial was approved by both the FDA and EMA in June 2014. The primary endpoint is overall survival at two years and secondary endpoints include PFS, ORR, tolerance and quality-of-life. OSE Immunotherapeutics expect to enrol 500 patients across the US (20% of patient inclusion) and Europe (80% of patient inclusion). Preliminary results are expected in 2018. In case of positive results, the company expect a regulatory filing in 2019 both in the US and in Europe. The design of the study aims to show survival benefits versus Taxotere in second- line or in third-line in the event of the use of a CKIs in second line. This is an important difference compared to what was realised during phase II as Tedopi was used as a second line therapy following chemotherapy. The location countries will be the following: United States, Czech Republic, France, Germany, Hungary, Italy, Poland, Spain, and the United Kingdom. As most of the patients in US and EU5 countries will receive CKI, which is the new standard of care for NSCLC, we expect the product will be injected following a CKI treatment except in central and eastern European countries. Hence, we expect a final regulatory labelling closer to a 3L following the use of a CKI rather than in 2L. It also means that Tedopi will need to prove a superior effect versus Taxotere in third line.
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We bear in mind that PD-L1/PD-1 inhibitors showed a strong one-year OS rate in 2L trials with a range between 42% to 55% for the PD-L1+ patients in second line, similar to what was seen with Tedopi (59%) in phase II. Therefore, we consider the design of the trial to be much more robust, but also significantly more risky for Tedopi, and we remain cautious on the probability of clinical and commercial success for the candidate. To NSCLC in monotherapy…and beyond? Strategic approaches to oncology research targets: The immune system through immuno-modulators. The tumour itself (through radiotherapy, chemotherapy and tumour- targeting therapies). So far, systemic treatments have associated immuno-modulators with treatment targeting the tumours. However, this has raised some concerns as scientists gain a better understanding of the tumour microenvironment. Mechanisms of The main issue in immuno-oncology is the ability of tumour cells to activate a defence of tumour defence mechanism through the active CKIs of the immune-response. Inhibitors of cells lead to IO those checkpoint blockades allow the immune-response against cancer cells to be treatment failures restored. However, the complexity and heterogeneity of tumours, and their ability to develop resistance to single-agent treatments, have fuelled research into immunology combination therapy for cancer. A second issue is the weak immunogenicity of tumours, as they are derived from the body’s own cells. This is true with NSCLC, which is renowned for its weak immunity. Overcoming resistance and restoring a functional immune surveillance system requires the leveraging of multiple, complementary mechanisms of action and agents that act in multiple phases of the cancer-immunity cycle. The emerging scientific and clinical consensus is that in the future patients will require both approaches to: Generate a targeted immune response (e.g. through cancer vaccines like Tedopi). Disrupt the checkpoint blockade (PD-1/PD-L1) and enhance the activity of activated T cells (OX-40 agonist). Lower the tumour-associated microenvironment down regulating effect (e.g. with Effi-Dem).
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Chart 14: Rationale for Tedopi and checkpoint inhibitor combination
Activation of tumour-specific Activation of tumour-specific T cells T cells Costimulatory Costimulatory Signal 2 Tumour cell CD80 Tumour cell CD80 Signal 2 T cell T cell CD86 CD28 CD86 CD28 PD-1 T cells traffic to tumour
CD80 CD80 CTLA-4 CTLA-4 CD86 Epitope CD86 Epitope PD-1 PD-1 PD-L1 PD-L1 Tumour Cell elimination inhibition Tumour cell Tumour cell
Source: OSE Immunotherapeutics
Combinations have the potential to address different escape and activation mechanisms. It is widely thought that these combination therapies based on the use of cancer vaccines and checkpoint inhibitors could significantly expand the effectiveness of immuno-oncology by: Targeting complementary pathways. Establishing synergistic effects. Overcoming resistance to monotherapy. Having a long-lasting effect. Improving the risk- benefit profile of administered treatments.
In the past, immunotherapy was used primarily as an adjunct to radiotherapy, Combinations key chemotherapy or as a complement to surgical resection; however, the new to successful combination treatments are expected to become the new standard of care for the treatment of cancer treatment of cancer. OSE Immunotherapeutics is currently preparing a combination study between Tedopi and a CKI with a launch planned in H2 2017/early 2018. The company expect to sign a scientific agreement to co-develop Tedopi with a CKI developer partner. We expect this partner to be one of the marketed owners of CKI meaning BMS (Opdivo), Merck &Co (Keytruda) or Roche (Tecentriq). There is a rationale behind combining Tedopi with a CKI. Therefore, we believe the future development of combination represents a significant upside opportunity for OSE Immunotherapeutics in the life-cycle-management of Tedopi. Other potential prospects Tedopi may potentially show efficacy in other tumours, in particular the non- immunogenic one, also called cold tumour. Hence, in the event of failure in NSCLC, OSE Immunotherapeutic may orientate its candidates towards cancers such as pancreas or bladder cancers. The company has not disclosed any development plans for now.
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Effi-DEM: the future immune-oncology blockbuster? Effi-DEM is a preclinical candidate targeting the CD47/SIRPα interaction between myeloid-derived cells and cancer cells. Also, although not yet clinically validated and based on scientific literature and . preclinical date delivered by OSE Immunotherapeutics, we believe targeting the SIRPα CKIs is promising. Myeloid-derived cell modulation holds promise Recently approved immune-modulator for the treatment of cancer primarily explored the T-cell mechanisms corresponding to the adaptive immune system. It has shown a durable control cancer in some patients by manipulating T cells with checkpoint inhibitors (primarily PD-1/PD-L1) or co-stimulatory signals (OX-40). Some of the agents covering these pathways became notorious blockbusters, such as Opdivo from BMS or Keytruda from Merck&Co. However, the benefit of these T cell modulating therapies only benefit a small number of patients, as only 15% of patients respond to these modulators (e.g. checkmate-459 study with Opdivo in NSCLC). Hence, different checkpoints are utilised by different cell types that contribute to the potency of anti-tumour immune response. Each tumour being individualised, different tumours utilise different checkpoints. Since the emergence of immune-therapy as a new paradigm with which to treat cancer, the large pharmaceutical companies have focused on a small number of checkpoint inhibitors mainly present in the cancer cells/effector T cells’ (CD8+) interaction.
Chart 15: Fierce competition in the Tumour/T cell checkpoint blockade
Source: Compugen
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Today, non-effector cell mechanisms such as myeloid cells are at the forefront of research to explore new pathways to decrease relapse of tumours and enhance the response rate for non-responding patients. Hence, modern tumour immunotherapy is likely to consist of an association between T cell modulators to release their brake (e.g. PD-1/PD-L1) and an inhibitor of the suppressive cells in the tumour microenvironment. OSE Immunotherapeutics aims to develop next-generation CKI targeting myeloid cells (tumour associated macrophage (TAMs) and myeloid-derived suppressor cells (MDSCs)) by binding the SIRPα/CD47 interaction.
Chart 16: T-cell effector mechanism for checkpoint (e.g. Chart 17: Non effector cell mechanisms (e.g. Effi-DEM) Keytruda/Opdivo)
Tumour Activating checkpoint associated T cell macrophage Dendritic cell CD137 Regulatory (APC GITR T cell OX40 Inhibitory checkpoint CD73 Inhibitory checkpoint CSF1R CTLA4 IDO PD1/PDL1 CTLA4 Lag3 SIRa
Note: Non-exhaustive list of MOA Source: Kepler Cheuvreux, adapted from BMS Note: Non-exhaustive list of MOA Source: Kepler Cheuvreux, adapted from BMS
CD47 is shown to overexpress in almost all human cancers examined to date and its high expression is associated with a poor prognosis of cancer survival. A very large body of robust preclinical data and early clinical data indicate CD47/SIRPα pathway as a very promising immuno-oncology target with PD-1-like potential for treating a broad range of cancers. The solid science and substantial potential of CD47/SIRPα-targeting have attracted significant industry interest. Multiple CD47-targeting agents are in development from early discovery to Phase 1 stage. Tumour promotion by myeloid-derived cells Macrophages as effector cells Macrophages are a type of white blood cell typically broken down into two subtypes depending on their role in either healing (M2) or immune function (M1). Macrophages are found in tissues throughout the body, but they originate from monocytes that enter the tissue from blood vessels when damage is incurred by surrounding cells. In a classic immunologic model, M1 macrophages carry out their immune function by recognising foreign pathogens, engulfing them in a process known as phagocytosis and initiating a cascade of chemical signals that promote inflammation and recruit the adaptive immune system. Healing macrophages, classified as M2 macrophages, typically arrive two days after the initiation of an immune response to decrease
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inflammation, increase the formation of new blood vessels, and facilitate tissue following the elimination of pathogens. Role of myeloid suppressive cells Experimental studies indicate that myeloid cells modulate key cancer-associated activities, including immune evasion, and affect virtually all types of cancer therapy. Myeloid suppressive cells, including tumour associated macrophages (TAM/M2 macrophage) and myeloid-derived suppressor cells (MDSC), represent an abundant immune cell type in the microenvironment of solid tumours, where they promote tumour growth, metastases, angiogenesis, inhibiting anti-tumour immune responses. Normally, common myeloid progenitor (also called immature myeloid cells) migrate to different peripheral organs, where they differentiate exclusively into dendritic cells and macrophages type M1 or polymorphonuclear cells (also named TAMs cells play an granulocytes). However, several factors produced in many pathological conditions important role in tumour progression promote the accumulation of immature myeloid cells, prevent their differentiation and induce their activation. These cells exhibit immunosuppressive functions after activation and were named MDSC (Gabrilovich et al, 2007). According to the literature, MDSC reduce activated T-cell number and inhibit their function by multiple mechanisms including depletion of L-arginin by arginase-1 (ARG1), production of NO (nitric oxide). The second category of myeloid cells, called TAMs, is found to be involved in almost all of the tumour development pathways: Tumour cell proliferation. Angiogenesis (formation of cancer vessels). Tumour cell invasion. Immunosuppression.
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Chart 18: The role of myeloid cells in cancer
Source: Engblom et al, 2016
Therefore, there is a certain rationale behind the development of TAM and MDSC checkpoint inhibitors due to the following reasons: TAMs and MDSCs are immunosuppressive and act by inhibiting CD8 T cell responses while enhancing recruitment and differentiation of regulatory T cells or Tregs. TAMs and MDSCs are often correlated with a poor prognosis in cancer patients. Consequently, targeting myeloid cells could overcome the limitations of current treatment options, whose activity is inhibited by myeloid-derived cells. Mechanism of action of Effi-DEM Effi-DEM has a dual effect. It operates through macrophages (innate immune system) and may exert downstream effects on the adaptive immune system (T cells) in the tumour environment. Hence, it presents a competitive advantage by acting on both the adaptive and innate immune systems. Reactivation of macrophages Myeloid cells selectively express SIRPα, an immune tyrosine associated inhibitory receptor (also named CD172a), which controls myeloid functions.
The ligand of SIRPα is CD47. CD47 is expressed in almost all normal human cells. In case of tumour, it may be an up-regulation of CD47 which leads to several adverse effects for the immune-control of the tumour. Expression of CD47, and its interaction with SIRPα, leads to the inhibition of macrophage activation and protects cancer cells from phagocytosis (the macrophage aims to “eat” the cancer cells). Therefore, it allows cancer cells to proliferate. Hence, CD47 send a “don’t eat me” signal to the patrolling macrophages type M1, which is being bound by EFFI-DEM.
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Chart 19: SIRPα inhibitor (Effi-DEM) allow phagocytosis to be reactivated
Source: Trillium Therapeutics
Reactivation of T cell functions while blocking MDSC/TAMs TAMs and MDSCs are an important component of the tumour microenvironment and play a major role in creating the immunosuppressive environment that enables tumour development. Blocking SIRPα allow MDSCs to differentiate into non- suppressive tumour cells. According to the literature, it also promotes human subtype M1 macrophages, which has antitumour effects (pro-inflammatory), while decreasing the M2 subtype (pro-tumoural effect) Hence, Effi-DEM may be a first-in-class product tackling myeloid suppressive cells (MDSC, TAM) while promoting macrophages phagocytosis and therefore dendritic cell function.
Chart 20: Mechanism of action of Effi-DEM
Source: OSE Immunotherapeutics
The myeloid cell modulation: a hotspot in the biotech space We emphasised that Effi-DEM may be a first-in-class product targeting the SIRPα receptor. However, there are several players already involved in early-stage development of inhibitor of its ligand CD47. While in our knowledge no other
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company target the SIRPα ligand, several anti-CD-47 are being studied by other biotechnology companies.
Table 7: Competitive environment for Effi-DEM in CD47/ SIRPα pathway Company Indication Drug Development Note stage Celgene/Inhibrx Hematologic CC900002 (CD47 mAb) Phase I Celgene acquired CC900002 from Inhibrx for a malignancies USD500m deal size in 2012 Trillium Therapeutics Hematologic TTI-621(CD47 mAb) Phase I Listed company malignancies MC: c. CAD55m Stanford University Solid tumours CD47 mAb Phase I Tioma Therapeutics Cancer Anti CD47 mAb Pre-clinical Raised USD86m in series A financing in August 2016 led by Novo Venture, Roche and GSK Venture arms Alexo Therapeutics Cancer SIRPα variants that antagonise CD47 Pre-clinical Raised USD36m in a Series A in May 2015 led by venBio Forty Seven Hematologic Hu5F9-G4, humanised anti- CD-47 mAb Phase I Raised USD75m is a series A in February 2016 malignancies Novimmune B-Cell leukaemia/ NI1701 (bispecific CD19xCD47) Pre-clinical Privately-held Swiss biotech founded in 1998 lymphoma
Source: Kepler Cheuvreux
CD47 topic is currently a hotspot in the biotechnology industry. According to data pooled with EvaluatePharma, FortySeven and Tioma Therapeutics, series A funding has been among the top ten for a decade in the oncology space (based on a sample of 429 companies).
Competitive advantage versus current CD47 inhibitor One main difference between both approaches is the targets. CD47 is present in the Effi-DEM is likely to tumour while SIRPαis particularly abundant in the myeloid cells. The difference of show a better location allows Effi-DEM to act on the innate immune function by activating the safety profile than phagocytosis and priming the adaptive immune response through the blockade of peers MDSCs immunosuppressive function.
Additionally, one major advantage is the selectivity of Effi-DEM for SIRPα. While CD47 has other binders than SIRPα, which may lead to several off-target effects, SIRPαsolely binds CD47. Hence, according to OSE Immunotherapeutics, a better safety clinical profile of Effi-DEM may result from this particular selectivity. Indeed, CD47 is found in almost all healthy cells, notably red blood cells. CD47 can interact with the secreted protein thrombospondin-1 (TSP1), in addition to SIRPα (Expert Opin Ther Targets 2013). Upon binding to TSP1, CD47 transduces signals that alter cellular calcium, cyclic nucleotide, integrin, and growth factor signalling and control cell fate, viability, and resistance to stress. Hence, targeting CD47 is likely to induce potential side effects including altered blood pressure (Bauer et al, 2010), haemolytic anaemia, and prothrombotic or antithrombotic activities (Isenber et al, 2008). Another potential side effect which may be lower by selectively binding SIRPα, is the abundance of CD47 in red blood cells. This is important, as targeted therapies for CD47 have been found to induce anaemia and get lower bio-distribution. Hence, the therapeutic window for anti- CD47 is particularly low.
