Despite taking positive steps by completing a merger, finalizing another financing round and having an impressive owner roster, VBI Vaccines (NASDAQ:VBIV) still remains relatively unknown. As the company states, the new entity creates a commercial stage biotech with an approved hepatitis B vaccine, a pipeline of preventative and therapeutic vaccine candidates, and two novel technology platforms.
What the company description doesn't adequately cover is the strength of the management team and the impressive investor roster that controls billions in funds. As well, VBI Vaccines offers a lot for investors in a time where vaccines for diseases such as Ebola and Zika continue to grab the headlines and the lack of immunization of immigrants are the potential next health crisis in the developed world.
For these reasons, investors should further explore the details of VBI Vaccines. My previous article highlighted some of the benefits as the biotech makes progress, but the stock isn't reflecting the potential.
Back on May 9, SciVac Therapeutics completed the merger with VBI Vaccines and changed the name to VBI Vaccines with the leadership principally the executives from VBI. Along with CEO/President Jeff Baxter, and CSO Dr. David Anderson, the former CEO of SciVac joined the company as the CTO.
The combined company is most importantly led on the BOD by Chairman Dr. Steven Gillis and two executives from Opko Health (NYSEMKT:OPK) that remains the largest shareholder and influential on the board.
Along with the impressive management team highlighted in previous articles, VBI Vaccines has a more complete product lineup now. SciVac brought to the combined entity the Sci-B-Vac with a commercial stage hepatitis B vaccine with approvals in countries like Israel, Vietnam and Hong Kong. VBI brings a pipeline that includes several vaccine candidates including the current enrollment of Phase 1 trials for a CMV vaccine candidate.
The combined company ended last year with nearly $20 million in cash. The downside is that the combined operations burned nearly $23 million in 2015.
At the end of Q1, Sci-Vac had roughly $11 million in cash after burning $1.4 million in operations during the quarter. VBI Vaccines started the year with $7.3 million and was burning over $2 million per quarter leaving possibly $5.0 million to contribute to the new company.
One key component of investing in the new VBI Vaccines similar to other mergers is reviewing the first quarterly results after the merger to verify the consolidated numbers. Based on quick estimates, the company was approaching slightly above $10 million in cash prior to the recent financing. A number sufficient to run operations for the year, but clearly not enough to fund clinical trials on multiple drugs and build a pipeline.
The biotech should end Q2 around $25 million of cash on the balance sheet though investors should immediately review that portion of the financials when available.
These cash burn numbers are typical of biotechs so nothing alarming at this point other than the cash position is probably lower than one might prefer.
Investor Roster Controls Billions
The recent financing reinforces the commitment of several key investors in the VBI Vaccines concept. After closing the merger, the company raised $13.6 million by completing a private placement at $4.16 per share without warrants that normally dilute most private placements.
The company sold 3,269,688 shares with Opko Health and Perceptive Advisors leading the offering and ARCH Venture Partners participating at the maximum possible allocation per Toronto Stock Exchange regulations. The investors were already large shareholders prior to the merger with Opko backing SciVac and ARCH and Perceptive Advisors backing the previous standalone VBI Vaccines. In total, institutional biotech funds control some 60% of the company.
The interesting part is that a little $140 million company is now backed by a billionaire investor and several funds that control billions. Dr. Phillip Frost is the CEO of Opko Health with a ownership position of 183 million shares valuing that ownership position alone at around $1.8 billion. Dr. Frost has numerous other investment positions as well with Forbes placing his real-time net worth at $3.9 billion.
Chairman of the Board Steven Gillis was a founder of Immunex that developed Enbrel. The biotech was eventually sold to Amgen (NASDAQ:AMGN) for $16 billion. He is now managing director of ARCH Venture Partners along with several other board positions including bluebird bio (NASDAQ:BLUE).
ARCH Venture Funds has roughly $2 billion under management with a proven track record of successful investing. The biotech venture fund was recently listed as one of the top funds for the last decade.
As well, Perceptive Advisors manages $2 billion. The hedge fund was listed as the top performing fund last year with a 51.8% gain (via Bloomberg news). The fund easily outperformed the other funds on the list.
The exciting part for investors is the ability to participate in this biotech at a price below these billionaire investors and funds. The recent offering took place about 10% above the closing price last week of $3.82.
Solid Drug Pipeline
The key story with VBI Vaccines over the last few months is that the company has gone from a development stage biotech to one with an approved vaccine and another in clinical trials. All of the large investors wouldn't matter and probably wouldn't invest in this company without the solid drug pipeline.
The big key to unlocking value is getting Sci-B-Vac approved in the U.S. and Europe and getting VBI-1501A through Phase 1 trials.
Beyond that the company has several other drugs in the pipeline, but maybe more important is the thermostable LPV platform. The proprietary platform provides the holy grail of being able to take vaccines out of the cold chain. The requirement to store vaccines at 4 degrees Celsius makes the items difficult to transport in emerging markets and greatly increases the cost and product waste.
