Mendus Q2'24: Ilixadencel to return to the clinical arena

For Mendus, Q2'24 marked the start of the pivotal CADENCE trial in acute myeloid leukemia (AML). The company also announced plans to restart clinical development of ilixadencel in soft tissue sarcomas (STS). In parallel, Mendus is building readiness for a pivotal trial in AML by H2'25. These key developments are supported by a secured cash runway until Q3'25. We include the STS indication in our estimates and revise our R&D cost estimates upwards for the coming years. We reiterate our recommendation (Buy) as well as our target price of SEK 14 as both our DCF model and peer valuation suggest upside for the stock.

Q2 saw launch of the CADENCE trial and plans to bring ilixadencel back into clinical development

Mendus announced new data in Q2 on the ability of vididencel to induce anti-tumor immune responses in AML and ovarian cancer. We have previously commented on the news here and here. After the end of the quarter, the company announced that ilixadencel will be studied for STS in combination with the checkpoint inhibitor avelumab and the tyrosine kinase inhibitor regorafenib. We believe patient recruitment could begin in Q4’24-Q1’25 and, according to the company, first data can be expected in H1’26. The CADENCE study was also initiated in Q2, although patient enrollment did not start in Q2 as previously expected. In parallel, the company is building readiness for a pivotal trial in AML by H2'25. This includes the upscaling of the vididencel manufacturing in partnership with NorthX Biologics, which appears to be on track. In Q2, technology transfer progressed and first larger batches of vididencel were produced.

R&D costs came in above our expectations

In terms of figures, the EBIT of -37.9 MSEK was below our expectations of -31.1 MSEK. The earnings miss was due to higher operating expenses related to technology transfer to NorthX to scale up production of vididencel for larger scale trials and commercialization. Cash flow from operating activities was -22.4 MSEK. Operating cash below is significantly higher than EBIT due to prepaid expenses to NorthX. Cash at the end of Q2 was 130.2 MSEK. Mendus confirmed cash runway until Q3'25. We believe that CADENCE data readout and pivotal stage readiness are achievable with the financing already in place.

We are updating our Ilixadencel modeling based on STS and increasing our R&D cost estimates

We increase our expectation for R&D costs, resulting in lower EBIT in the coming years. This is offset by the inclusion of STS as a priority indication for ilixadencel. STS has a higher incidence compared to gastrointestinal stromal tumors, on which we previously based our modeling.

Risk/reward ratio is attractive as Mendus moves towards late-stage clinical development

Our DCF model indicates an unchanged net present value of SEK 14 per share. Relative valuation is below the Nordic Phase II immuno-oncology peers. In our view, the absolute valuation of the peer group is on the low side providing upside if the overall market environment improves. The stock’s valuation has become more attractive due to the depreciation in the share price after our recent Initiation of coverage. The possibility of a favorable partnering deal or Mendus becoming an acquisition target brings an additional positive option for investors to realize value. We see a favorable risk/reward ratio that supports a positive recommendation.