Opening new pathways in immuno-oncology
Initiation | 28 November 2018
Scancell has two promising technology platforms for therapeutic vaccines that have the potential to treat many cancers, either as monotherapy or in combination with checkpoint inhibitors. Many therapeutic vaccines have failed to fulfil their potential; but the strength of the cellular immune responses stimulated by both ImmunoBody and Moditope, and the resultant anti-tumour activity observed to date in clinical and preclinical studies augers well. The financial issues that have hindered development of these products are being overcome, so a Phase II study with ImmunoBody SCIB1 and a Phase I/II with the first Moditope product are expected to start during CY19. We value the company, using a risk-adjusted DCF model, at £82.0m, or 21.1p a share.
|Year-end: April 30||2017||2018||2019E||2020E|
|Adj. PBT (£m)||(4.5)||(4.9)||(8.6)||(7.6)|
|Net Income (£m)||(3.5)||(4.2)||(7.1)||(6.4)|
|Adj. EPS (p)||(1.4)||(1.3)||(1.8)||(1.6)|
28 November 2018
|Shares in issue||387.8m|
|12 month range||7.60-19.47p|
|Primary exchange||AIM London|
Scancell is a clinical-stage immuno-oncology specialist that is developing two innovative and flexible therapeutic vaccine platforms. ImmunoBody and Moditope induce high avidity cytotoxic CD8 and CD4 responses, respectively, with the potential to treat various cancers.
Mick Cooper PhD
+44 (0) 20 3637 5042
+44 20 3637 5043
Table of Contents
Scancell is a clinical-stage immuno-oncology specialist. It was founded in 1997 as a spin-out of research led by Prof Lindy Durrant at the University of Nottingham. In 2006 the pipeline of direct-killing antibodies was sold to Arana Therapeutics and research efforts focused on the ImmunoBody and Moditope cancer vaccine programmes. The two platforms are very different – ImmunoBody employs CD8 T-cell pathways whilst Moditope effects are mediated via CD4 pathways – with clear differentiation and benefits over previous therapeutic vaccine approaches. Both platforms should have broad applicability in many forms of solid tumours.
Scancell initially listed on PLUS in 2008 and moved to AIM in 2010. Over £37m has been raised in equity since inception with £8.7m raised in the past year. The development programme planned for the near-term suggests a funding requirement of £12m. The leading shareholders are Calculus Capital (12.9%), City Financial (5.6%), Legal and General (4.7%) and Hygea VCT (3.4%). The company is based in Oxford and Nottingham, and has 21 full-time employees.
We value Scancell using an rNPV of the four lead indications from the two vaccine platforms, which are then netted out against the cost of running the business and net cash. The success probabilities in each known indication are based on standard industry criteria for each stage of the clinical development process, but flexed to reflect their differing characteristics. We have employed conservative assumptions throughout; for example, erring on the cautious side for factors such as the timing of clinical studies, market launches, adoption curves, and patient penetration. Despite such a deliberately cautious approach we currently value Scancell at £82.0m, equivalent to 21.1p per share.
Following a share placing of £6.9m (net) in April, Scancell had cash of £10.3m at FY18 year-end. A further £1.1m (net) was raised in May. The forecast cash burn of around £6.4m per annum over the next 24-36 months suggests a runway through to early 2020. However, in addition to the funds employed in progressing the clinical programmes to the next value-inflection points, we would argue that the opportunities that are presenting themselves to develop the two platforms would warrant a strengthening of the capital base. Our forecasts suggest a funding requirement of c £12m within the next 12 to 24 months.
Scancell’s therapeutic vaccine programmes are at the cutting edge of immuno-oncology and, inevitably, carry a higher risk profile. This area of science 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 break-through. 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, still apply. Our main sensitivities are detailed later (in the body of the note), with particular emphasis on each individual programme.
The potential of immune activation to treat cancer is now fully appreciated, because of the impact of checkpoint inhibitors. However, a disappointing number of patients currently fail to benefit from their use; Scancell’s ImmunoBody and Moditope platforms could provide part of the solution. The company has learnt from past failures of other therapeutic vaccines. Both platforms have delivered promising preclinical data and, and in the case of ImmunoBody SCIB1, clinical data. Financial issues are gradually being overcome by the new management, so that Scancell now aims to initiate two new clinical trials in 2019: a Phase II study with an ImmunoBody in combination with the checkpoint inhibitor pembrolizumab, and the first clinical trial with a Moditope. We value Scancell, using a rNPV approach, at £82.0m, or 21.1p/share
The treatment of many cancers is being revolutionised by immunotherapies, such as the checkpoint inhibitors pembrolizumab (Merck’s Keytruda) and nivolumab (BMS’s Opdivo). These therapies can improve the long-term survival of cancer patients, but disappointingly only c 40% of patients achieve such an outcome in melanoma (the most immunogenic tumour), and there is no benefit at all in some cancers. The challenge for immuno-oncology is now to improve the proportion of patients that respond well to therapy.
