Immutep : Ladenburg Thalman - New Age Immune Regulator; Initiate with a Buy Rating and $8.30 Price Target

Biotechnology

Initiating Coverage

August 3, 2021

BUY

Ahu Demir, Ph.D.; [e-mail] 1.561.620.2102

Immutep Ltd.

New Age Immune Regulator; Initiate with a Buy Rating and $8.30 Price Target

IMMP (NASDAQ)
Company & Market Data
Closing Price (as of 08/02/2021):		$3.46
Rating:			BUY
Price Target:			$8.30
52 Week Range:		$1.22 - $7.95
Shares Outstanding (MM):			85.1
Market Capitalization (MM):			$294
Fiscal Year End:			Dec
Estimates
EPS	2020A	2021E	2022E
1Q	-	-	-
2Q	-	-	-
3Q	-	-	-
4Q	-	-	-
Full Year	$(0.33)	$(0.59)	$(0.56)
Revenue (MM)	2020A	2021E	2022E
1Q	-	-	-
2Q	-	-	-
3Q	-	-	-
4Q	-	-	-
Full Year	$13.7	$4.3	$5.0
Ratios
P/E	NA	NA	NA
*Revenue (MM): In $AUD
*EPS: In $AUD
IMMP
300 Volume (MM)		Price (USD)	6

250	5
200	4
150	3
100	2
50	1
0	0
Sep-20Nov-20Jan-21	Mar-21May-21Jul-21
Price	Volume

Chart data: Bloomberg

We are initiating coverage on Immutep (NASDAQGM: IMMP) with a Buy rating and $8.30 price target. Immutep is a clinical-stage immuno-oncologycompany focused on developing LAG-3therapeutics for oncology and autoimmune diseases. The lead asset eftilagimod alpha (efti) paired with PD-1/PD-L1agents is currently evaluated in metastatic breast cancer (mBC), non-small-celllung carcinoma (NSCLC), head and neck squamous cell carcinoma (HNSCC), and other solid tumors. The second asset IMP761 is at the preclinical stage for autoimmune disease. As the LAG-3is drawing much attention as a target following Bristol Myers Squibb's (BMY, $68, Not Rated) positive pivotal data readout, Immutep's efti also made its place in the LAG-3arena. We would like to emphasize the distinct mode of action of efti, a soluble LAG-3agonist and an MHC

1. activator. We like Immutep's diversified portfolio in multiple indications and disease areas (NSCLC, HNSCC, BC, and inflammatory diseases), partnership portfolio (GSK, Novartis, IKF, and others), and the data obtained from the Phase 2 TACTI-002 study in 2nd line HNSCC and 1st line NSCLC (ORR 30% and 42%, respectively) and from Phase 2b AIPAC study in mBC (2.7 mos of OS benefit). In our view, the Australian biotech Immutep is one of the most diversified LAG-3 therapeutics/APC activators play in the public market.

Value-drivingevents on the calendar. (a) We expect to have a thorough look at the final data from the AIPAC study (2nd OS follow-up in mBC) in 2H21. (b) We expect clarity on the next steps for NSCLC in 2022. We believe that would potentially generate additional value for the company. (c) We will be on the watch for the interim data analysis of TACTI-003 in 1st line HNSCC in 2022 after commencement of trial in YE 2021. (d) We also look for regulatory engagement, further information on partnerships, and updates on the IMP761 program. We will pay special attention to data on differentiation from competitor agents and activity across various targets and combinations in the evaluated disease landscapes.

Our valuation. We value Immutep using a risk-adjusted discounted cash flow model. We base our valuation on HNSCC and mBC markets as the company intends to advance these two indications in the clinic and view other clinical programs (NSCLC) and the preclinical pipeline as potential upside. We took a top to bottom approach and used PD-1/PD-L1 agents WW sales in these two indications and applied a propitiate market penetration for the efti/PD-1 combination. And, we assign a 50% probability of success in these indications. Using the Gordon Growth Method, we calculate a terminal value of $2.01 billion and arrive at our $8.30 price target.

