IMMUTEP LIMITED Date | Theme |
04 November 2021 | Initiating Coverage |
Company |
Immutep Limited (IMM)
O/W: IMMune to failure
We initiate on Immutep (IMM) with an OVERWEIGHT recommendation and a $0.91 per share risked PT. Immutep is an Australian clinical stage biopharmaceutical company whose clinical assets focus on a new immuno-oncology (IO) target, the immune checkpoint molecule LAG-3. This is the perfect time to engage with LAG-3 directed assets now that Bristol Myers Squibb has filed the first LAG-3 directed drug for FDA & EMA approval. Immutep's clinical programs explore every therapeutic aspect of this multifaceted drug target. IMM's lead product Efti soon advances to Phase IIb & III trials aiming to enhance and extend IO blockbusters including Merck's (MSD) Keytruda. A wealth of pharma partnerships explore utility in oncology and autoimmune disease. We see a valuation disconnect between IMM and their opportunities in these markets with significant TAMs in metastatic cancers (breast $2.3B, head & neck $2.2B, lung $8B) where unmet need is high and partnership with existing blockbusters (Keytruda) sets them up for an immediacy of clinical adoption with future approvals. Our unrisked PT of $2.33/share highlights this.
Recommendation | OVERWEIGHT |
12-mth target price (AUD) | $0.91 |
Share price @ 02-Nov-21 (AUD) | $0.59 |
Forecast 12-mth capital return | 53.6% |
Forecast 12-mth dividend yield | 0.0% |
12-mth total shareholder return | 53.6% |
Market cap | $504m |
Enterprise value | $443m |
Shares on issue | 854m |
Sold short | 0.0% |
ASX 300 weight | 0.0% |
Median turnover/day | $0.9m |
Key points
Well progressed assets with large TAMs. Immutep's lead asset, Efti, is soon to be placed in its first registration Phase III trial, with other Phase II & IIb's underway. The asset is de- risked to a point given this advanced stage, with solid supporting clinical data thus far.
Established leading pharma partners validates asset quality. Immutep have out-licensedtwo of their assets to leading pharma partners (Novartis, GSK) with potential for significant future milestone and royalty payments, with no development expense. The long standing collaborative development between IMM and MSD across indications further supports this.
Strong market predicates guide potential value. Numerous recent oncology deals, including ASX-predicate,Viralytics, highlight the potential upside for IMM shareholders given interest from oncology players in Immutep's assets (MSD, GSK, Novartis, Pfizer, Merck). We see opportunity for a >$2B takeout opportunity based on recent deal predicates.
Forecasts. We forecast potential revenue peaks of $950M for Efti in metastatic breast cancer, $720M for Efti in HNSCC and $350M for Efti in NSCLC based on a licensing deal structure (peak royalty revenue $350M, $470M milestones).
Valuation. We value IMM using a SOTP using a real options DCF approach; a) Efti in breast cancer ($0.30/sh); b) Efti in HNSCC ($0.09/sh); c) Efti licensing in NSCLC ($0.53/sh). No other pipeline assets are included in our valuation at this stage. Unrisked PT is $2.33/sh.
Risks and catalysts
Risks: a) adverse clinical trial outcomes; b) negative regulator interactions; c) competitive
intensity of immuno-oncology field; d) available capital. Catalysts: a) achievement of trial endpoints; b) partnership opportunities; c) regulatory approvals; d) corporate activity.
Earnings forecasts | |||||
Year-end June (AUD) | FY20A | FY21A | FY22F | FY23F | FY24F |
NPAT rep ($m) | -13.4 | -30.5 | -33.9 | 78.4 | -43.2 |
NPAT norm ($m) | -13.5 | -29.9 | -33.9 | 78.4 | -43.2 |
Consensus NPAT ($m) | -48.2 | -6.6 | -24.4 | ||
EPS norm (cps) | -3.3 | -5.0 | -4.0 | 9.2 | -5.1 |
EPS growth (%) | 40.5 | -54.3 | 20.8 | 331.2 | -155.2 |
P/E norm (x) | -18.1 | -11.7 | -14.8 | 6.4 | -11.6 |
EV/EBITDA (x) | -38.3 | -15.9 | -13.8 | 5.5 | -10.7 |
FCF yield (%) | -2.2 | -3.5 | -6.9 | 15.7 | -8.7 |
DPS (cps) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Dividend yield (%) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Franking (%) | 0 | 0 | 0 | 0 | 0 |
Source: Company data, Wilsons estimates, Refinitiv
Wilsons Equity Research
Dr Melissa Benson
melissa.benson@wilsonsadvisory.com.au Tel. +61 2 8247 6639
Dr Shane Storey
shane.storey@wilsonsadvisory.com.au Tel. +61 7 3212 1351
12-mth price performance ($)
0.70
0.60
0.50
0.40
0.30
0.20
Oct-20 | Feb-21 | Jun-21 | Oct-21 |
IMM | XSI Rebased | ||
1-mth | 6-mth | 12-mth | |
Abs return (%) | 7.3 | 31.1 | 122.6 |
Rel return (%) | 5.3 | 24.3 | 98.7 |
Analyst(s) who own shares in the Company: n/a
Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 - Australian Financial Services Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies that are subject of this report and an explanation of recommendations can be found at the end of this document.
