Immutep : Corporate Connect - A Truly Undervalued Company

Wednesday, 13 October 2021

RESEARCH REPORT

Immutep Limited	Share Price
& Estimated
A Truly Undervalued Company	Fair Value
	Price

Fair Value Price	$2.20
Current Price	$0.535
Implied Increase/Dec	311%

In May 2021, we published a comprehensive research report (CRR) on Immutep Ltd. We were so impressed that we felt it imperative that a follow-up report valued the company, because the market was not seeing what we did: eftilagimod alpha (efti). This drug was giving a solid signal of activity as a monotherapy in a large breast cancer trial and extremely strong signals of clinical activity when used in combination with pembrolizumab (Keytruda®, Merck) to treat previously untreated/unresectable PD-1/L1 naïve non-small cell lung cancer and as a second-line treatment for PD-1/L-1 naïve recurrent head and neck cancer. Additionally, we saw a first-rate management team - an absolute requirement for a successful drug development company.

Recent Events: Immutep presented updated numbers from TACT-002 Groups A

• C at this year's American Society of Clinical Oncology (ASCO) meeting. In both cases, the clinical data continued to reflect the extremely strong data we analysed in our CRR. Significant new insights indicated efti was improving the durability of responses and producing encouraging progression-freesurvival data.

Presentations of final results from INSIGHT-004concluded signals of efficacy were seen, even though only 12 patients were in the trial.

Marc A. Sinatra, BSc(Hons), MBA

Company Information

ASX Ticker	IMM
NASDAQ Ticker	IMMP
NASDAQ Price	USD3.87
Shares on Issue	851M
Fully Diluted Shares on Issue	888M
Market Capitalisation	$469M
ASX Vol. (Shares/Day)*	2.3M

• Shares per Day for the Last 20 Trading Days.

Cash Sufficiency

$ Million

Cash at Last 4C

60.6

Two new trials have been planned/started since our CRR, the major benefit of both being that Immutep will be free to share the data with potential partners.

The market has been informed that final overall survival (OS) from the AIPAC (Active Immunotherapy PAClitaxel) trial will be delivered at a conference in November 2021. At the last interim analysis of AIPAC, there was a strong trend favouring the efti arm, with 40% of events remaining. A positive trial result will underscore efti's utility as monotherapy, greatly enhancing its value.

Valuation: We valued Immutep using comparables for many reasons. The primary one was transparency. Readers can see all of the information and reasoning behind the valuation, easily access further information and adjust the valuation to make it more in line with their thinking.

We scanned ~50 companies with an interest in immunotherapy and eventually chose six that were fairly valued and that we could reasonably compare Immutep to, providing us with a value ladder on which to slide Immutep.

Three of the companies were US-based, two Canadian and one German, giving us a reasonable geographic spread. All were NASDAQ listed.

Our assessments were based on enterprise values (EVs), calculated by removing cash and equivalents from the companies' market capitalisations.

As a final step, we looked at Nektar Therapeutics (NASDAQ:NKT), which we noted in our CRR was highly similar to Immutep.

In most cases, it was easy to determine whether Immutep should have a higher/lower value than a particular company. In one case, we found it difficult to separate Immutep from a company. This company had the second highest EV of the companies we looked at (AUD1.75B). In the end, the dynamics in the immune checkpoint inhibitor space, backed by some solid examples, led us to give Immutep a slightly higher valuation than this company. We settled on an EV for Immutep of AUD1.75B.

After adding cash back to our EV estimate and dividing by the total number of issued shares, the fair value of an Immutep share was $2.20.

Last Quarter Burn	5.7
Cash Inflows Post Last 4C	53.5
Estimated Current Cash	114.1

Significant Shareholders

Holder	Holding
FIL	6.21%
Australian Ethical Investments	4.89%

Directors & Key Personnel

Dr Russell Howard	Chairman
Mr Marc Voigt	Executive Director & CEO
Mr Grant Chamberlain	Non-Executive Director
Mr Pete Myers	Non-Exec. Director & Deputy Chair
Dr Frédéric Triebel	Chief Scientific & Medical Officer
Ms Deanne Miller	COO GC & Company Secretary

Chart

The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent, and objective

views about any and all the companies and securities that are the subject of this report discussed herein. For important information, please see Page 01 of 25 the Important Disclosures on page 24 of this document.