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Safety concerns about anti-CD47 have been recently emphasised through the drop in the share price of Trillium Therapeutics. On 2 November 2016, Trillium saw a 52% pullback after its ASH abstract revealed cases of liver toxicity and thrombocytopenia in the highest dose of 0.3mg/kg in TTI-621’s phase I dose- escalation trial. Due to its original mechanism of action, we are enthusiastic about the prospect of Effi-DEM. Effi-DEM: an IO blockbuster candidate? So far, OSE Immunotherapeutics has released pre-clinical datasets that have demonstrated the ability of Effi-DEM to inhibit breast cancer growth in monotherapy. The company used animal models (murine) to carry out these preliminary tests.
Chart 21: Inhibition of breast cancer growth (1) Chart 22: Inhibition of breast cancer growth (2)
Week 2 Week 3 1,500 CTRL Ab (n=16) 80 P< 0.001 300 P< 0.05 aSIRPa (n=13) 1,250 60
200 )
3 40 (mm^3)
1,000 (mm^3) 20 100
(mm Tumour volume volume Tumour
Tumour volume volume Tumour 0 0
750 Control Ab Anti-SIRPa Control Ab Anti-SIRPa volume Week 4 Week 5 500 800 1,500 P< 0.01 P< 0.01 600 Tumour 250 1,000
400 (mm^3)
0 (mm^3) 200 500 Tumour volume volume Tumour 0 5 10 15 20 25 30 35 volume Tumour 0 0 Days Control Ab Anti-SIRPa Control Ab Anti-SIRPa
Source: OSE Immunotherapeutics Source: OSE Immunotherapeutics
The company has also shown a synergistic effect with an anti PD-L1 antibody in melanoma and HCC (hepatocarcinoma) as well as a big effect with 4-1BB (co- stimulatory molecule for T cell) in HCC.
Chart 23: Synergy with PD-L1 Chart 24: Synergy with 4-1BB agonist
Ctrl Ab PD-L1 Ab CTRL Ab 4-1BB Ab SIRPa Ab Combination P < 0.05 aSIRPa Combination P < 0.01
100 100
80 80
60 60
survival survival
40 40 Percent
20 Percent 20
0 0 0 5 10 15 20 25 30 35 40 0 10 20 30 40 50 60 70 Time (days) Days
Source: OSE Immunotherapeutics Source: OSE Immunotherapeutics
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We think SIRPαmay reveal its potential with such a combination as there is a rationale to target both the innate and the immune system to avoid immune escape mechanisms. Thanks to these positive preclinical data, OSE Immunotherapeutics expects to enter into clinical by the end of 2018. That being said, we highlight specific risks that may arise as part of the development of Effi-DEM: The CD47/SIRPα pathway is not yet a clinically validated target. Clinical safety concern arised from Trillium Therapeutics following the phase I update, while efficacy data has not yet been released. Effi-DEM is far from the cusp to reach clinical-stage status as it plans to enter clinical stage in H2 2018; besides, other competitors may arise from there. While Effi-DEM may limit the safety issue of CD47 inhibitors, OSE Immunotherapeutics did not release any preclinical safety data and there is no evidence that the CKIs will enter the clinical stage. Intellectual property So far, Effi-DEM has been protected by three families of patents. The first patents were granted by the European patent office (EPO) in April 2016. A second family is being examined by the EPO and the filing date was October 2015. Regarding the US, a first patent application was initiated in May 2016. Our analysis suggests positive optionality for OSE Immunotherapeutics’ Effi-DEM programme.
We think Effi-DEM and modulations of MDSCs through SIRPα/CD47 pathway are still under the radar for most investors in Europe but are a new hotspot in the US. Despite positive preclinical data, notably in combination, we think investors do not sufficiently value this early-stage asset.
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FR104 and Effi-7: already monetised FR104 and Effi-7 are two monoclonal antibodies developed in autoimmune diseases. Both assets have already been out-licensed to partners by OSE Immunotherapeutics. FR104 has been partnered with J&J, providing a EUR10m opt-in option payment to OSE Immunotherapeutics in July 2016. In the event of clinical success, FR104 is likely to become a blockbuster with strong activity both in rheumatology as well as in transplant complication management. FR104 is no longer a source of cost but, conversely, a cash inflow opportunity for OSE Immunotherapeutics. Indeed, J&J, following its opt-in options, will fund all development costs starting from now. Therefore, FR104 is a potential source of cash-in for OSE Immunotherapeutics. OSE Immunotherapeutics secured EFFI-7 through an out-license deal with Servier in December 2016 with an opt-in option after the completion of phase II. Funding until phase II is also partly secured thanks to a consortium led by OSE Immunotherapeutics. We believe these two assets will provide sufficient funding to the company to finance EFFI-DEM development, therefore significantly derisking the profile of OSE Immunotherapeutics.
FR104: a ground-breaking opportunity in autoimmune diseases
FR104 modulates Treg to enhance autoimmune conditions.
FR104 is developed primarily in rheumatoid arthritis. FR104 has been out-licensed to J&J, which exercised its opt-in option in July 2016 triggering EUR10m to OSE Immunotherapeutics. OSE Immunotherapeutics is entitled to receive up to EUR155m in additional payments.
The role of Treg cells Accumulating scientific data demonstrate that regulatory T-cells (Treg), a subpopulation of CD4+ T-cells, play an important role in dampening the immune response. Treg cells appear to suppress the action of other T-cell subsets by a number of mechanisms. Suppression by Treg is thought to involve the anti-inflammatory cytokines IL-10 and transforming growth factor beta (TGF-β). Reduced expression of both molecules, as well as decreased proliferation of the regulatory CD4+ T-cell subsets producing IL-10, have been demonstrated in RA patients. Thus, there is a scientific rationale for the use of Treg for the treatment of RA, as it might allow the T-cell homeostasis to be maintained.
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Mechanism of action FR104 is a new drug candidate, a pegylated monoclonal antibody fragment inhibitor of CD28, an essential element of the T-cell signalling pathway. CD28 (cluster of differentiation) is a costimulatory receptor involved in the CD28/B7/CTLA-4 signalling pathway which balances the immune response to external agents. The current paradigm holds that CD28 T cell expression (T cell CD4+ or Treg) binds CD80/86 to provide a co-stimulatory signal that is important for sustaining T-cell activation. This pathway is involved in the effector T cell expansion and the Treg inactivation. According to the literature (Poirier et al, 2010), although CD28 signals are critical for Treg homeostasis and thymic generation, CD28 engagement by CD80/86 molecules inhibits Treg suppressive activity. FR104 exerts its immunomodulatory function by blocking CD28 signalling and preventing effector T cells but not regulatory T cell function, thereby promoting immune tolerance.
Chart 25: Mechanism of action of FR104
Source: OSE Immunotherapeutics
This approach is markedly different to the current treatment, which targets the CD80/86 ligands (Nulojix and Orencia from BMS). CD80/86-specific blocking FR104’s closest strategies also inhibit CTLA-4 signals crucial to the suppressive function of Tregs, as peers are Nulojix well as the CD80-mediated signals that have a role in the induction of adaptive Tregs and Orencia from (Perez et al, 2008). Also, the likelihood of inhibiting significant physiological BMS regulatory pathways seems higher while blocking the CD/80/86 pathway rather than CD28. Hence, theory suggests a better clinical efficacy and safety profile of FR104 compared to competitors.
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Chart 26: Costimulatory molecules and biological pathways implicated in the targeting of B7s versus CD28
Source: Porier et al, 2010t
CD80/86 inhibitors, which act both on CD28 and CTLA-4 co-stimulatory pathways, also have an effect on PDL-1 inhibitory signals of T lymphocytes. These multiple involvements have led to observe several side effects in approved CD80/86 ligand inhibitors. Hence, Nulojix from BMS is believed to be involved in a higher incidence of early transplant rejection compared to current standards of care, which are the CNI (calcineurin inhibitors) such as commonly used cyclosporine. J&J: a landmark partner for FR104 Deal with J&J FR-104 candidate was the fruit of a research and discovery carried out by both Effimune and the French public institute Inserm. In October 2013, Effimune entered into an option deal with J&J for the development and commercialisation of FR104. In July 2016, based on the safety profile demonstrated in the phase I, J&J decided to raise its option for FR104. Under the terms of the agreement signed in 2013, J&J is responsible for all clinical development, registration and commercialisation of FR104. The spectrum of indication covers the autoimmune disease and transplants. The exercise of the option triggered a EUR11m payment to OSE Immunotherapeutics. The biotech is also eligible to receive up to EUR155m milestone payments as well as royalties on future sales that we estimate in the high-single-digit range. We think the out-licensing of FR104 will provide a cashflow stream to OSE Immunotherapeutics, allowing the company to develop other internal programmes. Patent protection There are currently four patent families for FR104, and these patents are registered in Europe, the US, and Japan.
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Table 8: FR104 intellectual property Applicant Filing date Expiry date Status Family 1 Inserm 2001 2021 Granted: Europe, US, Japan Family 2 Inserm and OSE Immunotherapeutics 2010 2030 Granted: Japan; being examined: US; abandoned: Europe Family 3 Inserm and OSE Immunotherapeutics 2010 2030 Granted: US, Europe Family 4 Inserm and OSE Immunotherapeutics 2011 2031 Granted: US; being examined: Europe, Japan
Source: OSE Immunotherapeutics
Based on current granted patents, in the core US, Japan and European territories, FR104 is protected until 2031, meaning that no biosimilar should reach the market before then. Besides its patent application in core territories, OSE Immunotherapeutics has also filed application to the patent cooperation treaty to expand its patent protection. FR104: looking to grab a piece of the large RA market Rheumatoid arthritis in a nutshell Rheumatoid arthritis (RA) is the most common autoimmune inflammatory arthritis in adults. It causes premature death, disability, and lowers the quality of life. According to WHO, over 70m people worldwide are estimated to be affected by RA. RA is a chronic and progressive, systemic autoimmune disorder involving different pro-inflammatory cytokines. The inflammation usually affects the lining of the joints (synovial membrane), but can also affect other organs. This inflamed joint lining leads to erosion of the cartilage and bone and sometimes causes joint deformity. Pain, swelling, and redness are common joint symptoms. As the disease worsens, joint inflammation may lead to irreversible bone damage, loss of mobility, and pain.
Chart 27: Rheumatoid arthritis symptoms
Source: Sanofi
According to the NIH, RA affects about 1.3m adults in the US. In the seven major pharmaceutical countries, around 5.3m patients are affected by the disease. RA is 2-3 times more common in women than in men, which may be related to hormonal factors.
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The causes of RA are unknown, but it is believed to result from a faulty immune response. RA can begin at any age and causes fatigue and prolonged stiffness after rest. There is no cure for the disease, but effective drugs are increasingly available to treat RA and prevent deformed joints. Rheumatoid arthritis: current treatment available Depending on the level of severity and how advanced the disease is, several different types of drug therapies may be used in monotherapy or in combination:
Non-steroidal anti-inflammatory drugs (NSAIDs). Analgesic drugs. Corticosteroids. Disease modifying antirheumatic drugs (DMARDs). Current RA Current standard-of-care first-line treatments for diagnosed RA are conventional treatments present synthetic disease modifying antirheumatic drugs (csDMARDs) sometimes in serious side effects combination with glucocorticoids and NSAIDs or analgesic drugs. csDMARDs include methotrexate (MTX), leflunomide, hydroxychloroquine and sulfasalazine and are usually the first treatment used for RA and to control inflammation. However, more than half of people with RA on conventional DMARDs do not adhere to their treatment (Engel-Nitz NM, et al, 2012) due to side effects. Indeed, side effects from csDMARDs are unpleasant and include nausea, vomiting and diarrhoea, mouth ulcers, hair loss and skin rashes.
Chart 28: Classification of DMARDs
Source: Kepler Cheuvreux
Usually, in case of failure or non-adherence to treatments, physicians prescribe biological DMARDs (bDMARDs) as an add-on or in monotherapy. Current biologics have a range of modes of action, targeting the many vulnerable nodes in the inflammatory cascade. Their main advantage is their long-acting action, meaning
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that a patient only needs an injection monthly or bi-monthly. Cytokine-targeting biologics include TNFα inhibitors, and Actemra, which blocks the IL-6R classic and trans-signalling pathways. Cell-targeting biologics include Orencia (which inhibits T- cell activation by antigen presenting cells) and Rituxan (which depletes B cells). Most The most prescribed biologic is anti-TNFs, and the most widespread biologic belonging to this class is Humira from Abbvie. Humira is the world’s top-selling anti- TNF. It reported c. USD16bn in annual sales in 2016, of which c. 40% are dedicated to the treatment of RA. In case of failure of the first biologic, the physician is likely to switch to another class of biologic or to a different anti-TNFα treatment. In case of approval, FR104 is likely to be positioned as a new competitor in the boDMARDS market. A trend currently emerging in RA treatment is the use of new biologics in monotherapy. The recent guidelines from the American College of Rheumatology (ACR) in 2015, or from the EULAR in 2012, now support newer mechanisms of action as first-line treatments, along with the current anti-TNFα biological standard of care. Hence, EULAR, the European League Against Rheumatism, has recently endorsed IL-6 (e.g.: Actemra from Roche) for its use in monotherapy. The penetration of biologics still remains limited in the current treatment paradigm. Around 86% of rheumatoid arthritis patients are diagnosed, of which 70% are treated in G7 countries. Finally, only 40% of treated patients in G7 countries take biologics, with a higher market penetration in the US (60%) than in the EU5 and Japan (30%).
Chart 29: Expected strategy of development of FR104 in the new RA treatment paradigm
Source: Kepler Cheuvreux,
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We believe that OSE Immunotherapeutics and its partner J&J will first cautiously develop FR104 as a third-line (3L) therapy in case of failure of an anti-TNFα and then in monotherapy or in second-line (2L) therapy in combination with an oral DMARD (primarily methotrexate) to expand their targeted market. A large, fiercely competitive market under pricing pressure The market for RA products is expected to slightly increase at a 2% annual growth rate until 2022, driven by:
An emerging class of tsDMARD: this corresponds to the JAK inhibitor class. It includes Xeljanz from Pfizer and two late-stage products: filgotinib from Gilead/Galapagos and baricitinib from Eli Lilly.
Anti-IL6: it includes Actemra from Roche and the two recently regulatory- filed products, sarilumab, which was rejected in October 2016 by the FDA (Sanofi/Regeneron) due to manufacturing issues, and sirukumab (J&J).
