Presentation and investment thesis
Vaccitech (NASDAQ: NASDAQ:VACC) is a clinical stage biotechnological company, spun off from Oxford University. The firm has been recently highlighted as the company which developed the technology behind AstraZeneca’s Sars-Cov-2 vaccines.
Following its IPO in April 2021, the stock continued to fall. This sell-off appears to me mostly related to trend following than evaluating the business and the products from Vaccitech. Indeed, it replicates the downward slope of COVID-19 stocks and more specifically vaccines-related stocks such as Moderna (NASDAQ:MRNA) or BioNTech (NASDAQ: BNTX).
While this sell-off may be understandable for stocks which derived their recent main growth from COVID-19, Vaccitech has a pipeline of 9 products with 8 aiming to treat or prevent other diseases. Among them, their vaccine against chronic hepatitis B (CHB) showed promising results and final read-out is expected for H2 2022.
The investment thesis is Vaccitech present an attractive risk-reward profile with medium term catalyst and promising clinical data. The recent sell-off could be a good entry point to get exposure to the release of their data.
VTP-300: A potential cure for Chronic Hepatitis B
Vaccitech is specialised in vaccines development that either prevent or cure of a specific disease. Their main technology is based on simian adenovirus (isolated from chimpanzees) that can present 2 specifics antigens: ChAdOx-1 and 2. The company uses those 2 antigens to provide specific effects we will see later. Additional antigens, related to the treated disease is then incorporated into the simian adenovirus to be delivered inside the body.
While the ChAdOx vaccine is the initial dose, an other technology is used as second dose (or boost): MVA-vaccines. MVA stands for Modified Vaccinia Virus Ankara and its usage is well documented as vaccine vector. The firm intends to use either only ChAdOx-1/2 vaccine for prevention of the disease or both vaccines to aim for cure (as reported in their 10-k of 2021). This is in line with the literature reporting MVA as a poor primer but an efficient booster. VTP-300 consists in the combination of both, containing multiples antigens directed to CHB.
In the case of CHB, the firm plans to use VTP-300 with low-dose immune checkpoint inhibitor, a well-known drug used mainly in cancer treatment that avoid exhaustion of immune cells: Nivolumab. The rational is to create an immune infiltration in the liver with VTP-300 and avoid exhaustion and boost the immune cells thanks to Nivolumab. Indeed, it has been previously reported that CHB is a desert immune disease in up to 2/3 of the patients. On the others hand, anti-PD1 such as Nivolumab, have shown results in a subset of hepatic cancer patients presenting CHB and then in combination with an other vaccine.
We will review the available data of the trial focusing first on the design and then discussing the two main read-out: Safety and Immunogenicity.
HBV-001 and HBV-002
Design of the trials
Vaccitech is studying VTP-300 in 2 different trials. HBV-001 is a phase 1 trial comparing healthy controls to CHB patients. Each groups are divided in 2 subgroups receiving the ChAdOx-1 vaccine alone at 2 different doses. HBV-002 is composed of 4 groups of CHB patients: MVA-HBV (as a prime) + MVA-HBV (boost), ChAdOx1-HBV (prime) + MVA-HBV (boost) (which is VTP-300), VTP-300 with low-dose nivolumab given at the boost, and VTP-300 with low-dose nivolumab given at both the prime and the boost.
In both trials, safety and immunogenicity are the main outcomes.
Interim results of both studies have been recently published. Looking first at the safety, interim results from November 2021 reports for HBV-001 a well tolerated administration of the drug with the most common adverse event reported consisting in injection site pain. All other side-effects were reported to be mild in severity. Regarding HBV-002, as of September 2021, no concerning safety event were observed. In December 2021, the company reported that one patient responding to treatment experienced a transaminase flare after the MVA boost plus nivolumab that resolved over 3 weeks. It is also important to note that the ChAdOx-1 vaccine have been tried at the population level in the context of the Sars-Cov-2 vaccine. While several severe side-effects have been reported, those effects were very rare and chances to observe one of them in a small clinical trial of around 50 patients appears to me as very low.
Altogether, available data suggest a positive safety profile with a low-risk of severe side-effect arising.
The ability of ChAdOx vaccine to trigger a specific immune response is at the base of the thesis of the company. Looking first at the immune infiltration provided by the vaccine in the company trials, HBV-001 read-out reported a peak in total T-cells response at 28 days after treatment. Moreover, the response mounted was highly specific for the delivered antigens. The HBV-002 results were consistent with HBV-001 read-out: Total T cell responses were superior, in the high hundred SFUs per million PBMCs, following the heterologous prime-boost (VTP-300) in Group 2, compared to Group 1(MVA-HBV Day 0, MVA-HBV Day 28). Additionally, VTP-300 induced antigen specific T cell responses to all antigens.