There are numerous methods being assessed currently to make tumours more immunogenic. One approach is to directly prime an anti-tumour response using therapeutic vaccines. This class of treatment had fallen out of favour, after late stage clinical trials failed to confirm the promise in Phase I/II studies. But, major collaborations in the field involving Merck & Co and Roche show there is renewed interest, as the immune system is better understood.
A key issue of earlier therapeutic vaccines was that, for various reasons, they did not generate a predictable, strong immune response. Scancell has learnt from the setbacks, and created two novel classes of vaccine, ImmunoBody and Moditope.
ImmunoBody vaccines have an elegant design to ensure the efficient cross-presentation of specific epitopes (peptide sequences from proteins), and a consistently strong anti-tumour immune response. Promising activity was seen in a monotherapy Phase I/II study in melanoma, but the real potential of ImmunoBody is in combination with checkpoint inhibitors. This will be explored in two trials with different ImmunoBodies, SCIB1 and SCIB2.
Moditope is a totally different class of therapeutic vaccine, and potentially more promising. It effectively generates an immune response against cells undergoing autophagy (a vital process for most cancer cells) by targeting a modification on proteins. Exceptional results have been observed in preclinical studies and the first Moditope is expected to enter the clinic in CY19
The company has raised £37m to date but we believe it has been under-funded historically, which has, in our view, caused delays to the development of the programmes. We estimate it needs an additional £12m over the next 24-36 months. The new management is addressing this issue and the company is regaining momentum as shown by the clinical trials due to start in 2019.
Scancell is developing therapeutic vaccines to treat solid tumours, using its two proprietary technology platforms, ImmunoBody and Moditope. The lead ImmunoBody programme has delivered promising Phase II results in metastatic melanoma, and trials with the first Moditope are due to start during CY19. Based on the data to date, products from both platforms have potential as monotherapies; but, we believe, their greatest prospects are probably in combination with checkpoint inhibitors and/or other treatments such as adoptive T-cell therapies.
Vaccination is clearly well-established for the prevention of diseases. It has proven to be particularly effective as prophylactic treatments against various viruses in reducing and even eradicating diseases. Prophylactic vaccines against HPV (Merck’s Gardasil and GSK’s Cervarix) have also been used to prevent women developing cervical cancer, which is caused by the HPV virus. However, progress with the development of therapeutic vaccines, to stimulate a person’s immune system to attack their cancer, has to date proved disappointing.
The interest in therapeutic vaccines to treat cancer can be traced back to 1891, when Dr William Coley inoculated cancer patients with Coley’s Toxins and achieved some remarkable recoveries. Since then, many companies have attempted to develop such treatments, and too often promising results in early clinical trials were followed by disappointment in Phase III. In fact, many people doubted the immune system could be harnessed to treat cancer, until Provenge (sipuleucel-T), the autologous dendritic cell vaccine, was approved for the treatment of metastatic castration resistant prostate cancer in 2010.
In the same year, BMS published the results of a Phase III study in malignant melanoma with the CTLA-4 antibody ipilimumab (Yervoy), which led to the transformation of the field of oncology. The main focus of drug development in oncology was to extend median overall survival as attempts to prolong long-term survival had largely failed; however, the data from this study showed that it was possible to significantly improve long-term survival by enhancing the activity of a person’s immune system.
Since then, checkpoint inhibitors have become a cornerstone of many oncology therapies, in particular the PD-1 inhibitors, pembrolizumab (Merck’s Keytruda) and nivolumab (BMS’s Opdivo). There has also been the launch of the first CAR-T therapies (Novartis’ Kymriah and Gilead’s Yescarta), for the treatment of a few haematological cancers. All of these treatments have the potential to convert cancer into a chronic disease, with which people can live.
Despite the tremendous progress in immuno-oncology in the last eight years, there is still a frustration that more cancer patients do not benefit from the checkpoint inhibitors. With checkpoint inhibitors, it has generally been difficult to increase the proportion of patients who benefit from such treatment to above c30%; and in the case the current CAR-T therapies, they are too expensive (as well as needing many technological issues still to be overcome) for them to become a mainstream treatment for most cancers.
