Scancell : A fresh impetus in delivering immune-oncology vaccines

Trinity Delta

Scancell

A fresh impetus in delivering immune-oncology vaccines

Scancell is an oncology-focussed clinical stage immunology specialist. It has two promising vaccine platforms, ImmunoBody and Moditope, and two antibody technologies, GlyMab (anti-glycans) and AvidiMab, with the potential to treat many solid cancers, either as monotherapy or in combination. Modi-1, the first Moditope programme, is expected to start Phase I/II trials targeting hard-to-treat tumours during H122. The lead ImmunoBody programme, SCIB1, is in a Phase II combination study in metastatic melanoma. The broad acting glycan antibodies are at earlier stages of development and will likely be partnered for clinical studies. AvidiMab technology will be increasingly employed to enhance avidity and potency, with the Phase I COVIDITY COVID-19 vaccine programme the most high-profile beneficiary. Our Scancell valuation, using a risk adjusted DCF model, is £237.4m, or 29.1p per share.

• ▪ Moditope induces CD4 activation The Moditope platform is unique in inducing

  CD4 cytotoxic T cells. It exploits the fact that most cancer cells live in stress conditions and often undergo autophagy to survive, resulting in post-translational modifications such as citrullination and homocitrullination. Moditope initiates an immune cascade with direct killing of tumour cells by CD4 T cells. Modi-1, the first Moditope vaccine, is due to start a Phase I/II trial during H122 in advanced tumours (triple negative breast cancer [TNBC], ovarian, renal, and head & neck cancers).

• ▪ ImmunoBody and COVIDITY clinical trials underway ImmunoBody vaccines have an elegant design that targets dendritic cells, achieving efficient direct and cross-presentation of specific epitopes with a consistently strong anti-tumour immune response. Promising activity seen in a SCIB1 monotherapy Phase I/II melanoma study will hopefully be replicated in a Phase II combination trial. COVIDITY, a second generation COVID-19 vaccine, is completing Phase I studies in South Africa.

• ▪ AvidiMab and GlyMab are novel antibody platforms Monoclonal antibodies

  (mAbs) targeting tumour-associated glycans are attractive oncology targets as they are typically exquisitely tumour-specific, but the challenge has been to produce high affinity antibodies. The GlyMab platform has overcome this limitation and the AvidiMab platform can further enhance the avidity and potency of virtually any antibody. Scancell has created five preclinical anti-glycan mAbs and is also employing AvidiMab to improve COVIDITY's efficacy profile.

• ▪ Clinical delivery will drive share appreciation Our Scancell valuation, using an rNPV methodology with conservative assumptions, is £237.4m, equivalent to 29.1p per share. Key catalysts will be delivery of positive clinical data with increasing visibility of clinical and corporate progress also likely to boost investor sentiment.

Price Market Cap Enterprise Value Shares in issue 12 month range Free float Primary exchange Other exchanges Sector Company Code

12 April 2022

Corporate client

Outlook

16.90p £137.8m £121.5m 815.2m 10.5p-24.6p 54.1% AIM London

N/A Healthcare

SCLP.LYes

Company description

Scancell is a clinical-stage immuno-oncology specialist that has four technology platforms. Two flexible therapeutic vaccine platforms are progressing through development. ImmunoBody and Moditope induce high avidity cytotoxic CD8 and CD4 responses, respectively, with the potential to treat various cancers.

Analysts

Lala Gregoreklgregorek@trinitydelta.org +44 (0) 20 3637 5043

Franc Gregorifgregori@trinitydelta.org +44 (0) 20 3637 5041

Investment case

Four platforms: two vaccine and two antibody based

A valuation of £237.4m, equivalent to 29.1p a share (24.2p diluted)

Plenty of opportunities and funded to value inflection points

Oncology is a crowded and competitive segment

Scancell is a clinical-stage immuno-oncology specialist. It was founded in 1996 as a spin-out of research led by Professor Lindy Durrant at the University of Nottingham. There are four distinct technology platforms that address oncology vaccines and antibodies: Moditope vaccine effects are mediated via CD4 pathways; ImmunoBody vaccines employ CD8 T cell pathways; the GlyMab platform generates high affinity anti-glycan antibodies; and AvidiMab can enhance the avidity of most antibodies. All the therapeutic platforms should have broad applicability in many forms of solid tumours. The ImmunoBody technology is also employed to create COVIDITY, a second generation COVID-19 vaccine. Scancell initially listed on PLUS in 2008, moving to AIM in 2010. The sizeable investment by Redmile in 2020 transformed Scancell's ability to fund its activities. Leading shareholders are Redmile (29.7%), Vulpes (14.4%) and Calculus Capital (5.6%). The company is based in Oxford and Nottingham and has >40 employees.