Chart 30: boDMARDs and tsDMARDs expected market (USDbn)
35
30 26.5 27.3 27.1 26.7 26.2 25.0 25.5 25 22.6
20
15
10 RA market is large with slight growth 5 expected, driven by 0 new treatment 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E options Anti TNF Orencia Anti IL-6 JAK inhibitors Others
Note: do not include neither generics nor biosimilar and csDMARDS source: EvaluatePharma
One downside is that RA treatment is likely to decrease after reaching its 2022 peak, as the market for RA treatments and new therapeutic options will be affected by the uptake of biosimilar products. Biosimilars are a hot topic in the treatment of RA and autoimmune disease. RA is at the forefront of the use of emerging monoclonal antibodies. The main challenge new treatments are likely to face is the need to show that they offer improved therapeutic value against the current treatment in order to gain market share in the crowded RA market. Hence, biosimilar treatments will need to demonstrate that their therapeutic efficacy compares to current standards of care such as anti-TNFs in order to gain adequate pricing in a tough pricing environment. For example, Regeneron/Sanofi’s IL-6 inhibitor sarilumab beat AbbVie’s Humira (adalimumab) in a head-to-head trial in 2016. Top-line Phase III results showed sarilumab more significantly improved the signs and symptoms of rheumatoid arthritis after 24 weeks of treatment than Humira.
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We think that FR104 will need to perform similar studies in order to prove its added-value. With no clinical efficacy results demonstrated so far, we remain cautious on the future development of FR104 in RA. Moreover, positive clinical outcomes will not necessarily mean great sales, as seen with the relatively low expectations in the IL-6 pathway. Opportunity remains for new treatment options in RA Despite the availability of a wide range of biological and oral therapies, patients continue to experience inadequate responses to current therapies, and new therapies are needed. According to Felson et al (2011), less than 10% of patients with RA treated with biologics achieve complete disease remission. Accordingly, rheumatologists are getting more comfortable and confident with newer mechanisms of action, and guidelines recommend using biologics (TNF α and non-TNF α) when patients are not responding to DMARDs. Therefore, we see room for new candidates in the crowded RA market. However, we think that FR104 will need to show significant efficacy and a clean safety profile versus current competition in order to penetrate the market. Promising first-in-human study In April 2015, Effimune received authorisation from the Belgian authorities to start a first-in-human study. The study was conducted from March 2015 to February 2016 with 65 healthy subjects. The volunteers received an IV dose of FR104 ranging from 0.005mg/kg to 0.5mg/kg over a period of nine months. The primary objective of the trial was to establish the safety and tolerability of FR104 and assess its pharmacodynamics and pharmacokinetics. This first-in-human trial served to prepare the filing of the J&J opt-in options and the future development in rheumatoid arthritis and kidney transplants. FR104 showed good tolerance with no evidence of cytokine release syndrome and no impact on the blood lymphocyte system. According to Poirier et al, the relatively high incidence of immunogenicity for FR104 is similar to what has been reported for Cimzia, Remicade and Humira. Competitive environment in CD80/CD28 pathway FR104 selectively targets the CD28 pathways to inhibit an immune response. RA candidate boDMARD therapies under development targeting the CD80 and CD28 pathways are: 1. Orencia, an approved therapy developed by BMS in several autoimmune disease indications. 2. Theraluzumab: a phase-I monoclonal antibody belonging to the superagonist antiCD28 class. 3. Lulizumab pegol, a clinical-stage phase-II candidate, currently developed for the treatment of patients with lupus (autoimmune dermatology condition). 4. CGEN-15001, a pre-clinical stage candidate developed in transplantation and graft-versus-host disease.
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Orencia SC and IV formulation Orencia (abatecept) is an anti CD80/CD86 agent that has been developed by BMS. In the past few years, BMS decided to extend the lifecycle of Orencia by launching a subcutaneous (SC) formulation. Creating a subcutaneous formulation is a common marketing strategy used by pharmaceutical companies to develop a lifecycle management of their biologic and provide a differentiation strategy. Orencia SC (abatecept subcutanea) was approved in 2011 in the US and in 2012 in the EU, while the IV (intravenous) formulation was launched in 2006. Quickly, the subcutanea formulation gained market share on the intravenous formulation, as SC is much more convenient to inject for patients. For 2016, the SC formulation and the IV formulation are both expected to record USD1.2bn of sales globally (all autoimmune indications).
Chart 31: Orencia sales (USDbn)
4.0
3.0 2.7 2.6 2.5 2.4 2.5 2.4 2.4 2.0 2.0 1.7 1.5 1.2 0.9 1.0 0.7
0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Orencia Orencia SC
Source: EvaluatePharma
Orencia is often used in patients whose disease is not controlled by TNF antibodies (like Humira and Enbrel) in accordance with European label specifications. Hence, we think that the positioning of the product and its similar mechanism of action to FR104 make it the closest marketed peer and a potential competitor to FR104. We also note that both biosimilar companies, Mylan and Momenta, have partnered up to develop a biosimilar version of Orencia called M834 with a plan to first launch in 2020. Therefore, pricing pressure on Orancia is likely to come with the planned launch of FR104. Theraluzumab Theraluzumab (TAB08/TGN1412) is developed by the Russian biotechnology TheraMAB. Initially, the monoclonal antibody was known as TGN1412 and was developed by TeGenero until 2006. Theraluzumab belongs to the class of CD28 superagonists which are CD-28 specific monoclonal antibodies able to activate T-cells without overt TCR engagement. In a preclinical study, theraluzumab showed efficiency in activating Tregs and in modulating autoimmune diseases in several models such as transplantation and inflammation. However, a phase-I study of theraluzumab in 2006 resulted in a
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cytokine release syndrome (CRS). CRS is a life-threating side effect that occurs as a result of a high level of immune activation and modulation. Following the failure of this phase I trial due to the difference in tolerance between human and pre-clinical models (macaques), TheraMAB resumed development of theraluzumab. The company initiated a phase I in 2013 at a much lower dose than the 2006 trial (0.1% dose-level compared to what had been injected). No side effects were observed, and the company decided to set up phase-II programmes in autoimmune diseases. Lulizumab pegol (BMS-931699) Being developed by BMS and is currently in phase II for the treatment of patients with lupus; results are expected in 2018. The compounds were tested in a phase I trial whose results were published in 2016 (Shi et al, 2016). The estimated SC bioavailability was 68.2%. Lulizumab IV or SC was safe at all doses studied, without evidence of cytokine release syndrome (CRS). CGEN-15001 CGEN-15001 targets CGEN-15001T, a protein thought to be a member of the B7/CD28 costimulatory family, according to Compugen, its developer. CGEN-15001 was acquired by Bayer in 2013 under a USD540m deal structure which also included another immune-oncology programme. The candidate is currently in the preclinical stage. Kidney transplant maintenance: the second targeted indication In preclinical development, OSE Immunotherapeutics focused its development both on autoimmune and transplantation. In transplantation, the main focus was on two main transplant complications: 1. Maintenance of immunosuppression in kidney transplants. 2. Graft-versus-host disease, which is a complication of hematopoietic stem cell transplantation (HSCT). Based on the announcement of the phase I results, we see OSE Immunotherapeutics and its partner J&J developing FR104 firstly in rheumatoid arthritis and then in kidney transplantation. Effi-7: already monetised to Servier, the right strategic option?
Effi-7 is a humanised monoclonal antibody against CD127 in preclinical stage. OSE Immunotherapeutics signed a global development deal with Servier in December 2016 valued at EUR272m. Effi-7 is developed in ulcerative colitis, an autoimmune bowel disease (IBD) with a large potential.
EFFI-7: a first-in-class mechanism of action IL-7’s role Interleukins are signal molecules that are secreted by immune cells to drive messages. Main role of IL-7’s main role is controlling T-cell homeostasis (maintaining T-cell equilibrium). It is either secreted into the circulation or presented in solid tissue by a
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category of cells called stromal cells. The IL-7 receptor (IL-7R) is expressed on almost all circulating CD4+ and CD8+ T cells and natural killer B cells, but not on mature B cells or on Treg. Hence, the IL-7 constitutes a relevant target to modulate T cell response while sparing Treg and mature B cell modulation.
Chart 32: IL-7R expression by lymphocyte
Source: Mackall al, 2011
The IL-7R is composed of an alpha chain (CD127) and a beta chain (CD132). Effi-7 presents an interesting profile in IBD IL-7 is now associated with the pathogenesis of RA and other autoimmune diseases like multiple sclerosis and GI-tract diseases like ulcerative colitis (Watanabe et al, 1998), sarcoidosis and primary biliary cirrhosis. By blocking the alpha chain from the IL-7R, Effi-7 has demonstrated potential interest in the preclinical model of allogenic transplantation and inflammatory bowel diseases like ulcerative colitis and Crohn’s disease. OSE Immunotherapeutics has notably demonstrated in preclinical models that an IL-7R blockade specifically prevents intestinal human T cell infiltration.
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Chart 33: Mechanism of action of Effi-7
Source: OSE Immunotherapeutics
Therefore, thanks to positive signals from scientific arguments and validated proof of concept (Belarif et al), OSE Immunotherapeutics has decided to primarily develop Effi-7 in ulcerative colitis (UC), a type of gastro-intestinal autoimmune disease. Targeted indication: ulcerative colitis UC is a chronic, inflammatory disease of the large intestine and rectum characterised by episodes of increased stool frequency and bloody diarrhoea. Ulcerative colitis is the most common form of inflammatory bowel disease (IBD) worldwide, along with Crohn’s disease. Ulcerative colitis patients may also experience extra-intestinal manifestations such as arthritis and dermatological or ocular manifestations. Moreover, patients have a significant elevated risk of developing colon cancer. While the cause is not known, there is a presumed genetic component to susceptibility as well as environmental triggers for the disease. A common disease and an expanding large market potential More than 3.5m people in the US, the EU, and Japan are expected to have IBD. About one in every 198 people in Europe and and one in every 402 people in North America has ulcerative colitis. At the time of diagnosis, around 55% patients have a UC is a very large moderate to severe form of UC. The most common treatment is 5-aminosalicylic market: USD8.5bn acid (mesalazine). However it is estimated that 40% of patients receiving the expected in 2022 recommended dose of 5-aminosalicylic acid continue to experience persistent disease activity flares. Ulcerative colitis (UC) represents a large market of c. USD4bn which is expected to grow to USD8.5bn in 2022, according to EvaluatePharma. A highly unmet medical need in moderate-to-severe UC There is no cure for ulcerative colitis, and most patients require lifelong medication. The goal of treatment is to induce remission (diminishing of symptoms or symptom free). If achieved, this is followed by the administration of maintenance medications to prevent a relapse of the disease. Standard treatment for ulcerative colitis depends on the extent of colon involvement and disease severity and includes anti-
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inflammatory drugs, immunosuppressive drugs, as well as biological therapies such as anti-TNF (Remicade and Humira). For patients with chronic active UC not responding to medical therapy, a colectomy is often the only remaining option.
Chart 34: Current marketed UC treatment
Source: Kepler Cheuvreux, adapted from Receptos/Celgene
Due to the large market potential of the disease and the high level of prevalence of UC, this market has attracted large players, resulting in an increase in competition to develop new treatment options. In 2014, Takeda launched Entyvio (an integrin receptor antagonist), approved both in the US and in Europe. The product is on track to become a blockbuster with EUR0.7bn sales recorded in 2016. However, long-term efficacy remains questionable although the product has shown a clean safety profile. Tysabri from Biogen, another integrin receptor antagonist, is often used off-label to treat ulcerative colitis but with potential brain side effects. A fierce competition in UC for new treatment options Due to the attractiveness of the UC market, numerous players are developing new treatment options. Hence, Effi-7 is likely to enter into a tough competitive environment, and numerous new treatment options are in late stage, either orally available or biologically active (SC or IV). The most advanced developed treatment is ozanimod, an oral treatment, currently in phase III and developed by Celgene. This asset was acquired following the USD7.2bn acquisition of Receptos in July 2015. Celgene seeks to position ozanimod ahead of anti-TNF in the UC treatment paradigm. Most of the new drug options in later stages of the pipeline are orally administered drugs, unlike Effi-7, which is an IV treatment. While their place in the clinical armamentarium remains to be proven, it is likely that many of oral drugs will find their place in the treatment algorithm of UC in the next few years. Thus, we think that Effi-7’s greatest challenge will be to prove superior efficacy and a clean safety profile against more convenient orally administered treatments.
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Table 9: Completive environment in ulcerative colitis Drug candidate Company MOA Administration Clinical stage Expected data etrolizumab Roche Integrin a4b7/aEb7 SC Phase III H1 2018 ozanimod Celgene/Receptos S1P1 receptor Oral Phase III H2 2018 Xeljanz (tofacitinib) Pfizer Jak inh Oral Phase III Top line published in July 2016 completed results expected in 2018 Stelara (ustekinumab) J&J IL-12/IL-23 inh IV Phase III 2018/19 filgotinib Galapagos / Gilead Jak1 inh Oral Phase II/III 2019 cobitolimod Index Pharmaceutical TLR-9 Oral Phase II H2 2018 etrasimod Arena Pharmaceutical S1P1 receptor Oral Phase II H2 2017 mongersen (GED 0301) Celgene Smad7 Oral Phase II 2017 bertilimumab Immune Pharmaceuticals Eotaxin-1 / CCL11 IV Phase II H1 2017 LY3074828 Eli Lilly IL-23 SC Phase II H2 2017 PF-00547659 Shire (previously Pfizer) MadCAM-1 SC Phase II H2 2017 Otelza (apremilast) Celgene PDE4 inh Oral Phase II 2017 OPRX-106 (oral version of Embrel) Protalix anti-TNF Oral Phase II H1 2017 CCX507 Chemocentryx CCR9 inh Oral Initiation of phase II Pending ABT-494 Abbvie Jak1 inh Oral Phase II 2021
Source: Kepler Cheuvreux
Effi-7 is already monetised! Effi-7 is being developed as part of the Effimab consortium that includes the French public medical research organisation (INSERM), several public hospitals (APHP, Lille Hospitals) as well as the CMO company PxTherapeutics, which manufactures Effi-7. Financing of Effi-7 The budget allocated to Effimab is EUR20m, of which EUR9.1m is provided by the is secured until French public investment bank BPI to finance Effi-7 until the end of phase II. phase II
In December 2016, OSE Immunotherapeutics signed an opt-in license deal with Servier for the global rights of Effi-7. The deal value was EUR272m, including an upfront payment of EUR10.25m and a two-step payment of EUR30m upon the exercise of the option license by Servier at the end of the phase II. Thus, the financing for the development of Effi-7 is secured. While OSE Immunotherapeutics has emphasised its willingness to quickly monetise its autoimmune assets, we are cautious about the partnership signed with Servier, for the following reasons: Servier does not have a commercial presence in the US. We think that the French pharmaceutical company is likely at term to sub-license Effi-7. Servier, the right Servier is seeking to develop an autoimmune disease franchise partner?
(GeNeuro/multiple sclerosis; Xoma/rheumatology). However, it does not yet have any product on the market and does not have a specialty commercial presence, as it has been historically present in cardiovascular diseases. Future development of EFFI-7 The preclinical candidate is so far financially backed until phase II. The compound is expected to enter clinical stage in H2 2018.
Table 10: EFFI-7 patent protection Applicant Filing date Expiry date Status Family 1 Inserm and OSE Immunotherapeutics 2012 2032 Being examined: Europe, US, Japan Family 2 Ose ImmunotherapeuticsOSE Immunotherapeutics 2015 2035 Being examined: Europe
Source: OSE Immunotherapeutics
OSE Immunotherapeutics currently protects its intellectual property through the application of two patent families. Hence, EFFI-7 is protected until 2032 at least.