Wednesday, 13 October 2021

RESEARCH REPORT

Immutep Limited

A Truly Undervalued Company

Introduction

In early May 2021, we published a comprehensive research report (CRR) on Immutep Limited (ASX: IMM). That report can be found here. We were more than impressed with what we found. Consequently, we are following up that research report with a post-report update on events relevant to Immutep, before we embark on the major purpose of this report: to derive and justify a value for the company.

Approximately one year before we published the CRR, Immutep started to produce a consistent stream of results from cancer clinical trials from its lead compound, eftilagimod alpha (efti), as both a single agent and in combination with pembrolizumab (Keytruda®, Merck & Co; NYSE: MRK). These results demonstrated unambiguous signals of clinical activity and a side-effect profile that could almost be described as benign. While efti is still some distance from being shown to be safe and effective in appropriate pivotal trials and, then, stamped as such by major regulators (the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA)), we found it extremely hard to develop a cogent argument that Immutep does not have an approvable drug on its hands in efti. There are unknowns and arguments that can, and will, be had as to the precise indications efti should be targeted at, but the feeling that efti would eventually be approved for some indications was a nearly impossible conclusion to escape. There is also the reality that it is impossible to completely eliminate risk, which is a statistical fact and that, as commercial endeavours go, drug development is one of the riskiest. Still, when you look at the breadth of efti's activity, the science underpinning it, the nature of the market it is in, the revenues that market is currently generating and how those revenues will grow, efti appears almost certain to find itself in several overlapping pivotal programs aimed at an equivalent number of indications. In that scenario, even if a statistical anomaly were to occur and efti were to fail its first pivotal trial, just as Bristol-Myers Squibb's (BMS; NYSE: BMY) nivolumab (Opdivo®), unexpectedly failed an early trial in non-small cell lung carcinoma (NSCLC), efti would get other chances to prove itself.

While the results of clinical trials ultimately determine the fate of a drug, management ultimately determines the fate of a drug development company. The management of a small drug development company like Immutep proves its mettle by successfully managing a company over a linear period of time where the activities of the company and the demands on it are constantly changing relative to the stage of the drug's development. This is most unlike how the management of your average industrial proves itself, which is by demonstrating the ability to improve the company's bottom line over a recurring yearly cycle. Managing the linear, ever-changing requirements of a drug development is also different from managing your average industrial, because rather than having a static workforce as industrials do, drug development companies need to constantly access and manage quite a large number of highly skilled, specialised consultants that the company is likely to require only for the period those specialised skills are needed. Hence, drug development companies tend to rely on a relatively small core group of highly skilled employees. Efti originally was tested for infectious diseases - in a number of phase 1 clinical trials. It's an APC activator i.e. immune booster so is not intended for autoimmune diseases where one needs to down-regulate the immune system. That's what IMP731 (licensed to GSK)

• IMP761 aims to do. Now, Immutep is in possession of a drug that appears exceptionally safe and has demonstrated strong signals of efficacy in the clinic. Immutep's management team is highly suited to drug development, has proved itself and is one of the, if not the, best medtech/drug development management teams in Australia.

One huge advantage Immutep has, relative to a lot of it peers, is Dr Frédéric Triebel, its Chief Medical Officer (CMO)/Chief Scientific Officer (CSO), who cloned the LAG-3 gene, founded Immutep and is almost certainly the world's expert in the biology relevant to the drugs Immutep is developing. This is an extreme advantage. At Immutep, if Dr Triebel doesn't know the answer to a question or can't provide specialised advice on a certain aspect of drug development involving LAG-3, it is almost certain no else can and, hence, research into finding the answer can begin immediately. At other small companies, it can take weeks, months or years before it's realised that further research in a particular area is/was needed.

Marc Voigt, CEO, has done an excellent job of managing Immutep, getting it publicly listed, establishing an excellent core team of employees, strengthening the company's balance sheet with June's capital raise and, perhaps most importantly, leaving efti completely unencumbered, with the exception of a regional licencing deal for China. Later, we will look at the cash balance of a number of companies similar to Immutep and an unintended benefit of this report will be that Australian investors will begin to genuinely understand how much money a small drug development should have on its balance sheet.

That, in short, is why we like Immutep so much.

A Brief Note on our Valuation Methodology for Immutep

Before we undertake the valuation, below we discuss the methodology we use to value Immutep.