Valuation

We value Scancell using a DCF model where the rNPV of the four technology platforms are summed and netted out against forecast operational costs and resultant net cash. The clinical stage platforms carry a greater value reflecting the higher inherent success probabilities as development progresses. Conservative assumptions are employed for factors such as timings of clinical studies, market launches, adoption curves, and patient penetrations. The antibody platforms may arguably have higher commercial potentials, but their earlier stage means lower success probabilities are used. Despite our cautious approach, we value Scancell at £237.4m, equivalent to 29.1p per share (24.2p fully diluted).

Financials

Scancell ended H122 (31 October 2021) with a cash balance of £35.6m (H121: £25.7m). R&D spend doubled to £4.0m (H121: £2.0m) reflecting the increase in GMP manufacturing and costs for the COVIDITY programme. G&A expenses also doubled to £1.9m (H121: £1.0m) due to increased staff costs and investment into the new laboratory in Oxford. Expenditure to support the expected development progress with Moditope and ImmunoBody, coupled with spend on the GlyMab and AvidiMab platforms, suggests the cash runway extends through 2023.

Sensitivities

Scancell's technology platforms, especially the GlyMab antibodies, are at the earlier development stages and, inevitably, carry a higher risk profile. The immuno-oncology sector is increasingly crowded and competitive, with multiple players (ranging from large pharmaceutical groups to biotech companies and even well-funded academic centres) vying to develop the definitive breakthroughs. Equally, the usual industry risks associated with clinical trial results, navigating regulatory hurdles, ensuring sufficient financing is in place, partnering discussions and, eventually, the exit strategy, also apply. COVID-19 has clearly impacted the performance of clinical trials across the industry, and Scancell has similarly been affected by a degree of delay in patient recruitment and data presentation.

Scancell: more than just oncology vaccines

Scancell is a clinical stage immuno-oncology specialist with four technologyplatforms that split neatly into therapeutic vaccines, ImmunoBody andModitope, and antibodies, GlyMab (anti-glycan mAbs) and AvidiMab. Vaccinesare the most advanced, with clinical efficacy data expected during 2022 for boththe lead Moditope and ImmunoBody programmes. A greater understanding ofthe processes required for effective killing of tumour cells (Cancer-ImmunityCycle) has brought therapeutic vaccines back into vogue as their ability topotently prime the immune system could complement checkpoint inhibitionperfectly. Although non-core, the COVID-19 vaccine programme adds anopportunity to showcase Scancell's expertise. The antibody platforms are earlierbut highly attractive: mAbs generated using the GlyMabs platform offer theprospect of direct anti-tumour activity, whilst AvidiMab can be employed toboost the avidity and potency of virtually any antibody-based therapy. Whilstnot without risks, we believe the valuation fails to reflect the opportunities. Wevalue Scancell at £237.4m or 29.1p/share.

Clinical data will define the value of the vaccine plaforms

After a protracted period Scancell is entering a phase where robust clinical data should demonstrate the value of its core technologies. The key inflection point centres on Phase I/II results for the lead Moditope programme, Modi-1 for TNBC, ovarian, renal, and head & neck cancers. The study is due to start in H122, with initial results expected in H222. Additional events include generation of Phase I data by COVIDITY, the second generation multi-valent ImmunoBody COVID-19 vaccine, and the completion of the SCIB study, which is the first oncology ImmunoBody programme. These events should provide invaluable insights into clinical applicability and commercial prospects for these novel vaccine platforms.

Antibody platforms are at earlier stages but hold much promise

GlyMab, anti-glycan tumour directed antibodies, and AvidiMab, avidity and potency enhancer, platforms are at earlier stages of development. AvidiMab is already employed in the COVIDITY programme, where the safety and efficacy profile should provide a degree of clinical validation. The GlyMab platform has generated five preclinical compounds with attractive, and promising, anti-tumour activities that are fostering industry interest. The preclinical nature of these programmes suggests there will be little public signals ahead of a partnering deal. Our rNPV model places more emphasis on later stage programmes, hence these antibody-based platforms are likely to be under-represented in our valuation despite a clear scientific rationale and commercial applicability.

Redmile investment transformed Scancell's ability to undertake clinical trials

Scancell's funding was transformed inNovember 2020 when Redmile injected a further £30m (£12.1m in equity, £17.9m in CLNs), swelling cash resources to £48m (October 2021: £35.6m). A sizeable element of the funds was directed to building resources and capabilities to enable multiple clinical programmes to be run in parallel, notably broader Immunobody and Moditope development and, importantly, progression of the AvidiMab and GlyMab platforms to greater value inflection points. Tangible evidence of this investment is the new modernfacilities at the Bellhouse Building, The Oxford Science Park. The corollary of having sufficient resources is an expectation of timely delivery on key programmes.

Valued at £237.4m, or 29.1p a share (24.2p fully diluted)

We value Scancell at £237.4m, equivalent to 29.1p per share, with scope for upside revisions as key value inflection points are successfully achieved.

