Buy Oxford Biomedica
26 March 2008 OXB
TroVax for multiple cancers
TroVax has now shown clinical benefit in renal, colorectal and prostate cancer,
which together represent a significant market opportunity for a drug that is
potentially more effective and safer than existing treatments on the market.
There are 186,000 prostate cancer patients diagnosed per year in the US
(Prostate Cancer Foundation); 655,000 deaths from colorectal cancer worldwide
(World Health Organisation, 2006) and 51,000 patients diagnosed with renal cell
carcinoma in the US (American Cancer Society). When we use the average cost
of Avastin (£2,400 per month for 10 months), 10% of the market represents an
opportunity of more than £2bn.
Our peak sales forecasts for TroVax (£800m in 2016) represents approximately
3% of addressable patients and we are comfortable with this number.
Strong data thus far
TroVax has a clinical benefit in patients that show a T-cell response. The
experiment is therefore controlled internally; for us this is a more thorough
readout than the placebo controlled design. This has been repeated in several
small Phase II trials and should give investors confidence that a survival benefit
can be shown in the larger, adequately powered, Phase III trials.
Having reviewed the Phase II data for TroVax ourselves, we feel comfortable in
assigning a 57% chance of success, in line with historic data for products in
Phase III trials.
Strong cash position
With £38m in cash (as of 31 December) OXB has no need to return to the
market over the next 18 months, and indeed has the potential to remain selffinancing
without giving away value for shareholders.
We expect TroVax to report TRIST results early in 2009 and be on the market in
late 2009/early 2010. TroVax alone accounts for 73% of our valuation and is
worth 28p of our 38p target, which is at the lower end of our range.
Berny3 - 26 Mar'08 - 19:27 - 51765 of 51774
TroVax keeps showing clinical benefit great news
OXB presented new data from its first Phase II trial of TroVax in
prostate cancer at the 6th Annual Symposium on Targeted Anti
Cancer Therapies. The company reported that 20 of the 24
relevant patients experienced disease stabilisation and that the
nine patients (38%) who demonstrated a T-cell response
showed a significant clinical benefit whereby time to tumour
progression was increased from 2.3 to 5.6 months: a significant
correlation between treatment and benefit. We retain our
forecasts and Buy recommendation and continue to target 38p,
which is at the lower end of our DCF valuation range.
KBC Peel Hunt 2
26 March 2008
OXB has out-licensed TroVax to Sanofi Aventis, a world leader in oncology and
vaccines, and for us represents the ideal partner. OXB has a number of other drugs
which are licensable (MetXia and Hi-8Mel) although these discussions might
depend on the results of TRIST. The company also has a potential treatment for
Parkinsons disease, which it may develop through to commercialisation in some
With about £38m in cash, OXB has one of the stronger balance sheets in UK
biotech. We anticipate that as TroVax progresses to market a proportion of the
outstanding £350m milestones from Sanofi-Aventis will be paid, which should allow
the company to progress ProSavin through late stage trials and allow the company
to maintain self sustainability.
5T4 is a tumour specific antigen that is thought to contribute to secondary
metastasis; specifically its role during organogenesis in developing embryos. By
stimulating the bodys own immune system against 5T4 it has been shown that
TroVax offers a clinical benefit in a number of cancer indications.
OXB has conducted a number of Phase II clinical trials across a variety of cancer
indications at diverse clinical trial centres. Each trial has demonstrated a consistent
correlation between immune response and clinical benefit, although it will be the
Phase III TRIST trial that is likely to show a significant survival advantage, and thus
lead to marketing approval. We give TroVax a 57% chance of success although
biologic cancer therapies historically are even more successful.
Sanofi-Aventis is well acknowledged to be under threat from patent expiries post
2010, potentially losing bestsellers Plavix (1.2bn in H1 2007), Lovenox (1.3bn in
H1 2007) and the cancer drug Taxotere (2bn in 2007) to generic competition.
The combination of a cash rich yet pipeline poor partner suggests a strong rationale
for investing in OXB. We believe that Sanofi will have to pay a large premium to the
prevailing share price to acquire OXB and all its assets. At the very least we would
at least expect Sanofi to pay the 52 week high of 50p, and potentially a premium on
Long-term efficacy data in the industry-standard pre-clinical model of Parkinson's
disease have shown that ProSavin induces almost complete recovery of movement
function and other behavioural measurements. In this model, the therapeutic effect
of ProSavin following a single administration has been maintained for over 24
months with no further degeneration. ProSavin is now in a Phase I/IIa trial where
we expect initial results to be available in mid 2008.
Berny3 - 26 Mar'08 - 19:28 - 51766 of 51774
We find that the majority of estimates fall into the 43-47p per share range (Chart 1,
below). We set an initial 38p target price, which is at the lower end of our DCF
range, which is typical for biotech companies in the current, risk-averse, climate.
Figure 1: Indicative valuation range
Source: KBC Peel Hunt
14.2 18.9 23.7 28.4 33.1 37.9 42.6 47.3 52.1 56.8 61.6
Valuation Range (pence per share)
Frequency in range
Our relative valuation measure suggests that OXB is undervalued by approximately
25% with respect to peers. If we exclude Renovo, which is currently trading below
cash, OXB is currently undervalued by 50% relative to peers.