Rather than using the traditional discounted cash flow methodology that Australian investors will be most familiar with, or a risk adjusted DCF (rDCF) methodology that more seasoned medtech investors are familiar with, we value Immutep relative to a basket of comparable companies that we have assembled.

In short, the reasons we have chosen a comparable valuation methodology are as follows:

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Wednesday, 13 October 2021

RESEARCH REPORT

Immutep Limited

A Truly Undervalued Company

• Forecasting error for a company with no earnings history
• Reduction of systematic bias (biases which lead you further away from an accurate value, rather than cancelling each other out)
• Making the collective intelligence of the market part of the valuation process
• Transparency - the reader will be able to see everything we have used to arrive at our valuation (and, if they disagree, come up with their own valuation).

Getting Back up to Speed on Immutep

While Immutep boasts development candidates that have been licenced to Novartis AG (SWX: NOVN) in the area of cancer and

GlaxoSmithKline plc (GSK; LON: GSK) in the area of autoimmune diseases, as well as an internal autoimmune disease candidate, IMP761 (which is close to commencing clinical trials), the company's primary asset is efti.

Efti is in several current, and many planned, clinical trials. While it could be argued that efti is furthest down the path toward a potential approval for the first-line treatment of hormone receptor positive, HER2 negative, metastatic breast cancer patients, with Immutep having announced phase III trial plans in its June capital raising presentation, there is a real possibility that the compound could obtain an accelerated approval from the FDA for the first-line treatment of head and neck squamous cell carcinoma (HNSCC) in combination with Merck's pembrolizumab, based on the results of a single-arm phase IIb trial (ClinicalTrials.gov Identifier: NCT04811027) on which Immutep and Merck are formally collaborating.

Determining the probability of this latter possibility occurring is more complex than it might seem, the reason for which is positive for Immutep. The agreement between Immutep and Merck regarding the trials efti has been, or will be, used in combination with pembrolizumab, gives Merck no claim on efti, such that efti is effectively unencumbered. Immutep and Merck will almost certainly need to come to a commercial agreement before a formal application is made to the FDA for an accelerated approval or, if it takes that long, a standard New Drug Application (NDA) is submitted.

This is quite an unusual position for a company like Immutep to be in, because normally the smaller company would have already licenced its drug candidate to the larger company at this stage of proceedings, and the larger company would be calling the shots.

As a general rule, the closer to a significant regulatory approval the smaller company can take a compound, the more it will be able to command an overall value for a licence from a larger partner for rights to the compound. Generally, the value the smaller company can claim is a lot more. To put that into the context of an on-marketbid for Immutep, the longer Immutep retains the rights to efti, the more a larger company will be willing to bid per share for it.

A further layer of complexity in this is that BMS, which has the second highest selling PD-1 inhibitor on the market in nivolumab, cannot outbid Merck for Immutep and then immediately turn around and look to the FDA for an accelerated approval for the combination of efti and nivolumab. The reason is that despite the fact that both pembrolizumab and nivolumab share the same target within the human, PD-1, the two drugs have different chemical structures. In such situations, the mantra of evidence-based medicine wins out. Thus, the data produced from the efti-pembrolizumab phase IIb trial in the first-line treatment of HNSCC that Immutep and Merck are collaborating on will only be applicable to that specific combination of compounds. Consequently, developing a scenario where there is competitive tension between Merck and BMS for Immutep, solely based on the potential for an accelerated approval for first-lineHNSCC, is not as straightforward as it might seem to the uninitiated.

The main reason we have raised this issue is because it is generally accepted practice to evaluate a company in the order of most advanced asset/indication (i.e., closer to a major regulatory approval) to least advanced. We have decided to maintain consistency with the structure of our CRR of Immutep to make it easier for readers to refer between the two documents, irrespective of the potential for an argument as to the indication for which efti is most advanced.

Eftilagimod Alpha

1. First-LineUse in the Treatment of Hormone Receptor Positive, HER2 Negative, Metastatic Breast Cancer Patients (The AIPAC Trial)

The latest data release from this trial is contained in our May report and is discussed commencing on page 8.

The topline result will be an improved overall survival (OS) of 2.7 months in the efti + chemotherapy arm, compared to chemotherapy alone. At the time of data cut-off (September 2020), that difference was a strong trend (p=0.14) in favour of the efti + chemotherapy combination and since 60% of events (patients deaths) have occurred, that median OS advantage should be considered firm. Strictly speaking, where the yet-to-be-determined upper 95% confidence interval (CI) on the OS estimate lands will determine the final outcome of the trial. With 40% of events outstanding, there is a strong chance that the efti + chemotherapy combination will be shown to be significantly superior to chemotherapy alone.