VBI Vaccines has research partnerships with Sanofi (NYSE:SNY) and GlaxoSmithKline (NYSE:GSK) as the company has shown proof of concept with numerous vaccines candidates where the LPV platform was able to maintain the quality of the vaccine for weeks and months at 40 degrees Celsius greatly enhancing the accessibility of current vaccines.
The combination of drugs in the pipeline along with the technology platforms provides an impressive lineup. VBI Vaccines predicts a market potential for the both the HBV and CMV vaccines of at least $1 billion in the developed markets alone.
The Sci-B-Vac HBV vaccine obtained from SciVac via the merger is highly unique. The company has safety and efficacy demonstrated the vaccine in over 300,000 patients and some 4,500 patients via 20 clinical trials. The drug is actually licensed in 15 countries. On the downside, neither of these countries provide the market size or meaningful revenues of the U.S or Europe.
According to the Hepatitis B Foundation, the virus is 100x more infectious than the AIDS virus. Over 240 million people worldwide are chronically infected with HBV with the vaccine providing no help at that point. Up to 10 to 30 million people in the world will become infected with HBV that the World Health Organization estimates cause up to 1 million deaths each year. The amazing part is that the Centers for Disease Control estimates that only a minor portion of the adult population in the world is adequately vaccinated.
Second-generation vaccines exist that provide protection against HBV. VBI Vaccines claims that the Sci-B-Vac provides a third-generation vaccine that offers high levels of anti-HBV antibodies, offers rapid onset of protection, and most importantly can be administered at lower doses than competing HBV vaccines.
The biggest negative of this vaccine is that the company only expects to meet with the FDA and the European counterpart later this year to determine the clinical path for approval in these key regions. VBI Vaccines could still have a long road ahead to meaningful sales of Sci-B-Vac despite an advanced country like Israel that has already determined the vaccine meets a need.
CMV Phase 1 Trials
According to the CDC, 1 in 750 children are born with or develop permanent problems due to the Cytomegalovirus, or commonly referred to as CMV. As this Huffington Post blog articulates, the country should focus more on finding a vaccine for CMV than the headline grabbing Zika virus.
CMV causes serious disease in newborns with approximately 5,000 developing premature problems in the U.S. alone. Roughly 400 children die from the infection each year. The virus is highly unknown with only 9% of woman knowledgeable about CMV and causes an estimated economic impact of $2 billion annually.
Source: Huffington Post blog via CMV Foundation
Both the CDC and National CMV Foundation discuss the ability to prevent the virus, but no vaccination exists to stop the spread of woman that unexpectedly pass the virus to unborn children.
VBI Vaccines hopes to solve this problem with the VBI-1501 vaccine candidate. VBI-1501 is shown to stimulate natural levels of immunity to provide a higher level of protection after two vaccinations.
The company started enrolling patients for the CMV Phase 1 clinical trial last month. The trial expects to enroll 125 CMV-negative healthy adults with an expected duration of 20 months. The vaccinations will take place at 0, 2 and 6 months with an interim results in the 1H17.
Elevated Risk/Return Scenario
The risk profile is slightly improved with the combined company and the recent equity raise without dilutive warrants. The previous negative on the merger was the lack of closing the $25 million deal to raise cash for funding operations. Even after the nearly $14 million raise, VBI Vaccines will need additional funds for the clinical trials and non-clinical trials, regulatory approvals, and potentially commercial development of approved vaccines.
With the solid drug pipeline, a positive investment thesis is no longer highly dependent on a select group of executives. VBI Vaccines though is highly reliant on these executives for raising additional funds and industry connections in the vaccine sector. The executives are definitely needed to reach full potential in developing the drug candidates and monetizing the assets to the fullest. Any departure of the key executives along with either of the top venture funds would be a big warning flag and question any further investment.
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. Despite all of these big funds and key executives at VBI Vaccines, the cash committed is still minor in the big picture.
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.
Even with positive progress on the drugs, no assurance exists that the market will prefer the vaccines from VBI Vaccines. The Hepatitis B Foundation lists a rather lengthy amount of drugs in the testing phase. The list includes some of the biggest biotechs with deep pockets. As well, the National CMV Foundation lists a group of antiviral drugs and therapies that the market might prefer over taking costly vaccines when administered on a national level.
VBI Vaccines hasn't always hit past targets, but the company has ultimately come through with the general goals that move the biotech forward. Completing the merger, raising additional funds, and starting Phase 1 trials for the CMV vaccine candidate are all signs that the company has potential.
The ability to purchase the stock at a nice discount to the price paid by investors controlling billions in investments is too hard to pass up considering the solid drug pipeline. As always with a small biotech, an investment is only recommended for a small portion of a diversified portfolio.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in VBIV over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.