In melanoma, which is the most immunogenic tumour, it has been possible to increase long-term survival to c60% by combining PD-1 and CTLA-4 antibodies (nivolumab/pembrolizumab and ipilimumab). However, this is also associated with a very high level of serious adverse events (Grade 3/4); in the CHECKMATE-067 Phase III trial, 72% of patients receiving nivolumab and ipilimumab experienced such events compared to 44% in the nivolumab monotherapy arm. This highlights the issues faced in immuno-oncology.
Both nivolumab and ipilimumab relieve the immunosuppression that affects a person’s T-cell response, which is part of the adaptive immune response (Exhibit 1). It is the adaptive immune system that provides a specific, targeted response to infections and that has an immunological memory to respond rapidly to previously encountered antigens. T-cells are designed to provide a potent, cellular response against infected cells, but there are also many severe autoimmune diseases caused by inappropriate immune activation, such as rheumatoid arthritis and multiple sclerosis. So, the challenge in the field of immuno-oncology is to direct a potent immune response against a tumour, while having a manageable tolerability profile.
This, in turn, has led to greater interest in therapeutic vaccines and ways of stimulating the immune system to target the tumour, which could work synergistically with checkpoint inhibitors. Fortunately, the better understanding of the immune system has resulted in new approaches, so the next generation of therapeutic vaccines should deliver more consistent, positive results than before.
The major challenge in developing therapeutic vaccines for oncology is to increase the activity of the immune response against tumour cells, which by definition originated from a person’s own normal tissues. The immune system has evolved careful mechanisms to prevent it targeting healthy host tissues, which need to be circumvented. Exhibits 2 and 3 overleaf detail the main classes of T-cells and a summary of the T-cell response.
To achieve an effective and sustained anti-tumour immune response, it is generally required that high-avidity, cytotoxic T-cells are stimulated. This requires the careful selection of cancer antigens or epitopes (short amino acid sequences that make up part of the protein) to stimulate an immune response against a tumour that presents the same epitopes. On top of this, the delivery mechanism needs to be considered carefully.
- Antigen processing – Antigen presenting cells (APCs), such as dendritic cells and macrophages, internalise proteins by endocytosis or phagocytosis./li>
- Antigen presentation – The internalised proteins are broken down into short peptides, which bind to the MHC I and MHC II proteins. The MHC-I and MHC-II complexes are transported to the cell’s membrane to interact with T-cells.
- Selection of T-cells in cortex of thymus– If a TCR (T cell receptor) on an immature T-cell binds to the MHC I/II complexes, that cell survives and advances into the medulla of the thymus, otherwise the T-cell will die through apoptosis. – Positive selection.
- Deletion of T-cells in medulla of thymus– The immature T-cells with a high avidity for self-antigens die through apoptosis – Negative selection – the remainder are released into the body.
- Activation of cytotoxic T-cells– In response to the Th-cell detecting the specific MHC/epitope complex to which its TCR binds, the Th-cell releases cytokines that activate cytotoxic T-cells (this process is counteracted by Tregs).
- Cytotoxic activity of T-cells– If an activated cytotoxic T-cell (Tc) finds a cell that is presenting the specific MHC/epitope complex it secretes cytotoxins, such as perforin and granzymes, thereby inducing apoptosis (programmed cell death) of the target cell.
Much has been learnt from the disappointing results with earlier attempts to develop therapeutic vaccines (Exhibit 4). For example, the discussion around the best epitopes has moved from tumour-associated antigens (TAA) to neo-antigens. The issue with using TAA is that most are recognised as self-antigens that are often expressed, albeit at low levels, in various other tissues, so that it is unlikely that there will be high avidity response against the TAA. In contrast, neo-antigens are by definition new ones found on tumour cells, which are not normally found in any tissues, so vaccination with a neo-antigen should result in a high avidity response.
The first of Scancell’s technology platforms, ImmunoBody, is designed to induce a high avidity cytotoxic CD8 T-cell response against epitopes with very restricted expression patterns. The epitopes are not actually neo-antigens, but it had been observed that some patients that had spontaneous tumour regression had developed immune responses against the selected epitopes. The features of ImmunoBody are discussed below; but Exhibit 5 provides an indication of the strength of the immune response that can be stimulated with the leading ImmunoBody, SCIB1.
