Oxford BioMedica is one of the day's best performers so far after the group unveiled a collaboration with Swiss pharmaceutical group Novartis to work on a key immunotherapy programme to treat cancer cells.
Under the deal, the UK business will manufacture clinical grade material using its Lentivector gene delivery technology. It expects to receive between £2.5m and £4m from Novartis over the next 12 months. The company's shares have climbed more than 15% to 1.9p on the news. Peel Hunt analyst Dr Stefan Hamill said the deal provided further validation of Oxford Biomedica's technology and also utilised capacity in its manufacturing plant:
If the treatment remains successful in further trials, we imagine further revenues are likely downstream. We've upgraded our forecasts, factoring in additional revenues in the second half of 2013 and the first half of 2014, which sees Oxford's cash runway extended by a further three months towards mid 2014. The Lentivector component of our sum of the parts valuation moves up to 0.7p a share (from 0.6p) driving our target price to 1.6p (from 1.5p) on the additional cash flows. [We] remain at hold awaiting data and news on [gene transfer agent] Retinostat later in the year.
Hamill explained more technical details about the collaboration between the two companies:
Oxford will manufacture several batches of a lentiviral vector used to deliver Novartis' CTL019 technology. This is an experimentat immunotherapy program Novartis recently licensed from the University of Pennsylvania. It is currently in Phase 1/2 trials to treat various B cell cancers (eg relapsed leukemia in children) and the approach uses patients' own T cells, which are removed and engineered using the Lentivector approach to recognise cancerous B cells more effectively. The cells are then re-infused into patients, where they now attack the cancer (an autologous treatment approach).
It appears to us that the University of Pennsylvania likely used Oxford's intellectual property in its early stage trials and that now it is progressing as a commercial program with Novartis, Oxford's intellectual property is locked in. Oxford will manufacture the engineered viruses for next Phase 2 trials of the program. Novartis purchased one of Dendreon's Provenge facilities in late 2012, which we assume is handling the next step, to treat patients autologous T calls with the engineered virus and grow them up. In the final step these are then put back into patients and are now engineered to recognise and remove cancerous B cells.
Some very promising early results have been seen with the program, including two complete responses published a fortnight ago in the New England Journal of Medicine.
Sheena Berry at the company's broker N+1 Singer said:
Our forecasts already factor in manufacturing agreements being established from 2013 onwards and as a result no changes have been made to estimates. This morning's news validates our assumptions that the manufacturing facility is capable of providing an additional revenue stream from third parties.
The Novartis agreement is an important achievement for the group as it validates its manufacturing capabilities. If both the Retinostat option (estimated to be $20m) is exercised and a ProSavin partnership established this year (as we have forecast), 2013 could prove to be a very successful year for the group. We re-iterate our positive view and 6.6p intrinsic value per share.