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OSE Immunotherapeutics Buy TP EUR 9.00
Deconstructing the forecasts OSE Immunotherapeutics’s main assets are Tedopi for the treatment of NSCLC and FR104 for the treatment of rheumatoid arthritis; the latter is out-licensed to J&J. For these two assets, we carry out an in-depth market modelling for NSCLC and RA, its two lead indications, respectively. We also take into consideration the future milestones of Effi-7 in UC, although still in preclinical stage, as the deal with Servier provides more visibility on the product’s development strategy. However, we have not yet included Effi-DEM in our scenario. Despite strong positive signals sent by the environment surrounding the CD47/SIRPα mechanism of action, we believe it is premature to integrate this asset into our model. We estimate that Tedopi’s sales are likely to reach more than half a billion euros by 2026, while we think that FR104 could quickly reach blockbuster status (sales of over EUR1bn) for the RA indication alone. We do not think that Effi-7 will reach the market before 2028, due to the long development period required for autoimmune diseases.
Cancer drug pricing Increasing pricing pressure in the US and Europe has been the big issue hanging over the pharma sector for the last two years. Reviews of cancer drug pricing (Kantarjian et al, ASCO JOP, 2014) have resulted in extraordinary price hikes in recent years. The average cancer drug per year or per course of treatment cost less than USD10,000 before 2000. This has increased ten-fold, to over USD100,000 per year of therapy for 12 of the 13 new cancer drugs approved in 2012. The issue of cancer drug pricing is one that will not go away. Until now, the debate has largely been restricted to Europe. In the UK, in particular, NICE (the cost- effectiveness watchdog) has increasingly found a lack of cost-benefit in the absence of major discounts from the list price. Similarly, Germany has a robust and strict system that has led to multiple disappointments. This scrutiny is spreading to the US. The non-profit organisation Institute for Clinical and Economic Review (ICER) has been hitting the headlines. Sessions at the American Society of Clinical Oncology (ASCO) are devoted to this issue as well. However, the US currently still has no agreed system for cost-effectiveness analysis. We believe that Medicare and pharmacy benefit manager (PBM) pressures (US government sponsorship of healthcare costs) will continue to focus the administration on ways to fairly value cancer drugs. In particular, as immuno-oncology starts to hugely expand the volume of patients receiving this new generation of USD100,000+ per year drugs, the US healthcare system will need to act. At present, pricing pressure in the US is mainly being driven by PBM competition. As has been well documented, the negative pricing shocks have come in therapy areas where therapeutic substitution is possible, i.e. where product-to-product differentiation is minimal. In the event that little added value is demonstrated in the
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phase III trial in 2L compared to docetaxel, or in 3L compared to a checkpoint inhibitor followed by docetaxel, we expect a high level of pricing pressure on Tedopi. Tedopi: a place in 2L/3L NSCLC Targeted population: likely to be the third line OSE Immunotherapeutics estimates the targeted market at c. 630,000 patients (global incidence NSCLC patient population of 1.4m * 45% HLA-A2+ patients) with global sales of c. EUR2bn. We think the company overestimates its market opportunity, as we explain below. Tedopi is currently under investigation (phase III Atalante 1) for its use in second- line treatment after the failure of platinum-based therapy or in third-line treatment after the failure of immune checkpoint inhibitors. Taxotere (docetaxel) from Sanofi, a commonly used chemotherapy drug, is a comparable treatment. We believe most patients will receive Tedopi in third-line treatment due to:
The 2L new standard-of-care for NSCLC is CKIs as indicated by the ASCO and ESMO treatment guidelines.
Most of the recruitment centres are based in the EU5 and the US, hence patients will have medical access to the more costly CKI treatments. Hence, we believe that even if the phase III trial is a success, Tedopi is likely to be approved in 2L treatment in the event that platinum-based therapy fails. In practice, physicians will prescribe Tedopi in third-line treatment after CKIs. We estimate the targeted population in the G7 (the US, Japan, France, Spain, Italy, Germany and the UK) is c. 160,000 patients in 2031. We take into account the G7 lung cancer population, from which we remove the number of early-stage diagnosed cases as well as the large-cell cases. We select 45% of the HLA-A2 population from which we remove the population not responding to the checkpoint inhibitor which is estimated to be 70%.
Chart 35: Our Tedopi targeted population
Source: Kepler Cheuvreux
Based on our assumptions, OSE Immunotherapeutics targets one-sixth of the lung cancer population which is still a significant number of patients.
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Pricing: pressure likely in the US and Europe We cautiously assume a EUR40,000 annual selling price in Europe and Japan and EUR50,000 in the US due to the pricing pressure environment which is likely to continue in the coming years. Timeframe Tedopi is currently in phase III with preliminary results expected in 2018. OSE Immunotherapeutics expects a registration filing in 2019 in Europe and the US and a commercial launch by 2019 in the US and 2020 in Europe. We are more cautious for the US and forecast a commercial launch in 2020 due to the lack of visibility on the commercialisation opportunity. As for the Japanese market, we expect OSE Immunotherapeutics to carry out a phase III trial in the country following US/EU approval and believe the product will not reach this market before 2024. Commercialisation strategy We believe OSE Immunotherapeutics will find a partner to commercialise Tedopi. Hence, the company is likely to ink deals in the US and in Europe following the outcome of the phase III trial and the regulatory approval in 2018-19. The value of deals signed and amount of milestone payments and percentage of royalties received by OSE Immunotherapeutics will depend on:
The benefit demonstrated in the phase III results. The labelling given by the regulatory agencies. As the product has been evaluated both for second-line treatment following chemotherapy and third-line treatment following CKI in the Atalante 1 clinical study, we believe a potential partner is likely to wait for the official labelling from the regulatory agencies. Hence, in the event of 3L approval (which we assume in our model), a deal is likely to be for a lesser amount than it would be for 2L approval. Market share We are cautious on our estimates for market penetration of Tedopi due to:
A lack of tangible proven efficacy shown in phase IIb. The marketing position of the therapeutic vaccine is still unclear as we do not know if it will be used in 2L or 3L treatment.
We are looking at a highly competitive environment with targeted therapies and other immuno-oncology candidates. Therefore, we estimate 15% market share in the US and 10% market share in Europe, where innovative product market share is usually lower than in the US. We expect the market share in Japan to around the European level. A EUR500m opportunity expected We forecast sales in the first ten years of commercialisation, with the start of sales expected in 2020 in the US and Europe. The patent protecting Tedopi expires in 2024, but the protection has been extended to 2029 thanks to a complementary certification. We do not expect a significant loss of sales from a biosimilar after
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2029, but we expect a decrease in market share due to the fierce competitive environment slightly offset by the uptake of market share in Japan.
Chart 36: Expected sales for Tedopi (EURm)
700
557 548 600 523 488 500 455 425 407 400 307 300 220 200 121 72 100 24 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Revenues EU - 5 - Revenues US - Revenues Japan -
Source: Kepler Cheuvreux
FR104 in RA OSE Immunotherapeutics has indicated that J&J will prioritise the development of FR104 in rheumatoid arthritis. Hence for now, we do not include the prospect of sales in other autoimmune indications such as transplantation, Graft-versus-host disease or psoriasis. Pricing: in line with current treatment We expect the pricing to be in line with what is currently seen on the market. In the US, the cost of Humira per patient grew from USD21,000 in 2010 to USD46,000 in 2016. Including patient compliance, US revenue per patients for boDMARD market has risen sharply over the last five years, by a 17% CAGR.
Table 11: US revenues per patient for selected RA products (USD) Product Company 2011 2012 2013 2014 2015 2016 CAGR (11-16) Cimzia UCB 12,242 29,523 30,573 40,546 44,079 48,577 32% Orencia SC BMS 23,937 25,072 26,214 37,276 43,210 48,786 15% Humira AbbVie 16,778 18,300 21,278 24,178 29,113 33,535 15% Enbrel Amgen 15,805 16,492 18,230 20,403 23,973 28,644 13% Remicade J & J 11,603 11,528 13,594 15,138 17,202 17,895 9% Average 35,487 17%
Source: Kepler Cheuvreux, EvaluatePharma
We believe the emergence of a biosimilar is likely to put a pressure on price gouging. Hence, we estimate price increases have hit their peak in the autoimmune market and new, innovative products are likely to be priced at a EUR30,000 per year per patient. In Europe, we expect the price to be sharply discounted versus the US at around EUR25,000 per year.
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Timeframe We do not expect FR104 to reach the market before 2024. Indeed, a set of solid clinical data is essential for it to reach the market for this indication. For example, sarilumab, an anti-IL6 developed by Sanofi/Regeneron, presented seven studies from the global SARIL-RA phase III program for its BLA (biological license application). These clinical trials enrolled 2,500 patients over a near 4.5-year period after the end of phase II.
Table 12: Lengthy development period for boDMARDS in RA Product Phase II results First phase III first BLA filing Notes topline results sarilumab July 2011 Nov. 2013 Jan. 2016 Sanofi and Regeneron received a complete response letter from the FDA in October 2016 due to manufacturing issues sirukumab May 2011 Oct. 2015 Oct. 2016
Source: Kepler Cheuvreux, company data
The competitor of sarilumab, sirukumab, another anti-IL-6 developed by J&J/GSK spent even longer developing its candidate. It took almost five years after its phase II results before BLA was accepted by the FDA. Both products are still under review and will not reach the market before 2017. Hence, we assume a four-year period for the phase III clinical programme for FR104 as well as three years of development for the phase II. RA Market We see three end-markets for FR104 in RA: In combination therapy along with methotrexate in 2L. In combination therapy along with methotrexate in 3L in case of failure of combination 2L therapy with an anti-TNF. In monotherapy in 2L. We believe these are the three end-markets for the G7 countries based on the following assumptions: Prevalence of 1.4 of RA in EU5 according to Smith et al, 2010. Prevalence of 1.3M of RA in the US according to the ACR. Prevalence of 1.2M of RA in Japan according to Yamanaka et al, 2014. A diagnosed population of 86%, a treated population of 70% and biologic market penetration of 60% in the US versus 30% in Europe and Japan. Combination therapy represents 55% of first-line therapy following intolerance to or failure of cDMARDs versus 45% for monotherapy. Around 90% of the patient population takes an anti-TNF as 2L therapy, either in combination or in monotherapy. We estimate this rate to decrease sharply following entrance of anti-IL-6 treatments (sarilumab and sirukumab). Around 15% market share for FR104 in 3L in combination with methotrexate and a cautious 10% market share in 2L in monotherapy or in
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combination with methotrexate due to the high competitive environment (biosimilar, new entry candidate).
Table 13: Expected market share of FR104 for the G7 (number of patients in thousands) Hypothesis 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 - Combination therapy (2L) 55% 414 423 431 440 448 457 467 476 485 495 505 515 525 536 547 - anti-TNF 1L 90% 373 373 372 372 371 371 370 368 367 365 364 362 359 357 354 - Patients not responding to an anti-TNF (3L) 26% 97 97 97 97 97 96 96 96 95 95 95 94 93 93 92 - o/w treated with another biologic than anti TNF (3L) 50% 48 48 48 48 48 48 48 48 48 48 47 47 47 46 46 - o/w market share FR104 (3L) (a) 15% ------1 3 4 6 7 7 7 - o/w treated with another anti-TNF (3L) 50% 48 48 48 48 48 48 48 48 48 48 47 47 47 46 46 - Other biologic + MTX 2L 10% 41 50 59 68 77 87 97 108 118 130 141 154 166 179 192 - o/w market share FR104 (b) 10% ------2 6 9 14 17 19 - Monotherapy (2L) 45% 339 346 353 360 367 374 382 389 397 405 413 421 430 439 447 - o/w anti-TNF + biosimilar 90% 327 330 333 337 340 343 346 350 353 356 359 362 365 369 372 - o/w IL-6r and others 37% 34 44 54 65 76 88 100 113 126 132 136 142 146 155 169 - o/w treated with FR104 (c) 10% ------2 6 9 13 16 18 Expected population under FR104 (a+b+c) ------1 7 16 24 34 41 45
Source: Kepler Cheuvreux
Hence, we expect total market share of 4% for FR0104 in the c. 1m total RA patient population. A multi-billion market opportunity Based on the market share of FR104, we estimate sales of FR104 in the G7 countries. We estimate the potential of the candidate to be close to EUR1bn in RA without considering other potential indications in autoimmune diseases.
Chart 37: Expected sales of FR104
1600 1400 1200 1,080 998 1000 847
800 624 600 409 400 197 200 33 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
FR104 EU - 5 - FR104 US - FR104 Japan -
Source: Kepler Cheuvreux
Effi-7: next milestone payment in five years Thanks to the EUR272m deal signed with Servier, OSE Immunotherapeutics received a EUR10.25 upfront payment in December 2016. We expect the company to receive its next fee payment in five years as part of the opt-in two-step option payment of
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EUR30m. Following this opt-in payment, we think the deal will follow conventional step payments with clinical payment milestones received in the event of a successful phase III outcome and regulatory filing as well as commercial milestones. UC Market: a big opportunity that is far off… As the product is still in its infancy, we forecast a global pool of patients, and for now we exclude the Japanese market due to Servier’s lack of commercial presence in the country. Based on global prevalence of UC in the EU5 and the US, we estimate the patient population treated with Effy-7 to be around 30,000 at its peak based on the following assumptions: Around 55% of the UC population have a severe-to-moderate form of UC. There is a refractory UC form after first-line treatment, with the standard- of-care treatment 5-ASA being used on 40% of the population. We believe 40% of the refractory population will be treated with a biologic in 2L. We estimate a cautious 10% market share for Effi-7. Timeframe We believe the timeframe for the development of Effi-7 is likely to be similar to that of FR104, as RA and UC treatments both need to demonstrate efficacy in large phase-III clinical trial programmes. Pricing In 2014, when Entyvio was launched, the highest annual drug price for IBD treatment was USD45,000. Our estimates for IBD treatment are slightly lower, and we estimate the annual wholesale price for Effi-7 should amount to EUR35,000. Royalties We estimate Servier will pay a tiered royalty amount of c. 15% to OSE Immunotherapeutics.
Chart 38: Expected revenues from Effi-7 for OSE Immunotherapeutics (EURm)
200 186
150 133
100
61
50 34 20 10 7 9
- 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Royalty from Servier Milestones
Source: Kepler Cheuvreux
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OSE Immunotherapeutics Buy TP EUR 9.00
Initiating coverage with a Buy rating Our valuation of OSE Immunotherapeutics focuses on three candidates: Tedopi, FR104 and Effi-7. While we do not include Effi-DEM in our valuation due to its preclinical early-stage development, we emphasise its potential, and we will closely monitor its future development. We think OSE Immunotherapeutics is likely to out-license Tedopi in all regions and will only retain milestone payments and royalties based on commercial performance. Hence, we do not see any commercial structure or facility emerging from the company for Tedopi. For FR104, we estimate the royalties and milestones resulting from the J&J collaboration. We are confident that even though development will take a long time, this candidate has a great chance of achieving blockbuster status in case of clinical success due to the wide range of potential indications. The next major milestone will be the outcome of the phase III trial for Tedopi in 2018. In the event of clinical or regulatory failure, we think the company is likely to pursue the development of Effi-DEM thanks to the financing provided by FR104, and to a lesser extent, by Effi-7. We think the current valuation does not include the potential of early-stage assets and also undervalues Tedopi. Hence, we initiate coverage with a Buy rating and a target price of EUR9.