Harnessing the immune system to target cancers

The immune system is now at the heart of oncology therapies

Immunotherapy has revolutionised the treatment of many solid tumours, with drugs such as the checkpoint inhibitors(CPIs) pembrolizumab (Merck's Keytruda) and nivolumab (BMS's Opdivo) achieving remarkable results in certain cancer types. These successes, and an appreciation of treatment limitations, has led to a far more holistic approach that considers not only the tumour cells to be targeted and destroyed but also the cancer immune environment itself. Over the past two decades the importance of the tumour microenvironment(TME)has become better understood, as has the pivotal role played by the interactions within it in tumorigenesis and, especially, in tumour progression. As a result, research and, increasingly, therapy has switched from a cancer-centric to a TME-centric model.

A greater understanding of the tumour cycle drives innovation

7 key steps help define the inherent complexities

The historic treatment mainstays of chemotherapy, radiotherapy, and surgical excision remain core components of many first-line therapy regimens. However, immunotherapy is now firmly established as a central element of care, from the metastatic stage to the adjuvant and neoadjuvant settings, in numerous cancer types. The greater understanding of the processes that underlie tumour initiation, progression, and metastasis has brought a variety of novel treatments, as well as an appreciation that optimal clinical outcomes may need their use in appropriate, and timely, combinations. The anti-cancer immune responses that lead to an effective elimination of cancer cells require an understanding of the normal cell cycle and how it is altered to allow tumours to establish themselves.

Exhibit 1: The Cancer Immunity Cycle

Source: Chen DS et al. Oncology Meets Immunology: The Cancer-Immunity Cycle. Immunity, Volume 39, Issue 1, 1-10.

The body's immune system routinely detects and eliminates abnormal cells through a process known as immunosurveillance. For the majority of the time this works effectively. However, cancer cells can mutate and evolve employing immunosuppressive and evasive mechanisms such that a number escape in aprocess termedimmune editing and a tumour becomes established. Recent work has uncovered many such mechanisms, and, in most cases, cancers employ several to avoid recognition and destruction. Exhibit 1 illustrates theseven steps in how the immune system recognises and kills cells, showing the iterative nature of the many, and subtle, inter-plays between cancer cells and the various components of the immune response.

Immunogenic signals from the start...

In the first step, the transformation of normal cells to cancer cells (oncogenesis) causes the release of neoantigens. These are captured by dendritic cells(DCs), which process the neoantigens and present the captured antigens onMHCI andMHCII molecules to T cells (Step 2). To generate an anticancer T cell response, this must be accompanied by signals specifying immunity in case peripheral tolerance to the tumour antigens is induced. Such immunogenic signals might include pro-inflammatory cytokines and factors released by dying tumour cells.

...lead to the body's immune response…

This prepares and activateseffector T cell responses against cancer-specific antigens (Step 3), which are now recognised as foreign or as those against which central tolerance is incomplete. The nature of the immune response is defined at this stage, with a critical balance representing the ratio of T effector cells vsTregulatory cells determining outcomes.

...and normally results in a tumour cell's elimination…

The activated effector T cells traffic to (Step 4) and infiltrate the tumour bed (Step 5), specifically recognising and binding to cancer cells through the interaction between itsT cell receptor (TCR) and its cognate antigen bound to MHCI (Step 6), and subsequently killing their target cancer cell (step 7). Cancer cell killing releases additional tumour-associated antigens (Step 1 again), which increases the breadth and depth of the immune response in subsequent revolutions of the cycle.

…but many things can go awry and lead to tumour progressionThe aim is to identify and remedy the imbalances

Normally we are protected strongly by our immune systems but when this cycle is not operating properly, such as when tumour antigens are not detected correctly by dendritic cells or the TME suppresses the effector cells that are produced, cancerous cells take hold and tumours form.

Combination therapies are seen as the way forward

Cancer immunotherapy aims to identify and correct the imbalance so that the cycle becomes self-sustaining again. The difficulty is firstly to ensure a treatment does not overly amplify the immune response, causing an exaggerated autoimmune reaction, but, more challengingly, to ensure tumour cells do not find alternative pathways and so escape. Despite the clear promise immunotherapies hold primary and secondary resistance to single agent therapy often results in treatment failure, and only a minority of patients experience long-term benefits.

But tumour escape mechanisms mean combinations are required

As more is known, the harsh reality is that tumour cells appear to have intrinsic mechanisms to evade anti-cancer immunity through bypassing every possible step along the cancer immunity cycle. Hence the increasing attention on combining multiple mechanisms, simultaneously or in sequence, to maximise efficacy. However, a problem is that these treatments, whilst more selective than typical chemotherapies, are still associated with high levels of adverse events and side-effects (eg on-target off-tumour toxicities). Thus, the focus is clearly on identifying combination regimens that will boost overall efficacy and limit treatment resistance but do so with manageable side-effects.