Risks. Risks include: 1) currently the company is solely depending on efti's success in multiple indications, 2) clinical data is compelling; however, the indications that are assessed by IMMP are highly competitive/crowded landscapes, 3) emerging new treatment regimens can change the treatment paradigm and impact the stock valuation.

DisclosuresandAnalystCertificationscanbefoundinAppendixA.

7763 Glades Road • Boca Raton, FL 33434 • • 800-LAD-THAL

Member: NYSE, NYSE American, NYSE Arca, FINRA, all other principal exchanges and SIPC

Ahu Demir, Ph.D. 1.561.620.2102	Immutep Ltd. (IMMP)

Investment Thesis

We recommend shares of IMMP based on our current key investment thesis listed below:

• In our view, the LAG-3 MHC II activator mechanism presents a frontier therapeutic approach with compelling underlying biology, validated safety and efficacy, and opportunities to bridge current gaps for clinical success.
• We see Immutep has demonstrated a compelling efficacy/safety profile and pipeline that may potentially help address some of the current gaps for PD-1/PD-L1 treatment. The company showed highly competitive clinical results in multiple indications including HNSCC, NSCLC, and mBC.
• We believe i) upcoming AIPAC study (2nd OS follow-up in mBC) readout in 2H21, then,
  advancement of this program in the clinic in 2022, ii) commencement of TACTI-003 trial in 1st line HNSCC, followed by interim data readout in 2022 will be potential significant near- and medium-term potential catalysts.
• In our view, Immutep's pipeline presents potential large upside with HNSCC, mBC, and NSCLC programs targeting unmet medical needs with larger market potential in these indications.
• Given the current market cap of $362 mm, we see attractive value creation and upside potential for IMMP stock, with also upcoming key potential catalysts in 2H21/1H22.
  What do we like?
  Clinical data showed a compelling synergistic effect of efti coupled with PD-1/PD-L1 agents. We guide investors to pay attention to the distinct mode of action of efti versus
  other LAG-3 antagonist agents. As we like the recent developments in the LAG-3 arena, where it became the 3rd validated target after PD-1 and CTLA-4 with the ASCO readout from Bristol Myers Squibb's pivotal study (RELATIVITY-047), we do not think Immutep's efti should be classified as a LAG-3 antagonist agent. Efti is derived from the soluble form of the lymphocyte-activation gene 3 (LAG-3) fused to the four extracellular Ig domains of LAG-3 to the Fc portion of human IgG1. It is a recombinant soluble LAG-3Ig fusion protein that binds to MHC class II with high avidity. Efti acts as an MHC II agonist and mediates antigen-presenting cell (APC) and then antigen-experienced memory CD8+ T cell activation, unlike the other LAG-3 targeting agents (LAG-3 antagonist) that bind to and inhibits LAG-3, hence LAG-3 inhibitory signaling pathway. While it could potentially act like an antagonist and compete with the LAG-3 binding to MHC II at high concentrations, at the selected clinical concentrations, efti works as an MHC II activator. As we get into details on the mechanism of action of efti in this report, noting that efti is not a LAG-3 antagonist agent, the most compelling key factor why we like efti is the clinical benefit observed with the efti/pembrolizumab (pembro) combination. Efti coupled with pembro demonstrated 29.7% of overall response rate (ORR) including 5 complete responses (CR) and 37.8% diseases control rate (DCR) in 37 HNSCC patients. Among selected PD-L1 expression (CPS≥1), median OS (58% events) was 12.6 months, median PFS (71%
  events) was 4.1 months and ORR was 45.8% (95% CI) in HNSCC. The results were favorable and exceeded Keytruda monotherapy data (2nd line HNSCC: 16% of ORR rate in 2016 and 1st line HNSCC: the median OS was 13.0 months for the pembrolizumab plus chemotherapy arm and 10.7 months for the cetuximab plus chemotherapy arm (HR 0.77; 95% CI: 0.63, 0.93; p=0.0067). While we only highlight HNSCC data in this section, we think the results in NSCLC and mBC patients were also remarkable. In our view, the clinical benefit generated by the efti/pembro combination is solid and compelling.
  Billion-dollarmarket opportunity. PD-1/PD-L1 agents are posed as a backbone therapy in the approved indications. Anti-LAG-3 will be positioned as an additive to these agents, paired with anti-PD-1/PD-L1 agents. PD-1/PD-L1 agents reached $14.4 billion in 2020 and are estimated to grow to $64.3 billion in 2026 (based on Evaluate Pharma). Immutep focuses on two indications i) HNSCC a relatively smaller market (predicted to reach ~$2.6