04 November 2021
Biotechnology
Immutep Limited
Growth rates
40000.0%
20.8% | 331.2% | |||||
-54.3% | -4.1% | -155.2% | ||||
-96.0% | -99.7% | |||||
FY21A | FY22F | FY23F | FY24F | |||
Revenue Growth | EPS Growth | |||||
Returns
378% | |||||||
99% | |||||||
-47% | -56% | -60% | -44% | ||||
-129% | -214% | -180% | -208% | ||||
FY20A | FY21A | FY22F | FY23F | FY24F | |||
ROE | ROIC | ||||||
Margin trends
1300%
-1900% FY20A FY21A FY22F FY23F FY24F -5100%-8300%
-11500%-14700%
EBITDA EBIT NPAT
Solvency
Debt/EquityNet(%) | -60% | 500 | ||||
-65% | CoverInt.(x) | |||||
-70% | ||||||
0 | ||||||
-75% | ||||||
-80% | ||||||
-500 | ||||||
-85% | ||||||
-90% | ||||||
-95% | -1000 | |||||
FY20A FY21A FY22F | FY23F FY24F | |||||
Net Debt/Equity | Interest Cover | |||||
Free cash flow yield
20%
15%
10%
5%
0% -5%-10%-15%
FY20A FY21A FY22F FY23F FY24F Free Cash Flow Yield (%)
Interims ($m) | |||||
1H21A | 2H21A | 1H22E | 2H22E | ||
Sales | 0.2 | 0.1 | 0.2 | 0.2 | |
EBITDA | -18.8 | -9.1 | -15.1 | -17.1 | |
EBIT | -19.9 | -10.1 | -16.2 | -18.2 | |
Net profit | -19.8 | -10.1 | -15.9 | -18.0 | |
Norm EPS | -3.8 | -1.2 | -1.9 | -2.1 | |
EBIT/sales | - | - | - | - | |
Dividend (c) | 0.0 | 0.0 | 0.0 | 0.0 | |
Franking (%) | 0.0 | 0.0 | 0.0 | 0.0 | |
Payout ratio | 0.0 | 0.0 | 0.0 | 0.0 | |
Adj payout | 0.0 | 0.0 | 0.0 | 0.0 |
Wilsons Equity Research
Page 2
Key assumptions | |||||||
FY18A | FY19A | FY20A | FY21A | FY22F | FY23F | FY24F | |
Revenue Growth (%) | -64.4 | 499.8 | -96.0 | -4.1 40,000.0 | -99.7 | ||
EBIT Growth (%) | 26.6 | 45.0 | -27.1 | 119.6 | 14.7 | -327.3 | -156.5 |
NPAT Growth (%) | 36.1 | 43.9 | -26.6 | 122.0 | 13.3 | -331.2 | -155.2 |
EPS Growth (%) | -40.5 | 54.3 | -20.8 | -331.2 | -155.2 | ||
R&D spend | -10.0 | -16.6 | -20.4 | -17.2 | -26.0 | -33.0 | -35.0 |
ROA (%) | -31.1 | -41.9 | -30.9 | -46.5 | -52.7 | 90.8 | -41.7 |
ROE (%) | -42.4 | -63.4 | -46.7 | -56.1 | -60.0 | 98.6 | -44.4 |
Financial ratios | ||||||||||
FY18A | FY19A | FY20A | FY21A | FY22F | FY23F | FY24F | ||||
PE (x) | -120.4 | -10.8 | -18.1 | -11.7 | -14.8 | 6.4 | -11.6 | |||
EV/EBITDA (x) | -39.9 | -26.3 | -38.3 | -15.9 | -13.8 | 5.5 | -10.7 | |||
Dividend yield (%) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
FCF yield (%) | -1.5 | -3.0 | -2.2 | -3.5 | -6.9 | 15.7 | -8.7 | |||
Payout ratio (%) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Adj payout (%) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Profit and loss ($m) | ||||||||||
FY18A | FY19A | FY20A | FY21A | FY22F | FY23F | FY24F | ||||
Sales revenue | 3.6 | 1.3 | 7.8 | 0.3 | 0.3 | 120.3 | 0.4 | |||
EBITDA | -11.1 | -16.9 | -11.6 | -27.9 | -32.2 | 80.6 | -41.6 | |||
Depn & amort | 1.8 | 1.9 | 2.1 | 2.1 | 2.2 | 2.4 | 2.6 | |||
EBIT | -12.9 | -18.7 | -13.7 | -30.0 | -34.4 | 78.2 | -44.2 | |||
Net interest expense | -0.2 | -0.4 | -0.2 | -0.1 | -0.5 | -0.2 | -0.9 | |||
Tax | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Minorities/pref divs | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Equity accounted NPAT | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Net profit (pre-sig items) | -12.7 | -18.3 | -13.5 | -29.9 | -33.9 | 78.4 | -43.2 | |||