Main risks for Tedopi: finding the right partner for EU/US commercialisation Scientific Beyond the risk of failure, which is inherent to all clinical programmes, the major risk we perceive is the lack of strong labelling for Tedopi. Additional evidence, like a new phase III programme, may be requested by the regulatory agencies which would lead to a lengthy delay in the commercialisation of the drug. Another major risk is a sudden adverse event arising from the current clinical trial. Considering Tedopi’s safety profile, we are confident this is not likely. Commercial We believe another important challenge for the group will be to find a partner to market Tedopi. We expect it to sign a deal in 2018 after the top-line results of the phase III trial. If an agreement has not yet materialised by that time, the market is likely to become anxious, which would put pressure on the company’s valuation. Any delay in signing a deal may significantly decrease the value of the asset due to a decrease in its commercial prospects. Lifecycle management Tedopi is being developed solely for the treatment of NSCLC for now. Beyond a combination with checkpoint inhibitors, no development programme for other
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indications has been announced. Hence, if the drug fails in the phase III Atalante-1, its development is not likely to be pursued. Indeed, this would mean taking on another costly phase II/III development programme, which we think OSE Immunotherapeutics is unlikely to be able to fund, unless the company carries out a capital increase. Main assumptions of our rNPV for Tedopi Development costs OSE Immunotherapeutics will fund Tedopi’s development costs until the regulatory filing in the three core regions. Once the drugs are licenced, we do not envisage any additional costs. The partner will be responsible for manufacturing and marketing. In Japan, we expect the partner to be responsible for all phase II clinical programmes receiving approval. We estimate the cost of development programme to be half of the cost of the Atalante-1 clinical trial (EUR25m). Special agreement Tedopi was acquired along with the acquisition right for Memopi in 2011, the technology used to develop Tedopi. At the time, Ose Immunotherapeutics and Takeda entered into a transfer-and-license agreement. Under the terms of this agreement, Takeda transferred the proprietary rights and certain patents to OSE Immunotherapeutics. In exchange for these rights, Takeda was entitled to the following compensation: Royalties on future sales of the product at a low-single digit range that we estimate to 4%. An unknown milestone payment linked to the approval of Tedopi in the US and in Europe, which we estimate to be negligible. Deal reached in core territories In Europe and the US, we expect the deal to be worth EUR500m of which EUR50m upfront and expect a gradually increasing double-digit royalty payment on net sales. In Japan, we expect the deal to be worth significantly less (EUR150m), due to the fact that OSE Immunotherapeutics will not be responsible for the late-stage development of the asset there.
Table 14: Expected weight of milestone payments based on commercial performance Launch 15% Sales > 100 20% Sales > 200 25% Sales > 300 15% Sales > 500 15% Sales > 700 10%
Source: Kepler Cheuvreux
Probability of success We estimate Tedopi has a 33% chance to reach the market based on the data published by BIO.
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Table 15: Expected probability of success oncology versus non-oncology programmes Oncology Non-oncology Phase I to Phase II 62.8% 63.5% Phase II to Phase III 24.6% 34.3% Phase III to NDA/BLA 40.1% 63.7% NDA/BLA to approval 82.4% 85.9% Phase III to approval 33.0% 54.7%
Source: Kepler Cheuvreux, BIO
Tax rate OSE Immunotherapeutics is set to licence out all of these products. Its revenues will come from milestone payments and royalties on sales. We estimate a tax rate of 16% based on French tax regulations for royalty payments (INPI, Institut de la Propriété Intellectuelle). Discount rate Ose Immunothearapeutics’s valuation mainly relies on Tedopi’s potential. The main risk factor for a biotech company is the clinical success of its projects. OSE Immunotherapeutics’s late-stage pipeline is not diversified; hence we apply a discount rate of 15%, a level commensurate with the literature on companies at this stage of development (Valuation in Life Sciences, Bogdan et al.). Sales & marketing As OSE Immunotherapeutics will out-license Tedopi, we assume the company will bear no S&M costs to market the candidate. rNPV of Tedopi in NSCLC (EUR97m)
Chart 39: Expected revenues for OSE Immunotherapeutics from Tedopi
300
250 222 193 200 164 137 150 137 100 88 100 74 77 52 41 50 8 17 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Royalty Milestones Upfront
Source: Kepler Cheuvreux
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Table 16: rNPV of Tedopi for OSE Immunotherapeutics in third-line HLA-A2+ in Europe (EURm) Hypothesis 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Clinical status PIII PIII Reg. Launch Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Ose EU operating revenues - - 50 68 3 7 16 115 34 155 35 28 21 16 11 R&D cost 10% (5) (5) (5) (5) G&A 2% (1) (1) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) Royalty Takeda 4% 0 0 0 (0) (1) (2) (4) (5) (7) (8) (8) (7) (6) (5) (4) Pre-tax cash flow (6) (6) 43 61 1 3 10 108 25 145 25 19 13 9 5 Tax@16% 16% 1 1 (7) (10) (0) (1) (2) (17) (4) (23) (4) (3) (2) (1) (1) FCF (5) (5) 36 52 0 3 9 91 21 122 21 16 11 7 4 Proba Adj. Hypothesis 100% 100% 40% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% FCF prob. adj Revenues (5) (5) 14 17 0 1 3 30 7 40 7 5 4 2 1 Discount rate 15% rNPV Tedopi in Europe 38
Source: Kepler Cheuvreux
Table 17: rNPV of Tedopi for OSE Immunotherapeutics in third-line HLA-A2+ in the US (EURm) Hypothesis 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Clinical status PIII PIII Reg. Launch Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Mark. Ose US operating revenues - - 50 69 5 10 112 34 159 58 50 40 31 25 18 R&D (5) (5) (10) Royalty Takeda 4% - - - (1) (2) (3) (5) (7) (9) (12) (11) (10) (9) (8) (7) Pre-tax cash flow 30 (5) (5) 40 68 3 7 107 27 149 47 39 30 22 17 11 Tax@16% 16% 1 1 (6) (11) (0) (1) (17) (4) (24) (7) (6) (5) (4) (3) (2) FCF (4) (4) 33 57 2 6 90 23 126 39 33 25 19 14 9 Proba Adj. Hypothesis 100% 100% 40% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% FCF Prob. Adj Revenues (4) (4) 13 19 1 2 30 8 41 13 11 8 6 5 3 Discount rate 15% rNPV Tedopi in US 49
Source: Kepler Cheuvreux
Table 18: rNPV of Tedopi for OSE Immunotherapeutics in third-line HLA-A2+ in Japan(EURm) Hypothesis 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Clinical status PIII PIII PIII Reg. Launch Mark. Mark. Mark. Mark. Mark. Mark. Mark. Ose Japan operating revenues 10 15 0 9 3 6 24 11 11 Royalty Takeda 4% - (0) (1) (2) (3) (4) (4) (4) (4) Pre-tax cash flow 10 15 (1) 7 0 2 19 7 7 Tax@16% 16% (2) (2) 0 (1) (0) (0) (3) (1) (1) FCF 8 12 (1) 6 0 2 16 6 6 Proba Adj. Hypothesis 100% 100% 40% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33% FCF Prob. Adj Revenues 3 4 (0) 2 0 1 5 2 2 Discount rate 15% rNPV Tedopi in Japan 10
Source: Kepler Cheuvreux rNPV of FR104 in RA (EUR12) J&J raised its opt-in option in July 2016 for the development of FR104. The group will primarily develop FR104 in RA. Therefore, we only take into account this indication in our model. However, we emphasise that it could be approved for other indications, notably in the treatment of transplantation maintenance.
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Royalty rate We estimate that the royalty payment paid by J&J to OSE Immunotherapeutics will gradually increase. We estimate it will be the high single-digits (9%). Milestone payments For the milestone payments, we divide the gross amount of EUR155m by three for the RA indication. We estimate the rest of milestones will be split between additional therapeutic indications. We believe the amount of payments will be distributed between: 1) the US: 50%; 2) Europe: 30%; and 3) Japan 20%, after assessing the potential of each market. Inserm payments FR104 was developed as part of collaboration with the French National Institute of Health and Medical Research (Inserm). According to the agreement for the licence transfer in 2013, Inserm is entitled to receive royalty payments based on OSE Immunotherapeutics’s revenues. We expect the tiered royalty rate to be in the mid- single-digits (c. 5%). Probability of success We base our probability of success estimate on the data provided by BIO. At this stage, we estimate 17% probability of approval.
Table 19: Expected probability of success in autoimmune disease Immunology Phase II to Phase III 31.7% Phase III to NDA/BLA 62.2% NDA/BLA to approval 86.0% Phase II to approval 17.0%
Source: BIO, Kepler Cheuvreux rNPV of FR104 in RA (EUR12m)
Table 20: rNPV of FR104 in RA 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Clinical status PII PII PII PIII PIII PIII PIII Reg. Launch Mark. Mark. Mark. Mark. Mark. Mark. Milestones - - 4 - - - 6 8 12 4 7 4 1 2 1 Royalty ------2 14 33 56 84 90 97 FR104 operating revenues - - 4 - - - 6 8 14 19 40 61 85 92 98 Inserm royalties - - (0) - - - (0) (0) (1) (1) (2) (2) (3) (4) (4) Pre-tax cash flow - - 4 - - - 5 7 13 18 38 58 81 88 94 Tax@16% - - (1) - - - (1) (1) (2) (3) (6) (9) (13) (14) (15) FCF - - 3 - - - 5 6 11 15 32 48 68 74 78 Proba Adj. Hypothesis 100% 100% 100% 32% 32% 32% 32% 20% 17% 17% 17% 17% 17% 17% 17% FCF Prob. Adj Revenues - - 3 - - - 1 1 2 3 5 8 11 12 13 Discount rate 15% rNPV FR104 in Europe / OSE 12 Immunotherapeutics (EURm)
Source: Kepler Cheuvreux
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OSE Immunotherapeutics Buy TP EUR 9.00 rNPV of Effi-7 in UC (EUR6m) Royalty rate We estimate that the royalty payment paid by Servier to OSE Immunotherapeutics will gradually increase. We expect it to be in the high single-digit range (9%). Milestone payments OSE Immunotherapeutics will be entitled to receive up to EUR232m once the phase II programme has been carried out and if Servier decides to exercise its opt-in options. We split this amount between the different phases of development. We also factor in the hypothesis for three indications and split this amount based on a number of developments (e.g. Sjogren’s syndrome). Probability of preclinical and clinical success According to the current scientific literature (Paul et al, 2010), the probability of success from the preclinical to the phase-I stage is around 69%. For later stages of development, our hypothesis is similar to that used for FR104 for the treatment of autoimmune disease. Inserm payments Effi-7 was developed as part of a partnership with the French National Institute of Health and Medical Research (Inserm). According to the agreement signed for the licence transfer in 2011, Inserm is entitled to receive royalty payments based on OSE Immunotherapeutics’s revenues as well as milestone payments of up to EUR1.4m. We expect royalties to be in the mid-single-digit range (5%). R&D costs We do not expect Effi-7 to reach the market before 2028. OSE Immunotherapeutics is responsible for the development of Eff-7 until the end of the phase II trial as part of the Effimab consortium. The budget allocated for this programme is expected to amount to EUR20m of which EUR9.1m will be provided by the BPI. We expect OSE Immunotherapeutics to spend EUR10.9m until the clinical proof-of-concept has been established for the asset. We split this amount according to the weight of each step in the development process.
Table 21: rNPV Effi-7 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 PC PC PI PI PII PII PIII PIII PIII PIII Reg. Launch Mark. Mark. Mark. Milestones - - - - 10 20 - - - 7 9 25 11 2 2 Royalty from Servier ------9 51 131 184 Ose operating revenues - - - - 10 20 - - - 7 9 34 61 133 186 Inserm royalties - - - - (0) (1) - - - (0) (0) (1) (2) (5) (7) R&D until phase II (1) (1) (2) (2) (3) (3) ------Tax@16% 0 0 0 0 (1) (3) - - - (1) (1) (5) (9) (21) (29) FCF (1) (1) (1) (1) 5 13 - - - 5 7 28 49 108 150 100% 100% 69% 69% 45% 45% 14% 14% 14% 14% 9% 8% 8% 8% 8% FCF Prob. Adj Revenues (1) (1) (1) (1) 2 6 0 0 0 1 1 2 4 8 12 Dscount rate 15% rNPV Tedopi 6
Source: Kepler Cheuvreux
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OSE Immunotherapeutics Buy TP EUR 9.00
SOP summary We factor in very conservative estimates of the probability of success of the company’s various projects. In our view, 2018 is likely to be a critical year for OSE Immunotherapeutics, as it is due to release the phase-III results for Tedopi. If it reports positive results, we see significant upside for the company of around 150%. However, even if it fails, we think the company will still be able to develop its internal proprietary early-stage asset Effi-Dem thanks to the funding provided by the deal signed with J&J and Servier for FR104 and Effi-7 respectively.
Chart 40: SOP OSE Immunotherapeutics (EURm)
160 EUR17m EUR131m 140
120 EUR12m EUR6m EUR97m 100
80
60
40
20
- rNPV Tedopi rNPV FR104 rNPV Effi-7 Net cash position Base case
Source: Kepler Cheuvreux
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Appendices Shareholders
Chart 41: Shareholder structure as of 30 June 2016
OSE Immunotherapeutics consort: 45% 31%
55%
13%
2%
Emile Loria Dominique Constantini Guy Chateain Others
Source: Ose Immunotherapeutics
Key people Emile Loria, Chairman, MD Dr Emile Loria has more than 25 years of experience in the pharmaceutical and biotechnology sectors, having held key positions notably at Ciba-Geigy and Sanofi Pharma. He was a researcher at the Cancer Institute in Villejuif and then at the Cancer and Immunogenetics Institute (INSERM-CNRS) founded by Professor Georges Mathé. In 1986, he founded MS Medical Synergy, a drug management company. He then joined Biovector Therapeutics where he became Chairman and Chief Executive Officer. In 2001, Loria was appointed Chief Executive Officer of Epimmune and developed the epitopes technology, from which stemmed the Tedopi epitopes. He ran this programme from the initial research stage to the start of the phase-II clinical trial. In 2012, he purchased, via OPI (Geneva), all of the Memopi assets, co-founded OSE Pharma and became Chairman of its board. Dominique Costantini, CEO, MD Dr Costantini held a number of management positions at HMR (now Sanofi) where she led medico-marketing activities to commercialise products (notably in immunology, endocrinology, infectious illnesses and oncology). While there, Ms. Costantini also participated in the development of various medicines, from conception to the product approval and commercialisation stages. In 1997, Costantini founded BioAlliance Pharma, where she held the position of Chief Executive Officer until 2011. During her tenure there she led BioAlliance Pharma’s IPO on Euronext (2005). BioAlliance Pharma originated Livatag, an anti- cancer nanotechnology in primary liver cancer, currently in phase-III development (in Europe and the US). In the past, Costantini was instrumental in forming many
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international industrial partnerships (Europe, the US, China, Japan and South Korea). To date, BioAlliance Pharma (renamed Onxeo in 2014) is the only French biotechnology company to have two FDA drug approvals. In 2012, Costantini co-founded and led OSE Pharma as CEO. Immune system functions Haematopoiesis According to nature review, haematopoiesis refers to the commitment and differentiation processes that lead to the formation of all blood cells from haematopoietic stem cells. In adults, haematopoiesis occurs mainly in the bone marrow (medullary), but it can also occur in other tissues such as the liver, thymus and spleen (extramedullary). Hematopoietic stem cells can be broadly separated into two major lineages: the lymphoid lineage including T, B, and natural killer (NK) cells, or the myeloid lineage comprised of erythrocytes, megakaryocytes, granulocytes, and monocyte/ macrophage. Another category of important immune cells called dendritic cells are also of hematopoietic origin.
