Since last writing about VBI Vaccines (NASDAQ:VBIV) in early November, the stock has traded down. The good news is that the stock is down slightly less than the sector. Over the last five months, the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) is down over 20% while VBI Vaccines has managed to only lose 16%.
Despite being a small biotech, the company still has numerous catalysts going forward. The ongoing merger with SciVac Therapeutics (OTCQX:SVACF) provides immediate upside on closing, but the valuation is attractive either way with a developing pipeline and a strong management team and investors. Though highly risky considering the size of the operation and inherent risks in the sector, VBI remains a biotech worth further research.
The biggest and most immediate catalyst for VBI Vaccines is a closure of the deal with SciVac. Back in October, SciVac offered 20.808356 shares for each share of VBI Vaccines. At the current price of SciVac, VBI Vaccines is actually worth around $2.22 per share. The valuation is a slight discount to the current price.
Ironically, SciVac has taken a bigger hit in the last few months as the deal lingers. A part of the issue with the stock was likely the original requirement for the company to raise $25 million in order to complete the merger. Back in December, this requirement was killed as the feared dilution sent the stock down. While the company could sure use the cash, raising a large amount at the bottom wasn't a wise requirement of the merger.
SciVac shareholders approved the merger and the latest expectation was a closing by the end of Q1 or closely thereafter. As highlighted in my last article, the ownership position of Opko Health (NYSE:OPK) is a key point that provides confidence in the closing of the merger. Opko will control 14% of the company on completion of the merger.
The biggest negative from the update to the merger requirements is that the cash position isn't improved by the obtaining of $25 million in financing prior to closing.
At the end of 2015, VBI Vaccines had $7.3 million of cash while producing a $13.9 million loss for the year. The company only used $11.0 million in cash for the year due to non-cash charges such as stock-based compensation and amortization of financing costs and intangibles.
VBI Vaccines has a long history of raising financing so the ability to raise funds isn't as big a concern as the costs and dilution required for ongoing research. Again, the company has Clarus Lifesciences and ARCH Venture Partners where the Chairman is a managing director as investors. In addition, Perceptive Life Sciences participated in the last funding so the funding options are solid.
These top venture funds go along with an inevitable management team discussed in my first article regarding VBI. The main reminder being that CEO Jeff Baxter worked for GlaxoSmithKline (NYSE:GSK) and brings that connection to the company that plays a part in the recent collaboration.
SciVac is in a slightly better cash position with $12.5 million at the end of last year. As well, the company used $9.0 million in operating activities. SciVac suggests the cash is enough to continue operations over the next 12 months.
In a combination at the same burn rates as last year, the cash on hand is roughly enough to survive 2016. Ultimately though, the new VBI Vaccines will need to find funding before year end. One prime way to get top funding is to further develop the vaccine pipeline and move candidates into clinical trials whether Phase 1 or 3. Naturally, the connected venture funds are prime candidates for additional funds, but no guarantees exist in the biotech world.
Without the SciVac merger, VBI Vaccines has a solid pipeline. The initial focus is on the VBI-1501A candidate that will start the Phase I trial soon. At the same time, the company has several interesting collaborations with big pharma companies with the thermostable LPV Platform.
Source: VBI Vaccines presentation
Congenital CMV Disease remains a leading health issue for U.S infants with more live births affected than Down Syndrome and Fetal Alcohol Syndrome. The disease causes hearing loss, mental disability and vision loss amongst other issues. After two vaccinations, the vaccine candidate VBI-1501A induces immunity that greatly exceeds benchmarks.
VBI Vaccines now targets Phase 1 clinical trails starting in the next few months and lasting around 20 months. The start date has shifted out likely due in part to working on the merger, but investors will need to key in on whether the company meets projected timelines that is key for obtaining additional funding.