The second platform, Moditope, was identified with an element of serendipity while trying to improve the ImmunoBody technology. Moditope products stimulate a cytotoxic CD4 T-cell response and not a cytotoxic CD8 T-cell response, unlike ImmunoBody and other therapeutic vaccines that have been developed. As such, Moditope is a totally different class of therapeutic vaccine, and the preclinical data so far suggests these vaccines could be even more potent than equivalent ImmunoBody vaccines.
It should be noted that, whilst many investors are particularly cautious about the potential of therapeutic vaccines to treat cancer, this is not a sentiment shared by “big pharma” companies focussed on immunotherapy. This is demonstrated by the major collaboration between Merck & Co and Moderna (initiated in June 2016 and extended in May 2018), and Genentech and BioNtech (formed in September 2016) in the field of mRNA cancer vaccines.
Scancell’s pipeline is regaining momentum following recent management changes and subsequent capital raises, with two new trials expected to be initiated by the company in the next year, as detailed in Exhibit 6. They are assessing the potential of ImmunoBody SCIB1 in combination with a checkpoint inhibitor, and a first-in-man study with Moditope Modi-1, to assess safety and efficacy in up to three cancer indications.
ImmunoBody vaccines have an elegant design to generate high avidity T-cell responses capable of a broad anti-tumour effect. They are DNA vaccines that encode a protein in the form of an antibody, but the parts of the antibody that would normally bind to the target protein are replaced with epitopes from a cancer antigen (Exhibit 7).
The key design features include:
The most important aspect of the ImmunoBody is its ability to initiate both direct and cross-presentation of epitopes to T-cells. There are various pathways by which dendritic cells can process antigens, and the highest avidity T-cell response are generated if more than one pathway is used to present the same epitope. In the case of the ImmunoBody, the DNA form is taken up directly by dendritic cells and processed, and the protein form (which is produced at the site of the injection from the DNA) binds to the Fc receptors on dendritic cells leading to the cross presentation. (Exhibit 8). As a result of both the direct and cross-presentation, the T-cells not only have a higher avidity, but there are many more T-cells generated against the epitopes of interest.
ImmunoBody generates both a cytotoxic CD8 cell response and a Th CD4 response. This is because the ImmunoBody vaccines have been created so that epitopes for both MHC I and MHC II complexes are produced once they have been broken down by the proteasomes. Epitopes for MHC I are normally 8-11 amino acids in length and generate a CD8 response, and epitopes for MHC II are usually 13-17 amino acids long and result in a CD4 response. The generation of both a Th and Tc cell response is important, as the Tc cells only become activated and able to destroy the tumour cells once Th cells recognise the appropriate epitope and secrete cytokines.
There are so far two ImmunoBodies in development:
The lead ImmunoBody, SCIB1, has completed a dose-escalation Phase I/II study in 35 patients with metastatic melanoma. Fifteen of the patients had tumours present and 20 had fully-resected disease and received doses ranging from 0.4mg/dose to 8.0 mg/dose. In the study, there was a dose dependent immune response to SCIB1 and an associated anti-tumour effect. Out of the 15 patients who had tumours present, one achieved a partial response and has survived for over five years, and five achieved stable disease, with two alive two years after therapy. Out of the 20 patients with fully resected disease, 15 were disease free after a median observation time of 37 months, and all were still alive (Exhibit 9).
It is difficult to compare the data from this study with those from other trials in the field. Having said that, the results appear comparable to those achieved with checkpoint inhibitors, such as ipilimumab (BMS’s Yervoy), nivolumab (BMS’s Opdivo) and pembrolizumab (Merck’s Keytruda), and SCIB1 is much better tolerated.
There were no serious adverse events associated with SCIB1 therapy. The main adverse event was at the injection site, and was associated with the electroporation delivery system, Ichor Medical Systems’ TriGrid. This delivery technology is able to improve the efficiency of the delivery of DNA vaccines by up to 1000-fold compared to standard needle delivery. However, it is associated with a minor electric shock in the arm, which caused 27 (77%) patients to suffer from an injection site haematoma, including 1 (3%) with a Grade III reaction. Also, one patient was only able to tolerate three immunisations with SCIB1, although five patients have had 15-17 immunisations.