Chart 42: Haematopoiesis at a glance
Source: Pinterest
The immune system The immune system is composed of a broad variety of specialised cells. These cells recognise specific chemical structures called antigens. Foreign antigens trigger an immune response that typically results in resistance to disease-causing agents from the body. The immune system recognises and generates a response to hundreds of different foreign antigens.
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There are two kinds of immune response to an antigen: The innate immune response functions as the first line of defence against antigens It consists of soluble factors, such as complement proteins, and diverse cellular components including granulocytes (basophils, eosinophils and neutrophils), mast cells, macrophages, dendritic cells and natural killer cells. The adaptive immune response is slower to develop, but manifests as increased antigenic specificity and memory. It consists of antibodies, B cells, and CD4+ and CD8+ T lymphocytes.
Chart 43: The innate and adaptive immune system
Source: Dranoff et al, Nature reviews
An adaptive immune response is triggered by a specialised class of immune system cells called antigen-presenting cells (e.g. dendritic cells and macrophage). Antigen- presenting cells take up antigen from their surroundings and process the antigen into fragments that are then displayed on the surface of the antigen-presenting cell. Once displayed, these antigens can be recognised by classes of immune cells called lymphocytes. One category of lymphocytes, cytotoxic T lymphocytes (“T CD8+ cells”), combats disease by killing antigen-bearing cells directly; another class of T lymphocytes, helper T cells ("T CD4+ cells"), coordinates the activities of cells that directly target diseased tissue. A certain amount of these helper T CD4+ cells are responsible for coordinating defence activities against infectious agents and tumours (effector T CD4+ lymphocytes), while others are responsible for inhibiting unwanted inflammatory responses (regulatory T lymphocytes or Treg). A second category of lymphocytes, B lymphocytes (“B cells”), produce specific antibodies when activated. Each antibody binds to and attacks one particular type of antigen expressed on a cell.
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Use of the immune system to fight diseases: immunotherapy Immunotherapy is intended to stimulate and enhance the body’s natural mechanism from both the innate and adaptive immune system. To date, only one category of cell in the immune system has been harnessed and targeted by the current approved therapies: the cytotoxic T lymphocytes (“T CD8+ cells”).
Chart 44: Overview of immune system components which could be targeted by IO therapies
Source: Takeda
Hence, there is still a broad range of targets for IO mechanisms beyond those addressed by approved products. Immunotherapeutic approaches to treat disease can be separated into two broad classes, passive and active, based on their mechanism of action. Passive immunotherapy (non-specific): Passive immunotherapies do not rely on or actively stimulate the body’s immune system to initiate the attack on the disease. Instead, the attack is carried out by the therapy which is manufactured ex vivo, or outside the body. These therapies are not considered to be personalised and consist mainly of monoclonal antibodies directed at a single disease-specific enzyme or protein on the surface of the targeted cells. The goal of these passive immunotherapies is to prevent targeted cells from dividing or to cause their death. Active immunotherapy (specific or non-specific): Active immunotherapies, on the other hand, are designed to trigger or stimulate the body’s own immune system to fight the disease. They include both traditional T-cell stimulation with antigen and cell-based immunotherapies. Active immunotherapy is a more specific approach to immunotherapy than passive immunotherapy because active immunotherapies contain a particular antigen or set of antigens that are designed to activate the patient’s own immune system to seek out and kill cells that carry the same antigen. Active immunotherapies have no direct therapeutic action, but rather rely on the patient’s immune system to recognize and kill the intended target. Most active immunotherapies utilise off-the-shelf antigens, also referred to as defined antigens, rather than antigens that are patient-specific, and are frequently paired with
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adjuvants, which are agents that non-specifically activate the cells of the immune system to enhance tumour-specific immune responses. Immunotherapies targeting the active immune system can be divided into four categories: 1. Immune checkpoint inhibitors (CKIs) and co-stimulatory receptors act on the signalling pathways that slow /increase T cell activation or other immune cells. T cells are the cornerstone of the innate and adapted immune system. There are multiple checkpoint inhibitors (e.g.: anti-CTLA-4, PD-L1, TIM-3) or co-stimulatory pathways (e.g.: ox-40, CD-40, CD137, CD28). 2. Therapeutic vaccines aim to prime the immune system to recognise and attack tumour-associated antigens (TAAs). 3. Oncolytic viruses are viral strains that are genetically modified to selectively infect and kill tumour cells while priming an immune response by releasing TAAs. 4. Adoptive cell therapy consists of the ex vivo expansion and genetic modification of tumour-associated antigen-specific T cells (via T-cell receptors or antibodies recognition) to increase anti-tumour response (e.g.: TCRs, CAR-T). Adoptive cell therapies are currently being developed in early-stage trials mostly in liquid tumours. Immunotherapy applied to cancer OSE Immunotherapeutics aims to develop cancer therapies in two core categories: 1) the therapeutic vaccine with Tedopi development; and 2) the immune checkpoint blockade with EFFI-Dem for non-effective immune cells (macrophage cells).
Chart 45: Anticancer immunotherapy
Source: Galluzzi et al, 2015,
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Cancer vaccines at a glance Vaccination is an active immunotherapy method that entails the introduction of an Cancer vaccines external agent (antigen) into a living organism to create a positive immune response aim to prime the against this agent. All cancer immunotherapy approaches have a common goal: to CD8+ T cell trigger a cytotoxic T lymphocyte (CTL) response against cancer cells. Those response activated lymphocytes (also called CD8+) are considered to be the pillar of the body’s defences against external agents such as: Infected cells either by a virus (e.g. HIV) or an intracellular bacteria or protozoal parasites. Cancer cells. Allografts tissue following transplant: leading to kidney transplant rejection for example.
CTLs are activated with the help of dendritic cells, which help them to recognise the cells which need to be targeted thanks to the major histocompatibility complex class II. Dendritic cells help the CTL by presenting it with an antigen from the cancer cells. Therefore, once the CTL target has been revealed by the dendritic cells, the CTLs along with other the lymphocyte CD4+ which allow CD8+ T cell expansion help to recognise and destroy cancer or virus-infected cells. The immune response is regulated by numerous cells and mechanisms notably the CD4+ Treg cells and the myeloid-derived suppressor cells (e.g. tumour-associated macrophages).
Chart 46: Steps in the development of cellular immune response against tumour-associated antigens (TAAs)
Source: Abbreviations: DC: dendritic cells; IFN‑γ, interferon‑γ, Treg: regulatory T cells, CTL: cytotoxic T cells; TCR: T cell receptor; MHC: major histocompatibility complex Source: Melero, I. et al. Nature Reviews Clinical Oncology 11, 509–524 (2014
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Current immuno-oncology therapies aim to activate (provide large quantities of tumour antigens) and expand (stimulate the response system and/or diminish the checkpoint inhibitors pathways) the tumour-specific CTLs. Cancer vaccines have a broad range of diversity Many different types of vaccines are now being studied to treat a variety of cancers, such as: Tumour cell vaccines: These vaccines are made from actual cancer cells that have been removed from the patient during surgery. Cells are altered (and killed) in the lab ex vivo to make them more likely to be attacked by the immune system and are then injected back into the patient. The patient’s immune system then attacks these cells and any similar cells still in the body.
Chart 47: Whole tumour cell vaccines
Source: Cancer research institute
Most tumour cell vaccines are autologous, meaning the vaccine is made from dead tumour cells that have been taken from the same person in whose body they will later be used. Other vaccines are allogeneic, meaning the cells for the vaccine come from someone other than the patient being treated. Allogeneic vaccines are easier to make than autologous vaccines, but it is still not clear whether one type works better than the other.
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Antigen vaccines: These vaccines boost the immune system by using only one antigen (or a few), rather than the whole tumour cell. The antigens are usually proteins or pieces of proteins called peptides.
Chart 48: Antigen-specific vaccines
Source: : Cancer research institute
Antigen vaccines can be specific for a certain type of cancer, but they are not made for OSE a specific patient like autologous tumour cell vaccines are. OSE Immunotherapeutics Immunotherapeutic is present in this category of therapeutic vaccines with Tedopi. s is active in the antigen-presented So far, no peptide-based vaccine has been approved in Europe or the US. However, cell vaccine Russian authorities approved Oncophage from Agenus in 2008 despite its failure to prove a significant advantage in terms of efficacy in renal cell carcinoma. Dendritic cell vaccines: These vaccines have shown the most success so far in treating cancer. Sipuleucel-T (Provenge), from Valeant, which is approved for the treatment of advanced prostate cancer, is an example of a dendritic cell vaccine. Dendritic cells are special immune cells in the body that help the T cells to recognise cancer cells. The T cells then start an immune reaction against any cells in the body that contain these antigens.
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Chart 49: Dendritic cell-based vaccines
Source: Cancer research institute
Dendritic cell vaccines are autologous vaccines which entail a complex and expensive manufacturing process. The dendritic cells are first engineered outside of the patient’s body and then injected back into the patient, where they should trigger an immune response to cancer cells. Neoantigen-based vaccines: This is the last generation of cancer vaccines which aims to use the difference of each patient’s tumour genome. The theory behind this new approach is based on the difference between the DNA of the cancer and that of the healthy cells. This difference in DNA leads to the creation of new protein antigens that are specific to tumour cells. These new antigens, known as tumour- specific neo-antigens (TSNAs), can be recognised and targeted by the immune system. Rather than pursuing antigens that are “shared” between patients, the study of neoantigens is aimed at developing more “personalised” vaccines which recognise the specific characteristics of each tumour in each patient. Vector-based vaccines: These vaccines use special vector systems to make the immune response more effective. Vectors are viruses, bacteria, yeast cells, or other structures. The vectors are often modified to attenuate their immunogenicity. Vectors can be helpful in making vaccines for a number of reasons. First, they can be used to deliver more than one cancer antigen at a time, which might make the body’s
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immune system more likely to mount a response. Second, although attenuated from their immunogenicity, vectors trigger their own immune responses from the body, which could help make the overall immune response even stronger. Finally, the manufacturing process for these vaccines is cheaper than it is for other vaccines. Checkpoint blockade: the new paradigm of cancer treatment The principle of checkpoint inhibition is to deactivate the tumour’s defence CKIs are the mechanism and activate a response from the immune system. CKIs work like cornerstone of IO molecular brakes, curtailing immune reactions that have already begun in order to prevent “collateral damage” to the surrounding tissue. This is necessary because immune reactions need a starting point and an endpoint. Two of these checkpoint proteins are PD-1 and PD-L1. While PD-1 is located on immune cells (e.g. T-cells), PD-L1 is located on many different cells throughout the human body. Cancer cells exploit this principle to camouflage themselves. They evade the immune system’s attack by accumulating PD-L1 proteins on their surface. These proteins are recognised by the PD-1 on the T-cells, thus blocking the body’s immune reaction against cancer. As a result, the tumour cells remain hidden. Numerous immuno-therapies are currently being developed. They target a wide range of checkpoints, allowing researchers to explore: Effector T cell mechanisms (e.g. PD-1). Natural killer cell mechanisms. Non-effector cell mechanism (e.g. EFFI-Dem candidate from OSE Immunotherapeutics). Immunotherapy applied to autoimmune diseases Autoimmune diseases occur when the immune system attacks the body’s own organs, tissues and cells. Some of the more common autoimmune diseases include type1 diabetes, rheumatoid arthritis, systemic lupus erythematosus, and inflammatory bowel disease. Although the causes of many autoimmune diseases remain unknown, a person’s genes, in combination with infections and other environmental exposure, are likely to play a significant role in the development of disease. Treatments are available for many autoimmune diseases, but cures have yet to be discovered. Smith and Germolec state that autoimmune disorders affect approximately 3% of the North American and European populations, with over 75% of those affected being women.