Abns/exts/signif | 1.3 | 0.6 | 0.1 | -0.6 | 0.0 | 0.0 | 0.0 | |||
Reported net profit | -11.4 | -17.8 | -13.4 | -30.5 | -33.9 | 78.4 | -43.2 | |||
Cash flow ($m) | ||||||||||
FY18A FY19A FY20A FY21A FY22F | FY23F | FY24F | ||||||||
EBITDA | -11.1 | -16.9 | -11.6 | -27.9 | -32.2 | 80.6 | -41.6 | |||
Interest & tax | 0.1 | 0.4 | 0.2 | 0.1 | 0.5 | 0.2 | 0.9 | |||
Working cap/other | 3.2 | 1.2 | 0.5 | 10.2 | -2.9 | -1.7 | -3.1 | |||
Operating cash flow | -7.8 | -15.3 | -10.8 | -17.6 | -34.6 | 79.0 | -43.7 | |||
Maintenance capex | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Free cash flow | -7.8 | -15.3 | -10.8 | -17.6 | -34.6 | 79.0 | -43.7 | |||
Dividends paid | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Growth capex | 0.0 | 0.0 | 0.0 | 0.0 | -0.2 | -0.2 | -0.2 | |||
Invest/disposals | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Oth investing/finance flows | -1.3 | -0.8 | -1.5 | -2.1 | 0.0 | 0.0 | 0.0 | |||
Cash flow pre-financing | -9.1 | -16.1 | -12.3 | -19.8 | -34.8 | 78.8 | -43.9 | |||
Funded by equity | 19.7 | 8.8 | 22.0 | 55.0 | 0.0 | 0.0 | 0.0 | |||
Funded by debt | 0.0 | 0.0 | -0.1 | -0.2 | -0.1 | -0.1 | -0.1 | |||
Funded by cash | -10.6 | 7.3 | -9.6 | -35.0 | 34.9 | -78.7 | 44.0 | |||
Balance sheet summary ($m) | ||||||||||
FY18A | FY19A | FY20A | FY21A | FY22F | FY23F | FY24F | ||||
Cash | 23.5 | 16.6 | 26.3 | 60.6 | 25.7 | 104.4 | 60.4 | |||
Current receivables | 3.4 | 5.2 | 3.3 | 6.1 | 5.0 | 5.0 | 5.0 | |||
Current inventories | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Net PPE | 0.0 | 0.1 | 0.0 | 0.0 | 0.2 | 0.3 | 0.4 | |||
Intangibles/capitalised | 18.3 | 16.9 | 15.2 | 12.8 | 13.1 | 13.1 | 13.1 | |||
Total assets | 47.0 | 40.5 | 46.6 | 82.0 | 46.6 | 126.0 | 81.6 | |||
Current payables | 3.7 | 5.1 | 2.9 | 4.8 | 2.8 | 3.5 | 3.0 | |||
Total debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Total liabilities | 13.5 | 16.2 | 13.3 | 8.8 | 6.8 | 6.8 | 6.3 | |||
Shareholder equity | 33.5 | 24.4 | 33.3 | 73.3 | 39.8 | 119.2 | 75.3 | |||
Total funds employed | 33.5 | 24.4 | 33.3 | 73.3 | 39.8 | 119.2 | 75.3 |
04 November 2021
Biotechnology
Immutep Limited
Table of Contents
Glossary | 4 |
Investment thesis | 5 |
Investment merits | 6 |
Investment risks | 8 |
Company overview and background | 10 |
Valuation | 11 |
M&A modelling valuation | 15 |
Valuation sensitivities | 17 |
Catalysts | 19 |
Forecasts | 20 |
Revenue model | 20 |
Investment and expense assumptions | 24 |
Appendix | 26 |
A1. Industry and competitive positioning | 27 |
A1.1 Immuno-Oncology (IO) landscape | 27 |
A1.2 LAG-3 competition | 33 |
A2. Eftilagimod Alpha (Efti) | 36 |
A2.1 LAG-3 as an important immune modulator | 36 |
A2.2 Mechanistic background; APC agonism and modulation | 38 |
A2.3 Clinical evidence: metastatic breast cancer | 42 |
A2.4 Clinical evidence: head and neck squamous cell carcinoma | 53 |
A2.5 Clinical evidence: non-small cell lung cancer | 61 |
A2.6 Clinical evidence: metastatic melanoma | 69 |
A2.7 Clinical evidence: solid tumours (INSIGHT) | 71 |
A2.8 Manufacturing | 74 |
A3. Out-licensed assets and R&D pipeline | 75 |
A3.1 IMP701 (LAG525, leramilimab) | 75 |
A3.2 IMP731 (GSK2831781) | 77 |