These data are confirmed by other human studies using ChAdOx vaccines for Sars-Cov-2: Comparing AstraZeneca vaccine to the one from BioNTech in rheumatoid arthritis patients, authors observed a stronger T-cell immune response following the ChAdOx-1 vaccine. This observation is supported by others authors aswell, indicating a strong CD8+ immune response following vaccine.
To assess the clinical translation of the immune response induced by the vaccine, the company measured HBsAg, a marker of an active infection to Hepatitis B. To note this biomarker is recommended to assess the response of CHB in clinical trials.
The press release of December is providing details about the efficacy of the immune response. The firm observed a greater than one log decrease in HBsAg in 3/6 patients at 3 months including a patient with undetectable HBsAg after starting Nivolumab in the group 3 leading to a significant difference in mean HBsAg between Group 3 and the other groups (p < 0.01).
At the light of these results and regarding the risk side, I have to mention the scenario that is, for me, the most possible to lead to a fail of the trial.
As previously mentioned, it has been reported that Nivolumab alone could decrease HBsAg in CHB patients. In the cited studies, the decrease was around 1.0 log in the study of cancer patients and around 0.4 log in combination with an other vaccine. I consider to provide satisfying proof-of-concept, VTP-300 should decrease HBsAg more than Nivolumab alone and thus report at least a 1.0 log decrease in the majority of patients. While it remains a challenging endpoint, I am confident that the results will be positive. Indeed, in HBV-002, Nivolumab is used at low-dose and once in the group 3 while in the cancer study, the dose was 10 times higher and administrated repeatedly. Despite this higher dosage, the decline only occurred in 6% of the 51 patients. In HBV-002, half of the patients were over 1.0 log decrease in the interim with a much lower dose. This suggest a positive synergy between ChAdOx-1 and Nivolumab. However, this conclusion is drawn from a very small sample of patients and should be interpreted with caution.
Financial and price indication
Regarding the financial of the company, majority of its assets consists in cash and cash equivalent. The total amount of cash in hands is $214M. The company succeeds to increase significantly their cash reserves, compared to the number of $43M reported last year. The raise of funds was primarily due to completion of the Series B financing in the first quarter of 2021, which raised gross proceeds of $125.2 million, and to the initial public offering in the second quarter, which raised gross proceeds of $110.5 million.
In 2021, the firm reported a loss from operations of $45M mainly composed of research and development and general and administration expenses. Research and development expenses were $20.4 million in 2021. This is an increase from the $14.4M of the prior year. The company explains that the increase in R&D expenses was primarily due to increased spending on the development of VTP-200, VTP-300, and VTP-850. Regarding the G&A expenses, it also increased from $10.5M to $25.1M resulting from higher personnel costs, reflecting an increase in the company’s headcount over the period and higher insurance costs associated with operating as a public company. At this cash burn rate, the firm expects to have enough cash in hands to finance their operation into the second half of 2024. Given the medium-term horizon of 1 year of the investment thesis, the risk of dilution remains low. A potential risk could come from unexpected expenses that could shrink cash amount.
Looking at their liabilities, their total liabilities reach only $28M including current liabilities of $11M. This leads to a net cash in hands of $186M. Thus, in addition to promising clinical data, the second attractive feature of Vaccitech is its valuation. At the time of this article, the valuation of the stock is oscillating between $160M and $170M. Compared to the net cash, this lead to a discount of around 15%. In addition, even at a market capitalisation of $186M, the potential growth and future cash flows of the 8 products in the pipeline is not accounted into the stock price. Dividing a market cap of $200M by the number of outstanding shares reported in the 10-K leads to a stock price of around $5.5. In other terms, I think Vaccitech stock present a margin of safety of around 15%, with promising clinical data upcoming in months to come.
Finally, Vaccitech remains a low-market capitalisation biotechnological firm. Except low revenue from licensing to AstraZeneca, the company does not have operational cash flow to finance its activity on the long term and rely on cash in hands to complete the development of their product. Thus, we could not exclude on longer time frame, the company will not run out of cash leading to shareholders dilution to raise capital or fill for bankruptcy.
Vaccitech suffered from a downtrend that impacted all vaccines makers implicated in COVID-19 disease. The company is now trading at a discount of 15% compared to its cash in hand. Moreover, their technology have already proven efficacy in large clinical trials and interim results data for the treatment of CHB are promising. Release of the final data for CHB is planned for H2 2022 and could so lead to a push in the stock price.