Despite the promising signal from this Phase I/II trial, which was started in June 2010, development stalled due to manufacturing issues as a result of the extended duration of the study, and tremendous changes in the whole competitive landscape. Unfortunately for Scancell, it initiated the trial just before the results of the ground-breaking ipilimumab results were published, which caused the pharmaceutical industry to almost totally focus on checkpoint inhibitors in the field of immuno-oncology for several years. However, it is now becoming apparent that checkpoint inhibitors need complementary therapies to increase the proportion of patients that could benefit from immuno-oncology, and additional funding means that a Phase II trial in metastatic melanoma in combination with checkpoint inhibitor pembrolizumab should start in H119.
There is a clear rationale for using an ImmunoBody to prime an immune response against a tumour to enhance the efficacy of checkpoint inhibitors. This potential has been confirmed in preclinical studies; they suggest that SCIB1 and an anti-PD-1 antibody have similar activity as monotherapies (consistent with the Phase I/II data), and have a strong synergistic effect (Exhibit 10).
The new Phase I/II trial with SCIB1 will be in patients with unresectable stage III/IV melanoma, without any prior systemic treatment and suitable for treatment with pembrolizumab. During stage one of the study, six patients will be treated with a primary focus on safety. If the combination therapy has an acceptable tolerability profile, a further 19 patients will be treated. The dosing regimen is shown in Exhibit 11, and the trial will be considered a success if ≥12 patients respond to therapy, i.e. the anti-tumour activity of SCIB1 and pembrolizumab (anti-PD-1) is similar to that seen with the combination therapy of ipilimumab (anti-CTLA-4) and nivolumab (anti-PD-1), but with a better safety profile.
The start of the trial has been delayed slightly by FDA requesting more information, in particular about Ichor’s new TriGrid 2.0 electroporation system that is due to be used in the trial (TriGrid 1.0 was used in the Phase I/II trial). The delay is not surprising as this is the first trial of SCIB1 in cancer patients in the US and it is using the new TriGrid 2.0 system (although other companies, including Johnson & Johnson, are using it in Europe). Scancell and Ichor believe that they should be able to address all of the issues in the coming months, so that the trial can still start in H119.
The first clinical trial with Scancell’s second ImmunoBody, SCIB2, is currently being planned with CRUK (Cancer Research UK). The Phase I/II trial will be in non-small cell lung cancer (NSCLC), and unlike with SCIB1, SCIB2 will start clinical development in combination with a checkpoint inhibitor. There is also strong preclinical data supporting the combination study approach (Exhibit 12). This Phase I/II trial will be UK-based and is being funded by CRUK.
The commercial potential of SCIB2 is considerably greater than that of SCIB1, which only has potential in melanoma and a few other cancers where gp100 and TRP-2 are expressed such as glioblastoma. In contrast, SCIB2 should induce responses against the antigen NY-ESO-1, which is expressed in many different tumours (including sarcomas, neuroblastomas, myeloma, NSCLC, prostate and breast cancers). This suggests that it has the potential to be a therapeutic vaccine for most solid tumours and some haematological ones too.
Given the potential of NY-ESO-1 as a target for immunotherapies, there is much scientific interest in the antigen, but there are a limited number of therapies in development due to the challenges of targeting it (Exhibit 13 overleaf).
Until recently, Immune Design was developing the therapeutic vaccine CMB305 to treat patients with NY-ESO-1 expressing tumours, but that programme has been deprioritised following analysis of Phase II data. The vaccine, which uses the company’s Zvex lentivirus-based delivery system, was in a Phase III trial as monotherapy in synovial sarcoma. However, early analysis of data from a Phase II study in various sarcomas with CMB305, in combination with atezolizumab (Roche’s anti PD-L1, Tecentriq), indicated that there was unlikely to be a survival benefit associated with treatment.
It should be noted that there were promising deep and durable responses observed in earlier trials with CMB305, validating the therapeutic vaccine approach. Unfortunately, as has been seen with other therapeutic vaccines, it appears that too few patients were able to generate sufficiently strong immune responses against the tumours following vaccination. This might be because the Zvex technology is designed to efficiently deliver the vaccine to dendritic cells; however, it does not induce cross-presentation, unlike with ImmunoBodies, which are associated with broad high-avidity responses.
Also in Q118, Celldex was developing CDX-1401 (a NY-ESO-1-antibody fusion protein, designed to direct the antigen to dendritic cells) in a Phase I/II trial in a range of solid and haematological tumours; however the programme is now on hold due to Celldex’s financial issues.