A3.3 IMP761 | 79 |
A3.4 LAG-3 Diagnostics | 81 |
A4. Intellectual property summary | 82 |
A5. Market model summaries | 85 |
A5.1 Metastatic Breast Cancer | 85 |
A5.2 Head and Neck Squamous Cell Carcinoma (HNSCC) | 87 |
A5.3 Non-Small Cell Lung Cancer (NSCLC) | 88 |
A6. Board and Management | 89 |
Wilsons Equity Research
Page 3
04 November 2021
Biotechnology
Immutep Limited
Glossary
Efti
LAG-3
IO
ICI
PD-1/PD-L1
APC
-
Cell
BLA
Hazard Ratio (HR)
DCR
ORR
PFS
OS
NSCLC
HNSCC Metastatic cancer
Unresectable cancer
HR status (+ or -)
HER2 status (+ or -)
TNBC
Eftilagimod alpha (Efti) is Immutep's lead asset. It is a soluble fusion protein containing LAG-3 that can stimulate the immune system to help fight cancer. Efti is also referred to IMP321 in some circumstances.
Lymphocyte Activator Gene 3 (LAG-3) is a key checkpoint within the immune system that can function to supress or activate immune response (via T cell activation) depending on how it is modulated.
Immuno-oncology (IO) is an area of cancer treatment that focuses on targeting the body's own immune system in order to fight tumours/cancer. IO drugs have become a major component of the oncology landscape since introduction a decade ago and target different immune checkpoints (including PD-1,CTLA-4,PD-L1). The first IO drug was approved in 2011 (Yervoy for melanoma) with a swathe of other IOs to follow; Keytruda being the highest selling current IO drug (US$14B sales in 2020) for a multitude of cancer indications.
Immune checkpoint inhibitors are typically antagonist antibodies that block a key immune checkpoint involved in immune response and tumour growth such as PD-1. Pembrolizumab and ipilimumab are examples of ICIs.
Programmed cell death receptor 1 (PD-1) and its ligand (PD-L1) are key targets within immuno-oncology. Blocking these molecules induces anti-tumour responses. They are the target of many ICIs, including pembrolizumab.
Antigen presenting cells (APCs) are a key part of the innate immune system and responsible for moderating immune response to antigen stimulus. A specific class of APCs are the target of Efti.
T cells are a type of immune cell within that body whose primary role is to eliminate cells infected by pathogens or that have undergone malignant transformation (cancer).
A Biologics License Application (BLA) is a type of FDA drug submission required to grant marketing authorisation for drugs that are biologic in nature, i.e. Antibody or protein-based drugs, such as Eftilagimod Alpha.
Hazard ratio (HR) is a statistical measure used to define the benefit of one treatment over another. A HR <1 indicates less risk of death or disease progression compared to the other treatment of interest.
Disease control rate (DCR) represents the complete, partial and stable responses to a cancer drug. It shows the proportion of patients where the drug treatment has 'stalled' or controlled their cancer.
Overall response rate (ORR) represents the complete and partial responses to a drug. It is a typical primary endpoint and represents the proportion of patients within a treatment group that had benefit (reduced tumour size) from the drug.