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Valuation
FY to 31/12 (EUR) 2015 2016E 2017E 2018E
Per share data (EUR) EPS adjusted -0.01 0.28 -0.66 -0.70 % Change na na na EPS adjusted and fully diluted -0.01 0.28 -0.66 -0.70 % Change na na na EPS reported -0.01 0.28 -0.66 -0.70 % Change na na na EPS Consensus -0.22 -0.37 -0.16 Cash flow per share -0.41 0.51 -0.78 -0.85 Book value per share 4.44 3.92 2.92 2.87 DPS 0.00 0.00 0.00 0.00 Number of shares, YE (m) 14.3 14.3 14.3 14.3 Number of shares, fully diluted, YE (m) 14.3 14.3 14.3 14.3
Share price Latest price / year end 8.5 7.1 6.7 6.7 52 week high (Year high) 11.6 8.3 52 week low (Year low) 8.0 5.7 Average price (Year) 9.6 6.7
Enterprise value (EURm) Market capitalisation 136.9 96.4 95.9 95.9 Net financial debt -9.0 -16.3 -5.1 7.0 Pension provisions 0.0 0.0 0.0 0.0 Market value of minorities 0.0 0.0 0.0 0.0 Market value of equity affiliates (net of tax) 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 Enterprise value 127.9 79.6 90.8 102.9
Valuation P/E adjusted na 23.7 na na P/E adjusted and fully diluted na 23.7 na na P/E consensus na na na
P/BV 2.2 1.7 2.3 2.3 P/CF na 13.1 na na Dividend yield (%) 0.0% 0.0% 0.0% 0.0% Dividend yield preference shares (%) 0.0% 0.0% 0.0% 0.0% FCF yield (%) -4.3% 7.6% -11.7% -12.6%
ROE (%) 6.8% -19.2% -24.3% ROIC (%) 43.7% -477.6% na
EV/Sales 25.28 3.93 na na EV/EBITDA na 19.9 na na EV/EBIT na 19.9 na na EV/NOPAT na 29.7 na na EV/IC 15.6 19.6 na na ROIC/WACC 2.9 na na EV/IC over ROIC/WACC 6.7 na na
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Income statement
FY to 31/12 (EURm) 2011 2012 2013 2014 2015 2016E 2017E 2018E
Sales 0.0 0.0 0.0 0.0 5.1 20.3 0.0 0.0 % Change na na na na na 300.1% na na
EBITDA reported na na na na -3.8 4.0 -11.2 -12.1 % Change na na na na na na na na Depreciation and amortisation na na na na 0.0 0.0 0.0 0.0 Goodwill impairment na na na na 0.0 0.0 0.0 0.0 Other financial result and associates na na na na 0.0 0.0 0.0 0.0
EBIT reported na na na na -3.8 4.0 -11.2 -12.1 % Change na na na na na na na na
Net financial items na na na na 0.0 0.0 0.0 0.0
Associates na na na na 0.0 0.0 0.0 0.0 Others na na na na 0.0 0.0 0.0 0.0
Earnings before tax na na na na -3.8 4.0 -11.2 -12.1 % Change na na na na na na na na
Tax na na na na 3.5 0.1 1.8 2.1
Net profit from continuing operations na na na na -0.2 4.0 -9.4 -10.0 % Change na na na na na na na na Net profit from discontinuing activities na na na na 0.0 0.0 0.0 0.0
Net profit before minorities na na na na -0.2 4.0 -9.4 -10.0 Minorities na na na na 0.0 0.0 0.0 0.0
Net profit reported na na na na -0.2 4.0 -9.4 -10.0 % Change na na na na na na na na
Adjustments na na na na 0.0 0.0 0.0 0.0 Net profit adjusted na na na na -0.2 4.0 -9.4 -10.0 % Change na na na na na na na na
Gross profit na na na na 5.1 20.3 0.0 0.0 EBITDA adjusted na na na na -3.8 4.0 -11.2 -12.1 EBIT adjusted na na na na -3.8 4.0 -11.2 -12.1
Gross profit margin (%) na na na na 100.0% 100.0% na na EBITDA margin (%) na na na na -74.1% 19.7% na na EBIT margin (%) na na na na -74.1% 19.7% na na Net profit margin (%) na na na na -4.1% 20.0% na na
Tax rate (%) na 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% Payout ratio (%) na na na na 0.0% 0.0% 0.0% 0.0%
EPS reported (EUR) na na na na -0.01 0.28 -0.66 -0.70 % change na na na na na na na na EPS adjusted (EUR) na na na na -0.01 0.28 -0.66 -0.70 % change na na na na na na na na EPS adj and fully diluted (EUR) na na na na -0.01 0.28 -0.66 -0.70 % change na na na na na na na na DPS (EUR) na na na na 0.00 0.00 0.00 0.00 % change na na na na na na na na DPS,preference shares (EUR) na na na na 0.00 0.00 0.00 0.00 % Change na na na na na na na na
Consensus Sales (EURm) 10.3 6.9 13.1 Consensus EBITDA (EURm) na na na Consensus EBIT (EURm) 10.4 0.1 5.5 Consensus EPS (EUR) -0.22 -0.37 -0.16 Consensus DPS (EUR) na na na
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Cash flow statement
FY to 31/12 (EURm) 2015 2016E 2017E 2018E
Net profit before minorities -0.2 4.0 -9.4 -10.0 Depreciation and amortisation 0.0 0.0 0.0 0.0 Goodwill impairment 0.0 0.0 0.0 0.0 Change in working capital -2.9 1.5 0.0 0.0 Others -2.8 1.7 -1.8 -2.1 Cash Flow from operating activities -5.9 7.3 -11.2 -12.1 % Change na na na na
Capex 0.0 0.0 0.0 0.0
Free cash flow -5.9 7.3 -11.2 -12.1 % Change na na na na
Acquisitions -6.2 0.0 0.0 0.0 Divestments 0.0 0.0 0.0 0.0 Dividend paid 0.0 0.0 0.0 0.0 Share buy back 0.0 0.0 0.0 0.0 Capital increases 20.2 0.0 0.0 0.0 Others 0.9 0.0 0.0 0.0
Change in net financial debt 9.0 7.3 -11.2 -12.1 Change in cash and cash equivalents na 7.2 -11.2 -12.1
Attributable FCF -5.9 7.3 -11.2 -12.1
Cash flow per share (EUR) -0.41 0.51 -0.78 -0.85 % Change na na na na
FCF per share (EUR) -0.41 0.51 -0.78 -0.85 % Change na na na na
Capex / Sales (%) 0.0% 0.0% na na Capex / D&A (%) na na na na
Cash flow / Sales (%) -116.1% 36.1% na na FCF / Sales (%) -116.1% 36.1% na na
FCF Yield (%) -4.3% 7.6% -11.7% -12.6% Unlevered FCF Yield (%) -4.6% 9.2% -12.3% -11.8%
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Balance sheet
FY to 31/12 (EURm) 2015 2016E 2017E 2018E
Cash and cash equivalents 11.6 18.7 7.5 -4.6 Inventories 0.0 0.0 0.0 0.0 Accounts receivable 0.1 0.7 0.7 0.7 Other current assets 12.5 10.1 10.1 10.1 Current assets 24.1 29.6 18.4 6.3
Tangible assets 0.1 0.1 0.1 0.1 Goodwill 0.0 0.0 0.0 0.0 Other Intangible assets 61.1 45.6 57.5 83.9 Financial assets 0.1 0.1 0.1 0.1 Other non-current assets 0.0 0.0 0.0 0.0 Non-current assets 61.3 45.8 57.6 84.1
Short term debt 1.0 0.8 0.8 0.8 Accounts payable 3.0 5.1 5.1 5.1 Other short term liabilities 1.5 1.8 6.7 11.7 Current liabilities 5.4 7.7 12.7 17.7
Long term debt 1.6 1.6 1.6 1.6 Pension provisions 0.0 0.0 0.0 0.0 Other long term provisions 14.9 10.0 20.0 30.0 Other long term liabilities 0.0 0.0 0.0 0.0 Non-current liabilities 16.5 11.7 21.7 31.7
Shareholders' equity 63.4 56.0 41.7 41.0 Minority interests 0.0 0.0 0.0 0.0 Total equity 63.4 56.0 41.7 41.0
Balance sheet total 85.3 75.3 76.0 90.4 % Change na -11.7% 0.9% 18.9%
Book value per share (EUR) 4.44 3.92 2.92 2.87 % Change na -11.7% -25.5% -1.6%
Net debt -9.0 -16.3 -5.1 7.0 Net financial debt -9.0 -16.3 -5.1 7.0 Trade working capital -2.9 -4.4 -4.4 -4.4 Working capital 8.1 4.0 -1.0 -6.0 Inventories/sales 0.0% 0.0% na na Invested capital 8.2 4.1 -0.9 -5.9
Net fin. debt / EBITDA (x) 2.4 -4.1 0.5 -0.6 Net fin. debt / FCF (x) 1.5 -2.2 0.5 -0.6
Gearing (%) -14.2% -29.1% -12.2% 17.1% Goodwill / Equity (%) 0.0% 0.0% 0.0% 0.0%
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Research ratings and important disclosures
The term "KEPLER CHEUVREUX" shall, unless the context otherwise requires, mean each of KEPLER CHEUVREUX and its affiliates, subsidiaries and related companies (see “Regulators” table below). The investment recommendation(s) referred to in this report was (were) completed on 16/02/2017 17:34 (GMT) and was first disseminated on 20/02/2017 6:18 (GMT). Prices in this report are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated. Disclosure checklist - Potential conflict of interests Stock ISIN Disclosure (See Below) Currency Price Novartis CH0012005267 nothing to disclose CHF 75.80 OSE Immunotherapeutics FR0012127173 8 EUR 6.71 Roche CH0012032048 nothing to disclose CHF 241.50 Sanofi FR0000120578 nothing to disclose EUR 81.20
Source: Factset closing prices of 15/02/2017 Companies mentioned Stock Disclosure (See Below) Abbvie nothing to disclose Amgen nothing to disclose Arena pharmaceutical nothing to disclose BMS nothing to disclose Celgene nothing to disclose Chemocentryx nothing to disclose Compugen nothing to disclose Galapagos nothing to disclose Gilead nothing to disclose immune pharmaceuticals nothing to disclose Index pharmaceutical nothing to disclose J&J nothing to disclose Eli Lilly nothing to disclose Kerck and co nothing to disclose Merck KGaA nothing to disclose Oncotherapy science nothing to disclose Pfizer nothing to disclose Protalix nothing to disclose Regeneron nothing to disclose Shire nothing to disclose Trillium Therapeutics nothing to disclose
Key: 1. KEPLER CHEUVREUX holds or owns or controls 5% or more of the issued share capital of this company; 2. The company, or its major shareholder, directly or indirectly, holds or owns or controls 5% or more of the issued share capital of KEPLER CHEUVREUX; 3. KEPLER CHEUVREUX is or may be regularly carrying out proprietary trading in equity securities of this company; 4. KEPLER CHEUVREUX has been lead manager or co-lead manager in a public offering of the issuer’s financial instruments during the last twelve months; 5. KEPLER CHEUVREUX is a market maker in the issuer’s financial instruments; 6. KEPLER CHEUVREUX is a liquidity provider in relation to price stabilisation activities for the issuer to provide liquidity in such instruments; 7. KEPLER CHEUVREUX acts as a corporate broker or a sponsor or a sponsor specialist (in accordance with the local regulations) to this company; 8. KEPLER CHEUVREUX and the issuer have agreed that KEPLER CHEUVREUX will produce and disseminate investment research on the said issuer as a service to the issuer; 9. KEPLER CHEUVREUX has received compensation from this company for the provision of investment banking or financial advisory services within the previous twelve months; 10. KEPLER CHEUVREUX may expect to receive or intend to seek compensation for investment banking services from this company in the next three months; 11. The author of, or an individual who assisted in the preparation of, this report (or a member of his/her household), or a person who although not involved in the preparation of the report had or could reasonably be expected to have access to the substance of the report prior to its dissemination has a direct ownership position in securities issued by this company; 12. An employee of KEPLER CHEUVREUX serves on the board of directors of this company; 13. As at the end of the month immediately preceding the date of publication of the research report Kepler Capital Markets, Inc. beneficially owned 1% or more of a class of common equity securities of the subject company; 14. KEPLER CHEUVREUX and UniCredit Bank AG have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG has received a consideration or a promise of consideration. Separately, through the Co-operation Agreement with UniCredit Bank AG for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX has also a received consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 15. KEPLER CHEUVREUX and Crédit Agricole Corporate & Investment Bank (“CACIB”) have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. CACIB provides investment banking services to this issuer in return for which CACIB has received a consideration or a promise of consideration. Separately, through the Co-operation Agreement with CACIB for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX has also received a consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 16. UniCredit Bank AG holds or owns or controls 5% or more of the issued share capital of KEPLER CHEUVREUX. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG has received a consideration or a promise of consideration; 17. CACIB holds or owns or controls 15% of more of the issued share capital of KEPLER CHEUVREUX. CACIB provides investment banking services to this issuer in return for which CACIB has received a consideration or a promise of consideration; 18. A representative of UniCredit Bank AG serves on the board of directors of KEPLER CHEUVREUX; 19. Two representatives of CACIB serve on the board of directors of KEPLER CHEUVREUX. CACIB provides investment banking services to this issuer in return for which CACIB has received a consideration or a promise of consideration; 20. The recommendation presented in this document was disclosed to the issuer prior to publication and dissemination and was subsequently amended; 21. KEPLER CHEUVREUX has received or expected to receive compensation from this company for the provision of services of investments firms set out in Sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and of the Council within the previous twelve months; 22. KEPLER CHEUVREUX owns a net long position exceeding the threshold of 0,5 % of the total issued share capital of the issuer; 23. KEPLER CHEUVREUX owns a net short position exceeding the threshold of 0,5 % of the total issued share capital of the issuer; 24. KEPLER CHEUVREUX and Rabobank (Coöperatieve Rabobank U.A.) have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. Rabobank provides investment banking services to this issuer in return for which Rabobank will receive a consideration or a promise of consideration. Separately, through a Co-operation Agreement between with KEPLER CHEUVREUX and Rabobank, KEPLER CHEUVREUX provides services in connection with such activities. KEPLER CHEUVREUX also receives a consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 25. Rabobank (Coöperatieve Rabobank U.A.) holds or owns or controls 5% or more
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of the issued share capital of Kepler Cheuvreux. Rabobank provides investment banking services to this issuer in return for which Rabobank has received a consideration or a promise of consideration; 26. A representative of Rabobank (Coöperatieve Rabobank U.A.) serves on the board of directors of KEPLER CHEUVREUX. Organizational and administrative arrangements to avoid and prevent conflicts of interests KEPLER CHEUVREUX promotes and disseminates independent investment research and have implemented written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business, which are available upon request. The KEPLER CHEUVREUX research analysts and other staff involved in issuing and disseminating research reports operate independently of KEPLER CHEUVREUX Investment Banking business. Information barriers and procedures are in place between the research analysts and staff involved in securities trading for the account of KEPLER CHEUVREUX or clients to ensure that price sensitive information is handled according to applicable laws and regulations. It is Kepler Cheuvreux’ policy not to disclose the rating to the issuer before publication and dissemination. Nevertheless, this document, in whole or in part, and with the exclusion of ratings, target prices and any other information that could lead to determine its valuation, may have been provided to the issuer prior to publication and dissemination, solely with the aim of verifying factual accuracy. Please refer to www.keplercheuvreux.com for further information relating to research and conflict of interest management. Analyst disclosures The functional job title of the person(s) responsible for the recommendations contained in this report is Equity/Credit Research Analyst unless otherwise stated on the cover. Name of the Research Analyst(s): Thomas Guillot Regulation AC - Analyst Certification: Each Equity/Credit Research Analyst(s) listed on the front-page of this report, principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the equity research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each Equity/Credit Research Analyst(s) also certifies that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that equity research analyst in this research report. Each Equity/Credit Research Analyst certifies that he is acting independently and impartially from KEPLER CHEUVREUX shareholders, directors and is not affected by any current or potential conflict of interest that may arise from any KEPLER CHEUVREUX activities. Analyst Compensation: The research analyst(s) primarily responsible for the preparation of the content of the research report attest that no part of the analyst’s(s’) compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst(s) in the research report. The research analyst’s(s’) compensation is, however, determined by the overall economic performance of KEPLER CHEUVREUX. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of KEPLER CHEUVREUX, which is a non- US affiliate and parent company of Kepler Capital Markets, Inc. a SEC registered and FINRA member broker-dealer. Equity/Credit Research Analysts employed by KEPLER CHEUVREUX, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of Kepler Capital Markets, Inc. and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Rating ratio Kepler Cheuvreux Q4 2016 Rating Breakdown A B Buy 52% 57% Hold 32% 33% Reduce 15% 6% Not Rated/Under Review/Accept Offer 2% 4% Total 100% 100%
Source: Kepler Cheuvreux A: % of all research recommendations B: % of issuers to which material services of investment firms are supplied 12 months rating history The below table shows the history of recommendations and target prices changes issued by KEPLER CHEUVREUX research department (Equity and Credit) over a 12 months period. Company Name Date Business Line Rating Target Price Closing Price Novartis (CHF) 12/05/2016 07:24 Equity Research Not Rated 0.00 73.25 07/07/2016 09:47 Equity Research Buy 93.00 79.60 11/08/2016 06:27 Equity Research Buy 92.00 80.45 05/09/2016 06:17 Equity Research Buy 94.00 77.80 26/10/2016 06:39 Equity Research Buy 92.00 72.55 13/01/2017 08:37 Equity Research Buy 90.00 72.80 Roc he (CHF) 12/05/2016 07:24 Equity Research Not Rated 0.00 244.00 07/07/2016 09:47 Equity Research Hold 242.00 251.40 22/07/2016 06:15 Equity Research Hold 240.00 250.00 21/10/2016 08:54 Equity Research Hold 238.00 232.50 Sanofi (EUR) 12/05/2016 07:24 Equity Research Not Rated 0.00 69.49 07/07/2016 09:47 Equity Research Buy 91.00 73.71 11/08/2016 06:25 Equity Research Buy 89.00 71.21 03/02/2017 06:52 Equity Research Buy 87.00 74.98 15/02/2017 08:32 Equity Research Buy 88.00 80.50
Credit research does not issue target prices. Left intentionally blank. Please refer to the following link https://research.keplercheuvreux.com/app/disclosure for a full list of investment recommendations issued over the last 12 months by the author(s) and contributor(s) of this report on any financial instruments. Equity research Rating system KEPLER CHEUVREUX equity research ratings and target prices are issued in absolute terms, not relative to any given benchmark. A rating on a stock is set after assessing the twelve months expected upside or downside of the stock derived from the analyst’s fair value (target price) and in the light of the risk profile of the company. Ratings are defined as follows: Buy: The minimum expected upside is 10% over next 12 months (the minimum required upside could be higher in light of the company’s risk profile).