While the CMV drug candidate makes a slow start towards starting clinical trials, the company is making progress with the Glioblastoma or GBM cancer immunotherapy program. Studies with Columbia University Brain Tumor Center have shown promising ability to induce anti-tumor immunity in peripheral blood mononuclear cells and stimulated strong T-cell immunity. With 12,000 new cases of the aggressive malignant primary brain tumors each year and a 90% death rate within two years, the vaccine candidate is targeting a unmet need. The preclinical data has the company moving towards a pre-IND meeting with the FDA in the next few months as well.
The interesting news recently is that GSK agreed on a research collaboration for the LPV Platform. The platform helps with preserving stability of vaccines and biologics that require "cold chain" shipment. Terms of the collaboration weren't disclosed, but the agreement builds on work already being done with Sanofi (NYSE:SNY).
The LPV Platform has already shown proof of concept in numerous vaccines allowing them to survive for months at temperatures requiring normal freezer/refrigerator temperatures available in emerging markets and other areas of need. Removing the requirement of storing these vaccines substantially below freezing levels greatly increases the ability to transport to places of need around the world.
Source: VBI Vaccines presentation
A big benefit of the SciVac merger is in the inclusion of a Phase 3 hepatitis B vaccine candidate that already has approval and sales in other countries. The combined entity becomes a lot less early-stage biotech with the merger. In addition, SciVac can utilize the management team at VBI Vaccines that has already used the big pharma connections to start collaborations with the likes of GSK and Sanofi.
Vaccine Valuations Holding Up
As SciVac and VBI Vaccine still linger around a combined valuation below $150 million, similar biotechs in the sector trade at vastly higher valuations. Despite the hit to biotech stocks over the last year, both Dynavax Tech (NASDAQ:DVAX) and Novavax (NASDAQ:NVAX) trade at levels around $1 billion. Even Celldex Therapeutics (NASDAQ:CLDX) is worth more than double SciVac/VBI after a failed study.
Dynavax recently completed a successful Phase 3 trail for its investigational hepatitis B vaccine, HEPLISAV-B. The biotech expects to file a Biologics License Application with the FDA soon with an expected six-month review timeline. The stock is worth roughly $750 million.
Novavax continues working on clinical trials for two Phase 3 trials on RSV-F vaccines. The biotech is worth roughly $1.4 billion.
Celldex Therapeutics has a market cap of $373 million even after a Phase 3 trial for late-stage brain tumors failed to reach overall survival in excess of the placebo results. The biotech is moving forward with other Phase 1 and 2 cancer immunotherapy trials.
The valuations in the vaccine area remain solid and obtainable goals for the new VBI Vaccines.
The risk profile remains high as with any small biotech. The lack of the $25 million in funding in place prior to closing the SciVac deal intensifies the risk. The company lacks the balance sheet whether alone or via the merger to fund the clinical trials for all of the development phases. VBI Vaccines will need significant additional funds for the clinical trials and non-clinical trials, regulatory approvals, and potentially commercial development of approved vaccines.
Maybe even more importantly, the investment thesis is dependent on a select group of executives with experience and connections amongst the largest biotechs and venture funds in the industry and specific vaccine sector. The expertise of these executives is needed to develop these drug candidates along with finding potential partners and funding options that would probably not be available to a less experienced team.
Any loss of these executives would drastically hurt the investment thesis and the ability of the company to fund ongoing research and development.
The biotech sector is highly dependent on rapidly developing technology. A small biotech is susceptible to development of competitive drugs and the amount of money that larger biotechs can commit to drug candidates.
Ultimately, any failure of the prime drug candidates now entering trials would crush the stock even if the company retains key executives and repeals competition. The failure to obtain FDA approvals are always a primary risk and even so much more for a small biotech without the cash and strong balance sheet to survive a drug failure and move forward on other drug candidates.
As with the whole biotech sector, the recent decline in the stock of VBI Vaccines provides a better entry point for those that believe in the management team and vaccine technology platforms and drug pipeline.
The risk remain elevated as the company will need to raise additional funds, but the involvement of OPKO Health and Dr. Frost along with ARCH Ventures and Dr. Gillis continue to make the deal to compelling to pass up. Naturally, any investment is only appropriate for a diversified portfolio.
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