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Ahu Demir, Ph.D. 1.561.620.2102	Immutep Ltd. (IMMP)

billion in 2026) with a potentially accelerated path to approval, ii) breast cancer with larger market potential, estimated to reach $4.4 billion in WW sales in 2026 (based on Evaluate Pharma). On the commercial prospects of anti-LAG-3, the we believe the opportunity is immense.

Eclectic pipeline. In our view, Immutep is one of the most diverse players in the LAG-3 arena. The company has shown compelling data in multiple indications. Immutep is not only pursuing multiple opportunities in cancer including head and neck squamous cell carcinoma (HNSCC), metastatic breast cancer, and non-small cell lung cancer (NSCLC) but also in advanced stages of development versus competitors and also tapping into autoimmune disease. Established collaborations and partnerships are also noteworthy including Merck KGaA (MKGAF, $208.3, Not Rated), Novartis (NVS, $92.3, Not Rated), GSK (GSK, $40.2, Not Rated), and others.

Where do we see vulnerabilities?

APC activators have shown mixed clinical efficacy. Although efti is unique as it is the only soluble LAG-3 (LAG-3agonist)/APC activator, i) it is not a validated target or mechanism like the LAG-3antagonist mechanism, and ii) multiple other immune stimulator agents recently showed lackluster clinical benefit in patients. Toll-likereceptors (TLRs, e.g., tilsotolimod) and STING agonists (e.g., MK-1454and ADU-S100)are APC activators, and both classes of drug candidates demonstrated underwhelming efficacy in the clinic. We think there is skepticism in the APC activator field. While the efforts continue, we also recognize that it became somewhat common to learn from the failures of the 1st generation drug candidates and i) improve and obtain more potent 2nd generation versions, ii) find the right market or indications with iii) the right combination strategy in the I/O space.

Highly crowded field. The company is assessing efti in large, hence highly compelling, and crowded diseases landscapes such as non-small cell lung cancer (NSCLC), metastatic breast cancer, head, and neck cancer (HNSCC). The developmental pipeline is very crowded with many variations of combinations and targets: I/O-I/O,I/O-targeted therapy, I/O-chemotherapy, and others. We see multiple layers to the competition with many attributes including i) the approval timeline (first to market), ii) market positioning (which combination(s) and what line of treatment), and iii) market penetration (approval timing, distinct efficacy, or safety profile, favorable dosing schedule or others). Therefore, Immutep's data and strategy on how to position efti in these dynamic disease landscapes will play a key role in a successful approval strategy and commercialization.

One lead asset, the rest is overdue. While we like the diversity of the pipeline and the partnership portfolio, we are on watch to see data from the partner Novartis on the LAG525 (IMP702, a LAG-3 antagonist) program. The other partner GSK halted a clinical trial in ulcerative colitis. We are waiting to see advancement and data from autoimmune disease programs and other assets beyond efti.

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Ahu Demir, Ph.D. 1.561.620.2102	Immutep Ltd. (IMMP)

Industry Overview

Immutep is a clinical-stage biotechnology company focused on developing cancer immunotherapies and immunosuppressants. The company has a diverse portfolio that is currently being explored in a variety of solid tumors and autoimmune diseases. Spending on cancer treatment is expected to reach $187 billion worldwide and to increase to approximately $273 billion by 2025, 12% CAGR, based on Evaluate Pharma. Based on Evaluate Pharma's estimates, oncology is expected to contribute 21.7% of total pharmaceutical sales in 2026, 66% of sales are anticipated to derive from immuno- oncology agents and protein kinase inhibitors. The global cancer immunotherapy market is set to grow at a CAGR of 10.25% between 2021 and 2027.