Progression free survival (PFS) measures the period of time that a patient is able to live without their cancer progressing (i.e. stable or improving) after they have initiated a treatment regimen. It is a common primary endpoint measure.
Overall survival (OS) measures how long a patient survives before death after starting a therapeutic treatment. It is a common primary endpoint measure in cancer clinical trials that is an approvable endpoint.
Non-small cell lung cancer is the type of lung cancer that accounts for ~80-85% of all lung cancers.
Head and neck squamous cell carcinoma is a common form of cancer affecting areas in the head and neck.
Metastatic cancers are those that have spread beyond the primary organ/site of the cancer into other areas of the body. Metastatic cancer has a higher associated mortality rate and is often more challenging to treat.
Unresectable refers to cancerous tumours that are not able to be surgically removed, typically due to there not being clear margins around the tumour, it being located in an area that cannot be removed and/or the tumour having spread into other surrounding tissues and organs. Surgical resection is a typical first line therapy for solid tumours.
Hormone receptor (HR) status is used to categorise breast cancer types as it guides treatment decisions. HR status includes expression of both estrogen receptors (ER) and progesterone receptors (PR). Cancers that are positive for one or both (ER/PR) are defined as HR+. Only cancers that are ER- and PR- are classified as HR-.
Human epithelial growth factor receptor 2 (HER2) status is used to categorise breast cancer types as it guides treatment decisions. Patients with HER2+ cancer types are often amenable to targeted HER2 therapies not useful in HER2- patients
Triple negative breast cancer (TNBC) is a subtype where the cancer is negative for all three key receptors (HER2, ER, PR).
Wilsons Equity Research Page 4
04 November 2021
Biotechnology
Immutep Limited
Investment thesis
We initiate coverage on Immutep with an OVERWEIGHT rating and risked price target of $0.91 per share. Immutep is an Australian clinical stage biopharmaceutical company whose clinical assets focus on a new immuno-oncology (IO) target, the immune checkpoint molecule LAG-3. This is the perfect time to engage with LAG-3 directed assets now that Bristol Myers Squibb has filed the first LAG-3 directed drug for FDA and EMA approval. Immutep's clinical programs explore every therapeutic aspect of this multifaceted drug target. IMM's lead product Efti soon advances to Phase IIb & III trials aiming to enhance and extend IO blockbusters including Merck's (MSD) Keytruda. A wealth of pharma partnerships explore utility in oncology and autoimmune disease. We see a valuation disconnect between IMM and their opportunities in these markets with significant TAMs in metastatic cancers (breast $2.3B, head & neck $2.2B, lung $8B) where unmet need is high and partnership with existing blockbusters (Keytruda) sets them up for an immediacy of clinical adoption with future approvals.
The four key points we would emphasise in supporting our investment thesis are as follows;
- Clinical data supports progression of Efti in 3 key indications with large TAMs. Immutep have standout data in HNSCC, an indication where they also have Fast Track Designation. They also have data to support expansion of current anti-PD-1therapies in a broader patient population including positive efficacy in refractory patient subsets. Finally, whilst less straightforward, they have clear efficacy advantages over the current mBC standard of care in a patient subtype (HR+/HER2-)with limited treatment options.
- Unique and scientifically valid approach to emerging IO field. Immutep represent the only LAG-3focused 'pure-play'biotech on the market (ASX or NASDAQ). They have a strong R&D pipeline with unique assets (4 different mechanistic approaches to LAG-3modulation) and very strong scientific expertise to support their continued innovation in the space. LAG-3is the newest checkpoint inhibitor close to first market approval, setting it up to be a hot space in the near term.
- Proven engagement with several oncology leaders in market positions IMM well for acquisition. Immutep have broad ranging partnerships (in the form of collaborations and licensing deals) with a large number of oncology heavy hitters (MSD, GSK, Merck KGaA, Pfizer, Novartis). Engagement by these oncology powerhouses validates the assets and approach Immutep are taking to their clinical development programs. Further, their pairing of Efti to the market leading IO drug, Keytruda (MSD) positions them well for future market entry.
- Timing is right - valuation discount present whilst field awaiting regulator validation. The likely and impending FDA approval of BMS' relatlimab in melanoma represents the first regulatory validation of LAG-3as a relevant anti-tumourimmune checkpoint. This brings broad validation to the field of LAG-3targeted assets, with Immutep being the forefront player given their unique pipeline of four assets, each with unique mechanisms of action. The significant valuation discount we see in Immutep will be moderated following regulator validation of LAG-3as a target in early CY22.
Wilsons Equity Research
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