Heat Biologics Stages Impressive Recovery After Shaky Past

Summary

• Heat Biologics posts positive phase 2 interim results using combination of HS-110 and Opdivo in patients with advanced NSCLC.
• HS-110 may eventually be potentially useful in many other combinations involving PD-1 inhibitors.
• Heat Biologics stumbled in the past, but this new phase 2 combo data with HS-110 should once again boost investor confidence.
• The financials will need to be improved if the company is to advance its other parts of the pipeline, and the potential to eventually begin a phase 3 study if the final results are confirmed in phase 2.
• If the final phase 2 data rolls in similar and or better in these patients with advanced NSCLC, then I expect a partnership or buyout to occur thereafter.

On Wednesday, Heat Biologics (HTBX) announced positive interim results from its phase 2 study treating patients with advanced non-small cell lung cancer (NSCLC). This positive data was obtained by combining Heat's HS-110 treatment in combination with Bristol-Myers Squibb (BMY) Opdivo. Despite this update being an interim look, there was some compelling data provided that was encouraging to move forward with.

Phase 2 Data

This phase 2 study recruited a total of 35 patients who were treated with a combination of HS-110 and Opdivo. It was noted that at least six of the patients in the study or 17% achieved a partial response. In addition, about 14 patients or 40% were able to stabilize their cancer. That gave a total disease control rate of 57%. This data is really good, and I think that there are more gains ahead for Heat Biologics. If you interpret the data for what it is, you will understand that it was really good. That's because this is a population that already has failed prior therapy. Think about that for a second, these advanced NSCLC have already progressed in their cancer and have gone through one or more prior therapies. That means that other therapies for these patients were ineffective and had no improvement in clinical outcome. On the other hand, by taking the combination of HS-110 and Opdivo they were able to see a response. A lot of times in biotech investing it is best to take the data in terms of context (e.g. first-line therapy, second-line therapy etc.). Opdivo already is known to be strong in many types of cancers, but this combo was enhanced with HS-110. What HS-110 does is that it utilizes or presents a patient's immune system with modified lung cancer cells. Once the immune system picks up on these modified cancer cells ((HS-110)) it targets the cancer and destroys it. Opdivo activates and or enhances T-cell activity to target and kill tumors with the use of antigen presenting cells. As you can see the combo worked really well with the results presented.

A Difficult Past

Heat Biologics obtained good combo data for advanced NSLC patients, and that means it can now stage a comeback for shareholders. That's because back in December 2016 the company announced that it had failed a phase 2 study in treating patients with non-muscle invasive bladder cancer. The hope was treating patients with HS-410 either alone or in combination could best placebo in this patient population. The good news was that there was some anti-tumor activity achieved, but on the flip side no statistical significance was shown between treatment and placebo. This was a huge blow for the company, but all hopes were pinned on the combo data for HS-110 and Opdivo in patients with advanced NSCLC. Well, the wait for this data seems to have paid off. Remember, this was just an interim look and everything is looking really good. If the final data comes in looking similar if not better, then all is a go for a phase 3 study. That would be a major turnaround from the failure the company saw in its HS-410 phase 2 trial failure treating patients with bladder cancer.

Financials

As of September 30, 2017, Heat Biologics had approximately $4.3 million in cash. It earned another $6.5 million from the Cancer Prevention Research Institute of Texas thereafter on October 3, 2017. Later in November of 2017, it raised $2.5 million by selling 5,813,950 shares of its common stock at $0.43 per share. That brings the total cash position to date around $13.3 million. The cash likely will only last the company around 12 months. That means the first chance it gets there is a good possibility it will raise cash. Although, as long as the final phase 2 data for the combo of HS-110 and Opdivo comes in good that won't matter much in the grand scheme of things.

Risks

The biggest risk I could see possible is if the final phase 2 data doesn't hold up well after completion. In that instance, the stock could quickly collapse. From what has been shown thus far though it is a highly promising combo for these patients. Another risk would be what I have noted above with respect to dilution. The company doesn't have a healthy amount of cash, and it is highly likely it will raise cash in the coming months. Should it get to phase 3 testing then Heat Biologics will definitely need to find a way to get an influx of cash. A final risk factor to consider would be the fact that Heat Biologics had to enact a 1-for-10 reverse stock split in January of 2018 in order to bring up its share price. Although, as long as the results are positive, the stock will only go higher from here.

Conclusion

It is my belief that this combo should finish off the phase 2 study with stellar results. These patients don't respond well to current therapies, therefore this combo provides them a way to respond to treatment. If all goes well with the final data I can see either a partnership with a big pharmaceutical company or a potential buyout. The reason why I state this is because it will prove the mechanism of action for combining HS-110 with other PD-1 inhibitors. This is the best-case scenario. While this is still a highly risky speculative investment, it doesn't change the fact that it remains a good buy with this recently presented data.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.