CRUK entered into a clinical partnership agreement with Scancell and have taken on responsibility for conducting a Phase I/II trial with SCIB2 in NSCLC, in combination with a PD-1 checkpoint inhibitor. The study’s primary endpoint will be safety and tolerability, but it will be interesting to see the strength of immune response and the level of tumour response following treatment, while considering the PD-L1 expression of the tumours. ImmunoBodies induce PD-L1 expression due to the release of IFNγ at the tumour site by high avidity T-cells. The overall response rate in patients with tumours that express PD-L1 strongly (tumour proportion score [TPS] ≥50%) is c30%, compared to c8% with PD-L1-negative tumours (TPS ≤1%).
The Moditope approach is quite different to other therapeutic vaccines in development, and Scancell discovered the technique with a degree of serendipity. There are many differences between the immune responses generated by Moditope and other therapeutic vaccines, but the most pertinent are the induction of CD4 cytotoxic T-cells and the strength of the response in preclinical studies to date (Exhibit 14).
The mode of action of Moditope vaccines is illustrated in Exhibit 15. Although Moditope is a form of therapeutic vaccine, there are many differences between them and other therapeutic vaccines (including ImmunoBody), as detailed in Exhibit 16. A key point of the Moditope approach is that it effectively generates an immune response against the process of autophagy, which protects cells experiencing stress.
The nature of tumours means that most cancer cells live in stressful conditions that are often hypoxic and nutrient deficient. To survive in this environment, autophagy is required to recycle unwanted proteins, and dispose of damaged ones that could become toxic. During this process, the proteins that need to be removed from the cell are labelled using post-translational modifications, such as citrullination and homocitrullination, which results in those proteins being broken down. During this process, peptides from the modified proteins are presented on MHC II complexes which can be detected by CD4 T-cells.
Immunisation with a Moditope generates a cytotoxic CD4 T-cell response against peptides with the post-translational modifications associated with autophagy; i.e. T-cells are produced that destroy cells that have the specific modified peptides presented by MHC II complexes. As autophagy occurs in most tumour cells, Moditope therapy has the potential to generate a potent immune response against many tumours.
Scancell has also demonstrated that Moditope generates a strong immune memory against the specific modified peptides, as shown by the preclinical studies with a tumour re-challenge assay. Consequently, Moditope vaccines could be used in the adjuvant cancer setting, to reduce the risk that a cancer patient, who has responded well to treatment, relapses.
The potency of the anti-tumour response in preclinical studies suggests that tumours have limited defences against an attack from cytotoxic CD4 T-cells, unlike one from cytotoxic CD8 T-cells.
Depending on the results of the preliminary clinical trials with Moditope, it might be worth investigating the use of Moditope in combination with a checkpoint inhibitor. Indeed, the action of Moditope-induced CD4 T-cells could potentially change the tumour microenvironment, thereby converting tumours that are currently considered “cold” into “hot” ones, and therefore become responsive to checkpoint inhibitors and a cytotoxic CD8 T-cell response.
The first Moditope to enter the clinic will be Modi 1, which should begin clinical development in CY19. Modi-1 generates an immune response against citrullinated vimentin (intermediate filament protein) and enolase (glycolysis enzyme), and uses a linked TLR1/2 agonist as an adjuvant to ensure a potent T-cell response is produced. The Phase I/II trial will be a monotherapy dose-escalation trial in solid tumours such as triple negative breast cancer (TNBC), sarcoma, and ovarian cancer (Exhibit 18). The first safety and efficacy data from the study is expected during CY20.
The clinical trial will exclude patients that suffer from autoimmune diseases such as rheumatoid arthritis. This is a precautionary measure as joints and tissues affected by autoimmune diseases can present citrullinated proteins to the immune system, so patients with these diseases might be more likely experience significant adverse events. Scancell has been advised by rheumatologists that this is unlikely to occur as these autoimmune diseases are caused by an inappropriate B-cell response (Th2-mediated), and not a T-cell response (Th1-mediated). Consequently, cancer patients with autoimmune diseases may be included in subsequent trials.
There are two other Moditope vaccines currently in development. Modi-2 generates a cytotoxic CD4 T-cell response against certain homocitrullinated proteins. No details of Modi-3 have been disclosed, however this programme has been short-listed for CRUK’s Grand Challenge Prize for grants worth up to £20m to advance the treatment of cancer. It is a mark of Scancell’s leadership in the field of immuno-oncology that it has led a team of 16 academics and companies (including Genentech and BioNTech) on to the final short-list of 10 projects from 134 applications. However, the commercial benefits of potentially being awarded the grant is less clear given uncertainty about who would own the data and the intellectual property arising from the programme.