Table 1: KBC relative valuation measure
Source: Companies (historic) & KBC Peel Hunt (estimates)
(£m) Phase Indication EV/BioDollar
Renovo* 85.3 100.0 80 II/III Scarring -0.18
Oxford Biomedica 122.2 44.0 348 III Cancer 0.22
Protherics 165.8 47.0 161 III Sepsis 0.74
Antisoma 103.8 53.0 395 III Cancer 0.13
GW Pharma 94.1 20.0 170 III Pain 0.44
Source: KBC Peel Hunt
Q2 08 ASCO conference
H1 08 Start of 2 further Phase III trials for
Q3 08 Results from ProSavin trial
H2 08 IND submission for retinostat
NPV by product
Source: KBC Peel Hunt
Hi-8 Mel 21.8
Cost base -191.2
Terminal Value 35.5
Total NPV (£m) 232.2
Berny3 - 26 Mar'08 - 19:29 - 51767 of 51774
In the Phase II trial, 27 patients with metastatic hormone-refractory prostate cancer
(HRPC) were treated with TroVax alone (n=14) or TroVax in combination with GMCSF
(n=13). TroVax was again well tolerated with no related serious adverse
events. Eligibility for the trial included patients with progressive disease and pretreatment
with at least one course of chemotherapy. Of 24 relevant patients, all
demonstrated robust antibody responses against the targeted tumour antigen, 5T4,
and nine patients (38%) also showed strong 5T4-specific T-cell responses. Twenty
patients (83%) experienced disease stabilisation.
The duration of disease stabilisation in patients continues to be assessed and
currently ranges from two to more than ten months. As in previous trials of TroVax,
the anti-tumour immune response induced by TroVax correlated with clinical
benefit. Time to disease progression (TTP) was significantly greater in 5T4-specific
T-cell responders compared to non-responders, with a median TTP of 5.6 months
against 2.3 months (p = 0.028). The combination of GM-CSF with TroVax showed
similar clinical and immunological responses to TroVax alone.
Figure 2: Phase II Prostate cancer results
0 2 4 6 8 10 12
Progression probability (%)
= 5T4 ELISPOT Non-Responder
= 5T4 ELISPOT Responder
83% disease stabilisation
P = 0.028
KBC Peel Hunt 5
26 March 2008
Renal cancer Phase III
TRIST (TroVax Renal Immunotherapy Survival Trial) is a Phase III trial of TroVax in
patients with locally advanced or metastatic clear cell renal carcinoma. The trial is a
randomised, placebo-controlled, two-arm study comparing TroVax in combination
with standard of care to placebo with standard of care. Standard of care represents
either low dose Interleukin 2, interferon-alpha or sunitinib.
Recruitment of approximately 700 patients is complete at over 100 sites in the US,
European Union and Eastern Europe. TRIST is being conducted under a Special
Protocol Assessment (SPA) agreement from the US Food and Drug Administration
(FDA). We anticipate results from early 2009.
Prostate cancer Phase II
The Methodist Hospital has initiated a further Phase II trial of TroVax in
approximately 60 patients with HRPC and approximately 10 patients have been
enrolled to date. The trial is randomised and is designed to evaluate TroVax in
combination with Sanofi-Aventis' Taxotere (docetaxel) as first line therapy versus
docetaxel alone. Patients who progress on docetaxel alone will then be treated with
Metastatic Colorectal cancer Phase III
Sanofi-Aventis is expected to start a 1,300 patient Phase III trial in Stage IV
metastatic colorectal cancer in mid 2008. The study will compare TroVax with first
line standard therapy against placebo plus first line standard therapy. First line
standard therapy is FOLFOX/FOLFIRI with or without Avastin. The primary
endpoint is overall survival and is expected to include a Special Protocol
Assessment from the FDA.
Stage II/III Colorectal cancer
QUASAR is funded by the Medical Research Council and the Department of Health
and aims to recruit ~ 3,000 patients across 150 trial centres. The trial will be
randomised and controlled with adjuvant chemotherapy with or without TroVax. The
primary endpoint will be three-year disease free survival and will be central to off
label use of TroVax should disease free survival be demonstrated. The first patient
is expected to be enrolled in mid 2008.
Results Early 2009
Results Early-mid 2009
KBC Peel Hunt 6
26 March 2008
Porters and SWOT
Porters five competitive forces model
Key Business Drivers
Need to improve quality and reduce cost of cancer treatments currently on the market.
Patent expiries in big pharma threaten near term revenue. Innovative drugs like TroVax have blockbuster potential and are
highly attractive acquisition targets for blue-chip pharma.
Need to diversify pipeline risk away from TroVax (ie ProSavin and Retinostat).
Strong cash position and relatively low cash burn
Phase III clinical pipeline
Diversified clinical portfolio
Substantial deal with Sanofi Aventis
Highly exposed to risk averse behaviour.
Significant private investor base, highly reactive to news flow
Failure of TRIST
Toxicity of ProSavin in brain
Emerging data from ProSavin trial in 2008.
ProSavin kept in house and/or partnered
Off label use of TroVax
Potential trade sale following TRIST results
Bargaining power of suppliers
OXBs products are manufactured to
GMP standards. The company has
sufficient scale to supply TroVax to
meet market demand, and has
optimised the manufacturing process
for lentiviral technology, in doing so
overcame significant hurdles.
Threat of new entrants
There are many products in
development for cancer, but there is
significant unmet need and
substantial opportunity for a costeffective
Rivalry among existing firms
OXB is leading the way in cancer
immunotherapy. As first in class
treatments, their lead products
carry risk, but potentially offer
Threat of substitute products
OXB hold all principle IP surrounding
the key anti-5T4 immunotherapy
approach (now out-licensed to
Sanofi) and has significant IP and
know-how regarding the lentiviral
Bargaining power of buyers
The buyers of OXBs products will
be medical insurers and state
payers. Current cancer treatments
are very expensive and present a
significant opportunity for OXB with
a potentially superior drug that can
be produced at lower cost.
KBC Peel Hunt 7
26 March 2008
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