Having said that, AIPAC is not a hypothesis-testing trial (i.e., pivotal trial), but one whose overall aim is to provide information to enable Immutep (and its Chinese partner, EOC Pharma) to design the well-controlled pivotal trial(s) the major regulators will want to

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Wednesday, 13 October 2021

RESEARCH REPORT

Immutep Limited

A Truly Undervalued Company

see if they are ging to support efti's approval. Immutep has not made a big song and dance about its future plans for efti, but a portion of its circa AUD67M raising in June 2021 is earmarked for a 500-patient phase III registrational trial in hormone receptor positive, HER2 negative, metastatic breast cancer "based on AIPAC". Immutep has flagged to the market that a another analysis looking at OS will be undertaken at some point during the current half (i.e., 2H, CY21) and, if the p-value of the trial at that point is ≤, the trial can be reasonably called positive at that point. If that does occur it should act as a strong catalyst for Immutep's share price. Beyond that, Immutep continues to expand its intellectual property around efti, announcing the issuance of a Chinese patent covering chemotherapy-immunotherapy combinations for the treatment of cancer in late May 2021.

The big date for this trial has now been set. The OS results from the phase IIb AIPAC Study will be presented at the Society for Immunotherapy of Cancer Annual Meeting to be held from 10 to 14 November 2021.

1. The TACTI-002 Trials (First and Second Line Non-Small Cell Lung Carcinoma, Second-Line Head and Neck Squamous Cell Carcinoma)

Where the TACTI-002 trial stood can be found on page 11 of our CRR.

The big event concerning this trial, and the cohorts of patients within it, were two abstracts presented at the American Society of Clinical Oncology (ASCO) conference in June 2021.

Group A: Previously Untreated or Unresectable PD-1/L1 Naïve Non-Small Cell Lung Cancer Patients

Table 1. Interim Study Results From TACTI-002, Group A, First-Line NSCLC Presented at SITC on 10 November 2020 and ASCO on 4 June 2021.

	SITC, 2020	ASCO, 2021
Tumour Response	N (%)	N (%)
Best Overall Response (BOR) per iRECIST	N = 36	N = 36
Complete Response (CR)	2	(5.6)	2	(5.6)
Partial Response (PR)	11	(30.6)	13	(36.1)
Stable Disease (SD)	11	(30.6)	10	(27.8)
Progressive Disease (PD)	9 (25.0)	6 (16.7)
Not Evaluable	3	(8.3)	5 (13.9)
Disease Control Rate (DCR; CR+PR+SD/N)	24	(66.7)	25	(69.4)
Objective Response Rate (ORR)	13	(36.1)	15	(41.7)
ORR in Evaluable Patients	13 (39.4), N = 33	15 (48.4), N = 31

Sources: Immutep Limited, ASX announcement, 10 November 2020 and ASX announcement, 4 June 2021

Table 1 provides a comparison of the data as it stood at the interim analysis included in our May report, which was presented at the 2020 Society for Immunotherapy of Cancer (SITC) Conference, and the data reported at ASCO in June (2021). No new patients were recruited into the study between the two interim analyses, giving us a nice view of how the data varied over time.

Largely, the data presented at SITC is consistent with that presented at ASCO and provides a hint to one of the key questions that is being asked of efti: Does the addition of efti to pembrolizumab in the treatment of NSCLC improve just the response rate or does it improve the duration of response as well? Efti's proposed mechanism of action (MOA) suggests that this is exactly what should happen and these results are consistent with what would be expected if efti were doing so. Essentially, the data is consistent with the view that efti + pembrolizumab was:

• Improving response rates relative to pembrolizumab alone
• Having little influence on the safety profile relative to pembrolizumab alone
• Producing an ORR comparable to that seen when pembrolizumab is combined with chemotherapy
• Increasing the duration of the response relative to pembrolizumab alone.