The strength and quality of the underlying science at Scancell is also highlighted by its three collaborations, which are detailed below:
The BioNTech collaboration could be particularly lucrative for Scancell, with the potential of significant milestone and royalty revenues. BioNTech is the largest privately held biotech company in Europe. It aims to develop the next generation of personalised immunotherapies for cancer and other diseases, and has a $310m deal with Roche to test its personalised vaccines with Roche’s atezolizumab (Tecentriq). Given the strength of preclinical responses to Scancell’s Moditope, the T-cell receptors identified from the collaboration could form the basis of a class of personalised vaccine that BioNTech is looking to bring to market.
The CRUK alliance is also particularly important to the company, as it provides non-dilutive financing to advance the second ImmunoBody into the clinic and assess its potential in combination with a checkpoint inhibitor. A successful outcome to the trial would validate the potential of SCIB2 to treat the large number of tumours that express NY-ESO-1 and also of the whole ImmunoBody platform, thereby increasing significantly the value of Scancell.
Scancell operates at the cutting edge of the immuno-oncology segment. The attractiveness of harnessing the body’s immune system to treat various tumours has attracted industry-wide attention, with numerous well-funded players operating in what has a become a crowded and competitive space. Whilst Scancell’s technologies have demonstrable, and attractive, qualities it should be noted that an unexpected breakthrough in an unrelated scientific area may side-line these approaches. Clearly, even a modest success would be transformative, but the risks inherent in such research are higher than the industry average.
On the competitive front, Scancell’s approach with both ImmunoBody and Moditope would be complementary to many of the methods being investigated to enhance the activity of checkpoint inhibitors, such as modulators of tryptophan catabolism and adenosine receptor activity. However, it is also competing directly against other therapeutic vaccine companies, including its collaborator BioNTech, and the various companies developing oncolytic viruses. This is an area of particular interest to big pharma companies currently (BMS has a major collaboration with PsiOxus, and Merck & Co bought Viralytics in February 2018).
More generally, and in common with most innovative healthcare companies, the three main sensitivities relate to the clinical and regulatory aspects, the execution of the commercialisation plans (primarily partnership agreements), and the financial resources required to accomplish these:
Scancell has a diverse shareholder register with a large number of smaller investors; whilst many of these are well-informed and technically competent, there are a number who appear to be less aware of the risks, frustrations, and set-backs that are part and parcel of innovative drug discovery. Unfortunately, this can result in unusual share movements, especially on days with low liquidity.
We consider an rNPV model to be the most appropriate way to value Scancell. The rNPV of each of the three individual oncology projects (adjusted for the likely success probabilities) is summed and netted against the costs of running the operation. The success probabilities are based on standard industry criteria for the respective stage of the clinical development process, but are flexed to reflect the inherent risks of the individual programme, the indication targeted, and the trial design.
As always, we employ conservative assumptions regarding market sizes and growth rates, net pricing, adoption curves, and peak market penetration. Importantly, we have valued only the clinical programmes (including those ready to enter the clinic) with nothing currently attributed to the technology platforms themselves and their use in other clinical applications. Despite such caution, this results in a valuation of £82.0m, or 21.1p per share, for Scancell (see Exhibit 19).
It is worth highlighting that this is a current valuation, based on the situation as we see it now, and not a price target for some time in the future. Often such price targets are expectations of what the share price should be, typically, in 12 months’ time as various value inflection points are achieved.
Such price targets run counter to our conservative approach; we strive to ensure our risk-adjusted models capture the various possible scenarios, relative to both upside and downside, and then we will update our valuations as the key points are reached. Although resulting in less dramatic upside potential, we believe our valuations are more realistic, attainable and, ultimately, credible.
Looking at the ImmunoBody programmes, SCIB1 is most advanced with the Phase I/II study in metastatic melanoma expected to start in H119. Assuming smooth progress, this could be commercially available by 2024 and we have modelled based on peak sales of £250m and a royalty rate of 17.5%. Using a success probability of 20%, the rNPV of this programme is £18.5m, equivalent to 4.8p a share.
Although the timings of the SCIB2 Phase I/II study in NSCLC are under the control of CRUK, we have modelled assuming a launch in 2025, peak sales of £648m, and a royalty rate of 15%. A success probability of 15% results in an rNPV of £32.8m, equivalent to 8.5p a share. The ImmunoBody platform has an rNPV of £51.4m, or 13.3p a share.
The Moditope platform is less advanced and we only consider Modi-1 in our model. This could also be commercially available by 2025, which with peak sales of £867m (across all indications currently to be studied), a royalty rate of 17.5%, and success probability of 10%, results in an rNPV of £28.0m, equivalent to 7.2p a share.