Exhibit 1. The global cancer immunotherapy market is expected to grow at a CAGR of 10.25% from 2021-2027 to reach USD 174.33 billion by 2027

Source: UnivDatos Market Insights and Ladenburg Thalmann Research

The last decade has been revolutionary for cancer treatment through advancements in targeted therapy, immunotherapy, and combinational regimens. Extensive sample pools and clinical data in combination with advanced sequencing tools have provided a broad understanding of tumor genetic background and evolution. Although tailoring drugs to target the driving oncogenic mutations was a promising strategy, researchers came to an understanding that cancer is constantly evolving and adapting. Therefore, in recent years cancer research has been focused on the universal system -- immune cells for anti-cancer activity. An immune response is a multiple-step process and involves coordination across various cell types and tissues including tumor cells, antigen-presenting cells, and T-cells. The majority of the recent research focuses on activating, priming, and regulating T-cells, because of their ability for selective recognition of peptides/antigens and killing of antigen- presenting cells. The discovery and approval of checkpoint inhibitors have been significant for the evolving oncology landscape shifting toward immuno-oncology development. immuno-oncology agents have shown favorable results of increased survival and decreased toxicity.

Naïve T-cells are differentiated and activated into effector T-cells. Under constant antigen exposure such as in cancer, T-cell differentiation is in an altered state (so-calledT-cell exhaustion) causing T-cells to function poorly. Immune checkpoints are negative regulators (inhibitory receptors) of the effector T-cells and conserve expression of these receptors, a hallmark of T-cell exhaustion. Cancer cells utilizing checkpoint molecules causing T-cell exhaustion and deceived as normal cells result in suppression of immune attack. Immune checkpoint inhibitors targeting checkpoint molecules, such as cytotoxic T-

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Ahu Demir, Ph.D. 1.561.620.2102	Immutep Ltd. (IMMP)

lymphocyte associated protein 4 (CTLA4) and T-cell programmed cell death protein 1 (PD-1) and its ligand PD-L1, block this inhibitory signal resulting in activation of T-cells and anti-tumor activity. Yervoy (anti- CTLA4) was the first major blockbuster drug in the field of immunotherapy as a treatment for unresectable or metastatic melanoma in 2011. Following Yervoy, checkpoint inhibitors that either bind to the programmed death 1 receptor (PD-1) or one of its ligands (PD-L1) were approved in 2014, the most widely indicated and prescribed of which are Bristol-Myers Squibb's Opdivo (nivolumab) and Merck's Keytruda (pembrolizumab).

Exhibit 2. Timeline of FDA-approved cancer Immunotherapies

Source: UnivDatos Market Insights

The first two PD1/PD-L1 inhibitors were approved in 2014 (Keytruda's approval in September was followed by Opdivo's approval in December). There are currently over ten PD1/PD-L1 inhibitors approved in numerous indications including melanoma, non-small cell lung cancer and (NSCLC), renal cell carcinoma (RCC), head and neck cancer, Hodgkin's lymphoma, bladder cancer, Merkel cell carcinoma, colorectal cancer, gastric cancer, hepatocellular (liver) cancer (HCC), cervical cancer, diffuse large B-cell lymphoma (DLBCL), small cell lung cancer (SCLC), squamous cell carcinoma (SCC), breast cancer, esophageal cancer, and others. Keytruda has become a blockbuster drug, dominating the cancer market as the top-selling medicine in the space. Keytruda's worldwide (WW) sales in 2020 reached $14.4 billion. By 2026, Evaluate Pharma projects $64.3 billion of total sales of PD1/PD-L1 inhibitors, $26.9 billion (42% of total PD1/PD-L1 WW sales) sales from Keytruda alone (Exhibit 3).

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