The newest data released was that the efti + pembrolizumab combination was estimating median progression-free survival (PFS) at 8.2 months. KEYNOTE-024 found that pembrolizumab monotherapy produced a PFS of 10.3 months, but the patients in that trial

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Wednesday, 13 October 2021

RESEARCH REPORT

Immutep Limited

A Truly Undervalued Company

were restricted to those with a tumour proportion score for PD-L1 expression of ≥ 50% (Reck et al N Engl J Med 375: 1823-1833). These are the patients most likely to respond to pembrolizumab. TACTI-002 did not restrict patient entry into the trial based on PD- L1 expression, which is why a PFS of 8.2 months is impressive relative to the PFS finding from KEYNOTE-024. Moreover, if you look at the subgroup of patients in TACTI-002 Part A who had a TPS of ≥ 50%, the PFS was 11.8 months.

As a reminder, Immutep and Merck agreed to increase the size of TACTI-002 by 74 patients in November 2020, bringing the total to be recruited into the trial up to 110. As of 1 September 2021, 43 out of the expansion stage had been recruited to Part A of TACTI- 002, indicating recruitment for this expansion group is proceeding well.

Overall, the updated Group A results are consistent with the previous data Immutep released on the group and, importantly, with efti's proposed mechanism of action. The key pieces of new data out of the ASCO interim analysis were that efti + pembrolizumab were improving the duration of responses relative to pembrolizumab alone and that a PFS of 8.2 months was seen in the trial despite the patients being unselected for PD-L1 expression.

Group C: 2nd Line PD-1/L-1 Naïve Recurrent Head and Neck Carcinoma.

Updated data was also presented at ASCO for efti for Group C patients. That data, presented by Dr Irene Brana of the Vall d'Hebron Institute of Oncology, Barcelona, Spain, is provided in table 2, along with the data we looked at in our CRR from the SITC presentation.

Table 2. Interim Study Results From TACTI-002, Group C, Second-Line HNSCC, Stages 1 and 2 Presented at SITC on 10 November 2020 and ASCO on 4 June 2021.

	SITC, 2020	ASCO, 2021
Tumour Response	N (%)	N (%)
Best Overall Response (BOR) per iRECIST	N = 28	N = 37
Complete Response (CR)	3 (10.7)	5 (13.5)
Partial Response (PR)	7 (25.0)	6 (16.2)
Stable Disease (SD)	3 (10.7)	3	(8.1)
Progressive Disease (PD)	10 (35.7)	17	(45.9)
Not Evaluable	5 (17.9)	6 (16.2)
Disease Control Rate (DCR; CR+PR+SD/N)	13 (46.4)	14	(37.8)
Objective Response Rate (ORR)	10 (35.7)	11	(29.7)
ORR in Evaluable Patients	10 (43.5), N=23	11 (35.5), N=31

Sources: Immutep Limited, ASX announcement, 10 November 2020 and ASX announcement, 4 June 2021

An additional nine patients have been recruited into this study since data cut-off for the previous analysis. While one might look at the data and be tempted to read a weak trend toward a decline in response rates between analyses, it needs to be remembered that these additional nine patients are also the group of patients who have been on the drug for the shortest period of time. This trial began in February 2019 and the data cut-off for each analysis was 8 October 2020 for SITC and 16 April 16 2021 for ASCO. Therefore, while the data on the patients for the SITC analysis was collected over 18 months, the data that has been added from the nine new patients is no more than six months old.

We found data from two studies of pembrolizumab in HNSCC patients, which reported time to response data, KEYNOTE-012

(Mehra et al (2018) Br J Cancer) and KEYNOTE-055 (Baumi et al (2017) J Clin Oncol), however, comparing the time to response of TACTI-002 to them is tricky because, like TACTI-002, both trials were also ongoing at the time the reports were prepared. The former was an open label, single arm, phase I trial, which contained two prescribed parts (initial and expansion) with a combined number of 192 HNSCC patients. This was the trial for which pembrolizumab received its approval for the second line treatment of recurrent metastatic HNSCC. It found a median time to response for patients of two months, with times to response ranging quite widely from two to 17 months. The latter was an open label, single arm, phase II trial of 171 HNSCC patients, who were treated regardless of PD-L1 expression levels. This trial also found a median time to response of two months, which ranged from two to five months. When KEYNOTE-012 was reported, patients had spent a median time of 98 days on the drug, which was similar to the 90 days for KEYNOTE-055. Both trials had some patients who had only been on the drug for one day when the data was reported. However, some patients had been on the drug for up to 749 days in KEYNOTE-012, compared to 401 days for KEYNOTE-055.

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