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Hold: The expected upside is below 10% (the expected upside could be higher in light of the company’s risk profile). Reduce: There is an expected downside. Accept offer: In the context of a total or partial take-over bid, squeeze-out or similar share purchase proposals, the offer price is considered to be fairly valuing the shares. Reject offer: In the context of a total or partial take-over bid, squeeze-out or similar share purchase proposals, the offered price is considered to be undervaluing the shares. Under review: An event occurred with an expected significant impact on our target price and we cannot issue a recommendation before having processed that new information and/or without a new share price reference. Not rated: The stock is not covered. Restricted: A recommendation, target price and/or financial forecast is not disclosed further to compliance and/or other regulatory considerations. Due to share prices volatility, ratings and target prices may occasionally and temporarily be inconsistent with the above definition. Valuation methodology and risks Unless otherwise stated in this report, target prices and investment recommendations are determined based on fundamental research methodologies and relies on commonly used valuation methodologies such as Discounted Cash Flow (DCF), valuation multiples comparison with history and peers, Dividend Discount Model (DDM). Valuation methodologies and models can be highly dependent on macroeconomic factors (such as the price of commodities, exchange rates and interest rates) as well as other external factors including taxation, regulation and geopolitical changes (such as tax policy changes, strikes or war). In addition, investors’ confidence and market sentiment can affect the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Whichever valuation method is used there is a significant risk that the target price will not be achieved within the expected timeframe. Unless otherwise stated, models used are proprietary. Additional information about the proprietary models used in this report is accessible on request. Kepler Cheuvreux’ equity research policy is to update research rating when it deems appropriate in the light of new findings, markets development and any relevant information that can impact the analyst’s view and opinion. Credit research Rating system (issuer or instrument level) Buy: The analyst has a positive conviction either in absolute or relative valuation terms and/or expects a tightening of the issuer’s debt securities spread over a 6 months period. Hold: The analyst has a stable credit fundamental opinion on the issuer and/or performances of the debt securities over a 6 months period. Sell: The analyst expects of a widening of the credit spread to some or all debt securities of the issuer and/or a negative fundamental view over a 6 months period. Not covered: Kepler Cheuvreux’ credit research team does not provide formal, continuous coverage of this issuer and has not assigned a rating to the issuer. Restricted: A recommendation, target price and/or financial forecast is not disclosed further to compliance and/or other regulatory considerations. Recommendations on interest bearing securities mostly focus on the credit spread and on the rating views and methodologies of recognized agencies (S&P, Moody’s and Fitch). Ratings and recommendations may differ for a single issuer according the maturity profile, subordination or market valuation of interest bearing securities. Valuation methodology and risks Unless otherwise stated in this report, recommendations produced on companies covered by KEPLER CHEUVREUX credit research, rely on fundamental analysis combined with a market approach of the interest bearing securities valuations. The methodology employed to assign recommendations is based on the analyst fundamental evaluation of the groups' operating and financial profiles adjusted by credit specific elements. Valuation methodologies and models can be highly dependent on macroeconomic factors (such as the price of commodities, exchange rates and interest rates) as well as other external factors including taxation, regulation and geopolitical changes (such as tax policy changes, strikes or war) and also on methodologies’ changes of recognized agencies. In addition, investors’ confidence and market sentiment can affect the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Unless otherwise stated, models used are proprietary. If nothing is indicated to the contrary, all figures are unaudited. Additional information about the proprietary models used in this report is accessible on request. Kepler Cheuvreux’ credit research policy is to update research rating when it deems appropriate in the light of new findings, markets development and any relevant information that can impact the analyst’s view and opinion. Regulators Location Regulator Abbreviation KEPLER CHEUVREUX S.A - France Autorité des Marchés Financiers AMF KEPLER CHEUVREUX, Sucursal en España Comisión Nacional del Mercado de Valores CNMV KEPLER CHEUVREUX, Frankfurt branch Bundesanstalt für Finanzdienstleistungsaufsicht BaFin KEPLER CHEUVREUX, Milan branch Commissione Nazionale per le Società e la Borsa CONSOB KEPLER CHEUVREUX, Amsterdam branch Autoriteit Financiële Markten AFM Kepler Capital Markets SA - Switzerland, Zurich branch Swiss Financial Market Supervisory Authority FINMA Kepler Capital Markets, Inc. Financial Industry Regulatory Authority FINRA KEPLER CHEUVREUX, London branch Financial Conduct Authority FCA KEPLER CHEUVREUX, Vienna branch Austrian Financial Services Authority FMA KEPLER CHEUVREUX, Stockholm Branch Finansinspektionen FI KEPLER CHEUVREUX is authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers.
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Legal and disclosure information Other disclosures This product is not for distribution to retail clients. The information contained in this publication was obtained from various publicly available sources believed to be reliable, but has not been independently verified by KEPLER CHEUVREUX. KEPLER CHEUVREUX does not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information, except to the extent required by applicable law. This publication is a brief summary and does not purport to contain all available information on the subjects covered. Further information may be available on request. This publication is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities, or as an invitation, inducement or intermediation for the sale, subscription or purchase of any securities, or for engaging in any other transaction. Any opinions, projections, forecasts or estimates in this report are those of the author only, who has acted with a high degree of expertise. They reflect only the current views of the author at the date of this report and are subject to change without notice. KEPLER CHEUVREUX has no obligation to update, modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter, opinion, projection, forecast or estimate contained herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. The analysis, opinions, projections, forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. The author of this publication benefits financially from the overall success of KEPLER CHEUVREUX. The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and KEPLER CHEUVREUX accepts no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. Some of the investments mentioned in this publication may not be readily liquid investments. Consequently it may be difficult to sell or realise such investments. The past is not necessarily a guide to future performance of an investment. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested. Some investments discussed in this publication may have a high level of volatility. High volatility investments may experience sudden and large falls in their value which may cause losses. International investing includes risks related to political and economic uncertainties of foreign countries, as well as currency risk. To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices whatsoever arising from the use of this publication or its contents. Country and region disclosures United Kingdom: This document is for persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restriction in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Articles 19(5) (Investment professionals) and 49(2) (High net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Any investment to which this document relates is available only to such persons, and other classes of person should not rely on this document. 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Notice to U.S. Investors: This material is not for distribution in the United States, except to “major US institutional investors” as defined in SEC Rule 15a-6 ("Rule 15a-6"). KEPLER CHEUVREUX has entered into a 15a-6 Agreement with Kepler Capital Markets, Inc. ("KCM, Inc.”) which enables this report to be furnished to certain U.S. recipients in reliance on Rule 15a-6 through KCM, Inc. Each U.S. recipient of this report represents and agrees, by virtue of its acceptance thereof, that it is a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of KCM, Inc. KCM, Inc. is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) under the U.S. Securities Exchange Act of 1934, as amended, Member of the Financial Industry Regulatory Authority (“FINRA”) and Member of the Securities Investor Protection Corporation (“SIPC”). Pursuant to SEC Rule 15a-6, you must contact a Registered Representative of KCM, Inc. if you are seeking to execute a transaction in the securities discussed in this report. You can reach KCM, Inc. at 600 Lexington Avenue, New York, NY 10022, Compliance Department (212) 710-7625; Operations Department (212) 710-7606; Trading Desk (212) 710-7602. Further information is also available at www.keplercheuvreux.com. You may obtain information about SIPC, including the SIPC brochure, by contacting SIPC directly at 202-371-8300; website: http://www.sipc.org/. KCM, Inc. is a wholly owned subsidiary of KEPLER CHEUVREUX. KEPLER CHEUVREUX , registered on the Paris Register of Companies with the number 413 064 841 (1997 B 10253), whose registered office is located at 112 avenue Kléber, 75016 Paris, is authorised and regulated by both Autorité de Contrôle Prudentiel (ACP) and Autorité des Marchés Financiers (AMF). Nothing herein excludes or restricts any duty or liability to a customer that KCM, Inc. may have under applicable law. Investment products provided by or through KCM, Inc. are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution, may lose value and are not guaranteed by the entity that published the research as disclosed on the front page and are not guaranteed by KCM, Inc. Investing in non-U.S. Securities may entail certain risks. The securities referred to in this report and non-U.S. issuers may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Rule 144A securities may be offered or sold only to persons in the U.S. who are Qualified Institutional Buyers within the meaning of Rule 144A under the Securities Act. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Securities discussed herein may be rated below investment grade and should therefore only be considered for inclusion in accounts qualified for speculative investment. Analysts employed by KEPLER CHEUVREUX SA, a non-U.S. broker-dealer, are not required to take the FINRA analyst exam. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position.
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In jurisdictions where KCM, Inc. is not registered or licensed to trade in securities, or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements. The information in this publication is based on sources believed to be reliable, but KCM, Inc. does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the author's judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice. KCM, Inc. and/or its affiliates may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance. KCM, Inc. and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company's actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company's products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. France: This publication is issued and distributed in accordance with Articles L.544-1 and seq and R. 621-30-1 of the Code Monétaire et Financier and with Articles 313-25 to 313-27 and 315-1 and seq of the General Regulation of the Autorité des Marchés Financiers (AMF). Germany: This report must not be distributed to persons who are retail clients in the meaning of Sec. 31a para. 3 of the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”). This report may be amended, supplemented or updated in such manner and as frequently as the author deems. Italy: This document is issued by KEPLER CHEUVREUX Milan branch, authorised in France by the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel (ACP) and registered in Italy by the Commissione Nazionale per le Società e la Borsa (CONSOB) and is distributed by KEPLER CHEUVREUX. This document is for Eligible Counterparties or Professional Clients only as defined by the CONSOB Regulation 16190/2007 (art. 26 and art. 58).Other classes of persons should not rely on this document. Reports on issuers of financial instruments listed by Article 180, paragraph 1, letter a) of the Italian Consolidated Act on Financial Services (Legislative Decree No. 58 of 24/2/1998, as amended from time to time) must comply with the requirements envisaged by articles 69 to 69-novies of CONSOB Regulation 11971/1999. According to these provisions KEPLER CHEUVREUX warns on the significant interests of KEPLER CHEUVREUX indicated in Annex 1 hereof, confirms that there are not significant financial interests of KEPLER CHEUVREUX in relation to the securities object of this report as well as other circumstance or relationship with the issuer of the securities object of this report (including but not limited to conflict of interest, significant shareholdings held in or by the issuer and other significant interests held by KEPLER CHEUVREUX or other entities controlling or subject to control by KEPLER CHEUVREUX in relation to the issuer which may affect the impartiality of this document]. Equities discussed herein are covered on a continuous basis with regular reports at results release. Reports are released on the date shown on cover and distributed via print and email. KEPLER CHEUVREUX branch di Milano analysts is not affiliated with any professional groups or organisations. All estimates are by KEPLER CHEUVREUX unless otherwise stated. Spain: This document is only intended for persons who are Eligible Counterparties or Professional Clients within the meaning of Article 78bis and Article 78ter of the Spanish Securities Market Act. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This report has been issued by KEPLER CHEUVREUX Sucursal en España registered in Spain by the Comisión Nacional del Mercado de Valores (CNMV) in the foreign investments firms registry and it has been distributed in Spain by it or by KEPLER CHEUVREUX authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers. There is no obligation to either register or file any report or any supplemental documentation or information with the CNMV. In accordance with the Spanish Securities Market Law (Ley del Mercado de Valores), there is no need for the CNMV to verify, authorise or carry out a compliance review of this document or related documentation, and no information needs to be provided. Switzerland: This publication is intended to be distributed to professional investors in circumstances such that there is no public offer. This publication does not constitute a prospectus within the meaning of Articles 652a and 1156 of the Swiss Code of Obligations. Canada: The information provided in this publication is not intended to be distributed or circulated in any manner in Canada and therefore should not be construed as any kind of financial recommendation or advice provided within the meaning of Canadian securities laws. Other countries: Laws and regulations of other countries may also restrict the distribution of this report. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly. None of the material, nor its content may be altered in anyway, transmitted to, copied or distributed to any other party, in whole or in part, unless otherwise agreed with KEPLER CHEUVREUX in writing.
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Equity Research Local insight, European scale
Europe Amsterdam
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Milan +39 02 85507 1 Paris
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Pharma & biotech research team
Thomas Guillot Main author Arsène Guekam Natalia Bobo [email protected] [email protected] [email protected] +33 1 70 98 85 27 +33 1 70 81 57 56 +34 91 436 5165
Thomas Guillot is an Equity Research
Analyst specialised in the Biotech and David Evans Oliver Reinberg, CFA Medtech sectors. He joined Kepler Co-Head of European Pharmaceutials Head of Medtech & Services Research [email protected] [email protected] Cheuvreux in September 2016. Prior +44 (0) 207 621 5197 +49 69 7569 140 to his appointment, he spent two years as a healthcare M&A analyst at Société Générale, where he advised large and Maja Pataki Pierre Boucheny specialty pharmaceutical companies as Head of Medtech Devices Research Head of French Research well as medtech. Previously, he was [email protected] [email protected] Equity Research Analyst assistant at +41 43 333 6623 +33 1 5365 3506
Natixis from 2012 to 2014 where he covered the pan-European Mark Belsey, PhD pharmaceutical sector. Thomas Guillot Co-Head of European Pharmaceutials Thomas Guillot has a Master's degree in [email protected] [email protected] pharmaceutical science from the +44 203 350 5032 +33 1 70 98 85 27 University of Rouen, in addition to a Master’s of Science in Management from the ESSEC business school in France.
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