Over the last 18 months Scancell has made material progress on strengthening its financial position. A share placing in April 2018 at 12p per share, raised £6.9m (net), with a corresponding open offer raising a further £1.1m (net) in May 2018. At the FY18 year-end (30th April) Scancell’s cash position was £10.3m. In FY18 the operating loss was £4.9m (vs £4.5m in FY17), with an overall loss of £4.2m (vs £3.5m). The largest expenditures were development costs of £2.9m (up 3% on FY17 of £2.8m) and administrative expenses of £2.1m (up 17% on FY17 of £1.8m). The increase in administrative costs was driven by an increase in licensing and patent costs for the ImmunoBody and Moditope platforms.
Looking ahead, for FY19 we expect the operating loss to widen to £8.6m, with the overall loss rising to £7.1m. This is driven by development costs forecast to grow to £6.1m, as clinical programmes start their ramp up. General and administrative expenses are expected to increase to £2.5m. For FY20 we expect these expenses to be just over £5.0m and £2.6m respectively, with an operating loss of £7.6m and overall loss of £6.4m. The reduction in R&D costs in FY20 is because of the costs of producing drug substances and other upfront costs associated with the clinical trials in the previous year. The resulting cash outflows mean we are expecting the cash position to be £4.3m at end-FY19 and so are forecasting a funding requirement of c £12m by FY20 (assuming spending on clinical programmes is maintained as planned).
This funding requirement may be satisfied, in part at least, through non-dilutive funding (such as grants and awards) or partnership/licensing agreements. However, we believe that Scancell has suffered historically through having insufficient capital to progress its programmes as rapidly as it should have. In order to not be similarly hampered at such a time-sensitive stage, we would advocate that an equity raise sufficient to ensure financial stability would be advisable. Certainly, management appreciates the size of the commercial opportunity, and has grasped the importance of sensible investment in the clinical programmes and of ensuring the appropriate infrastructure is in place to support them in the very competitive immuno-oncology market. Whilst sensible cost control should remain in place, judicious investment to progress the programmes should be encouraged.
 Post-translational modifications are changes that are made to a protein once it has been produced to alter its activity. Common post-translational modifications include the addition of phosphate moieties, methylation and ubiquitination.
|Dr John Chiplin||Non-Executive Chairman||Joined as Chairman in May 2016. Founder and Managing Director of Newstar Ventures Ltd. Previously CEO of Polynoma, Arana Therapeutics, Geneformatics, and ITI (Intermediary Technology Institute). Non-executive director of numerous companies, both public and private. Holds a BPharm (Hons) and PhD from the University of Nottingham|
|Dr Cliff Holloway||CEO||Joined as CEO in January 2018. Over 25 years experience of CEO, COO, Business Development roles with Benitec Biopharma, Sienna Cancer Diagnostics, Immune Systems Therapeutics, Biosceptre International, Arana Therapeutics, and Teva Pharmaceuticals Australia. Holds a BPharm (Hons) and a PhD in Medicinal Chemistry from the University of Nottingham.|
|Professor Lindy Durrant||CSO||Founded Scancell in January 1996 as a spin-out from work she performed at the University of Nottingham (which she joined in December 1983). An internationally recognised tumour immunologist, she is currently Professor of Cancer Immunology at the Department of Clinical Oncology. Over 120 publications in peer-reviewed journals and over 10 patents filed. Gained a BSc (Hons) in Biochemistry and a PhD from Manchester University.|
|Dr Sally Adams||Development Director||Appointed as Development Director in May 2014 having previously worked as a development consultant to Scancell, providing guidance on the development of SCIB1, She was Head of Neurology & Virology at British Biotech and Development Director at Neures Limited before becoming an independent consultant providing drug development and management services within the biotechnology and pharmaceutical sectors, specialising in biological entities.|
|Keith Green||Director of Finance||Joined on a part-time basis in January 2010 and became full-time in September 2016. Fifteen years experience with private and AIM listed companies in the Life Sciences sector. Previously twenty years experience as an accountant. Trained and qualified as a Chartered Accountant with Peat Marwick (now part of KPMG).|
|City Financial Investment Company||5.6|
|Directors and related holdings||5.0|
|Legal & General Investment Management||4.7|
|Top institutional investors||31.6|
Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.
ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.
In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.
Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.
This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.
Copyright 2018 Trinity Delta Research Limited. All rights reserved.