VBI Vaccines: Hepatitis Vaccine Approval Can Be A Catalyst For >$1bn Valuation

Oct. 31, 2021 11:37 AM ETVBI Vaccines Inc. (VBIV)21 Comments

Summary

  • VBI Vaccines will find out on November 30th whether its Hepatitis B vaccine - already approved in Israel - will be approved by the FDA in the US.
  • Approval in the US - and Europe, where a marketing authorization is also being sought - could be a potential game-changer for the company, although this is a tricky market.
  • VBI has several COVID vaccines in development, designed to complement existing, approved ones, which are early stage but focused on e.g. durability of response.
  • VBI's use of Virus Like Particles and lipid layer of protection is novel and promising, and can also be applied to other infectious diseases and cancers.
  • An approval next month could push the company's valuation past $1bn, in my view, representing 25% upside. And longer term, the outlook looks promising - although possibly only to die-hard biotech investors.
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Investment Thesis

VBI Vaccines (NASDAQ:VBIV) is a $768m market cap biotech specializing in the development of vaccine candidates that "mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system" (quote taken from VBI's Q221 10-Q submission).

VBI - headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel - uses a technique it refers to as "Virus Like Particles" ("VLP"). Similar to sub-unit protein vaccines, VLP vaccines only present the part of the virus that stimulates an immune response to the patient's body, rather than the virus itself, as is the case with e.g. adeno-associated viruses.

The company is developing programs targeting the infectious diseases Cytomegalovirus and COVID-19 and its variants, as well as glioblastoma (brain cancer) - but it's lead program is targeting Hepatitis B.

Sci-B-Vac, as the vaccine is named, has already been approved in Israel, and VBI has submitted its Biologics License Application ("BLA") to the FDA, who have set a Prescription Drug User Fee Act date (when it will rule on whether to approve the drug for commercialization in the US) of November 30th.

Marketing applications have also been submitted to the European Medicines Agency ("EMA"), United Kingdom Medicines and Healthcare Products Regulatory Agency ("MHRA"); and Health Canada.

Hepatitis B - an infection of the liver caused by a blood-borne virus - has an estimated prevalence of ~240M-350M chronically-infected individuals worldwide, who require regular vaccination.

Currently, in the US, there are 4 approved vaccines for Hepatitis B - GlaxoSmithKline's (GSK) Engerix-B and Twinrix earned revenues of ~$576m combined in FY20 for the global Pharma, down ~33% from the prior year due to COVID travel restrictions and reduced elective surgeries.

Merck's (MRK) Recombivax-HB earned ~$188m of revenues in FY16 (Merck no longer provides exact revenue figures), and Dynavax' (DVAX) (my August note here) Heplisav B, approved in 2017 after 2 prior FDA rejections, has earned the company $7m, $35m, and $36m in 2018, 2019, and 2020 respectively, and just over $20m in the first half of 2021.

Dynavax was once pegged for ~$290m of peak sales per annum by analysts, but the vaccine has failed to deliver for the company, which may be a concern for VBI's shareholders anticipating a substantial surge in the share price if Sci-B-Vac wins approval in the US next month.

Vaccine development - particularly in the Hepatitis space, appears to be a capital intensive business - Dynavax' losses in 2018, 2019 and 2020 were $159m, $153m, and $75.2m, whilst VBI's were $44m, and $52m in 2020 and 2019 respectively.

Both companies are focused on other assets besides their Hep B vaccines, but the losses serve to illustrate that Hepatitis has not been a happy hunting ground for biotechs, which makes me a little hesitant to recommend VBI stock as a potentially profitable investment opportunity.

Whilst approval for the company's differentiated and novel 3-antigen prophylactic vaccine candidate adds to the competition and pressure on GSK and Merck's market incumbents, the market greeted publication of VBI's Phase 3 results, in which its vaccine outperformed Engerix-B in terms of seroprotection rates and antibody geometric mean concentration ("GMC"), with indifference. And VBI's share price, which traded >$4 in June this year, has now slipped to $2.9 at the time of writing.

Similarly to Dynavax, VBI's best hope of generating some share price momentum may lie with the different COVID vaccines it is developing. Dynavax has seen its share price climb by >400% across the past year, based on the use of its adjuvant CPG-1018 in COVID vaccines developed by French Pharma Valneva, and a deal in place with the Coalition for Economic Preparedness ("CEPI"), who have agreed to purchase doses of CPG-1018 at a pre-specified price.

VBI has also collaborated with CEPI on its COVID vaccines. In March this year, the agency agreed to CEPI will provide up to $33m to support the advancement of VBI-2905, a monovalent "eVLP" candidate expressing the pre-fusion form of the spike protein from the Beta variant, through Phase I clinical development. eVLP stands for "enveloped Virus Like Particles" - essentially VLPs wrapped in a lipid bilayer, and with a stable core, for additional protection.

Some of VBI's data is encouraging, and although its vaccines are still at the Phase 1 stage, VBI says they are designed to "add meaningful clinical and medical benefit to already approved vaccines - be it as a single-dose heterologous booster, more durable immune responses, and/or providing broader protection."

I think there is merit in both VBI's Hep B vaccine, whose advantages I will discuss in some more depth below, its COVID vaccination program, and its glioblastoma program, which addresses an area of high unmet need.

Based in Massachusetts, VBI is certainly in the right place to collaborate with cutting edge vaccine manufacturers like Moderna (MRNA), and tap into the biotech brains trust based around Cambridge.

The company has not had many transformative catalysts to aid its share price and market cap growth, but an approval for Sci-B-Vac in the US and Europe could be the start of a more productive period for the company, and on balance, I am prepared to stick my neck out and suggest that the company's shares could realize substantial upside over the next 12-18 months.

Dynavax' collaborations have enabled the company to grow its share price from $6, to $20, in less than a year, despite its substantial net losses, and to a market cap of $2.3bn. That may be too much of a stretch for VBI, but I would be surprised if, assuming Sci-B-Vac does get approved on November 30th, VBI's market cap doesn't pass $1bn. And after that psychological milestone has been reached, its technology and science ought to support continuing growth, and attract more collaborators, which is good news for investors.

VBI in Hepatitis B - Can The Company Find A Market Where Dynavax Can't

Dynavax' more convenient dosing regime - it is administered via 2 doses over 1 month, whilst Merck and GSK's vaccines require 3 doses over a 6-month period - has not translated into meaningful sales for the company, as discussed above. But in fairness, the rollout of the drug has been disrupted both by COVID headwinds, and lingering safety concerns, which now appear to have been addressed, via a post marketing study which showed myocardial infarction ("AMI") was less prevalent after use with Heplisav B than with Engerix.

VBI Vaccines - SCI-B-VacSlide from VBI corporate presentation comparing SCI-B-Vac to rival Hep B vaccines.

As we can see above, the competitive advantage that VBI's vaccine has is its ability to all 3 of the surface antigens expressed by the virus, as opposed to just the S-antigen.

VBI 2 pivotal Phase 3 trials of Hep B vaccine versus standard of careResults from VBI's 2 pivotal Phase 3 trials of Hep B vaccine versus standard of care. Source: corporate presentation.

Also above, we can see that, across pivotal studies enrolling >4,000 patients, VBI's vaccine comfortably outperformed Engerix-B, apparently conferring full protection to 90% after just 2 doses, which is an encouraging sign from a dosing perspective, although it seems as though a third dose would still be required.

There do not appear to be any lingering safety issues, and VBI management is confident that the market for its vaccine may be substantially larger than is generally thought, as shown below.

VBI Vaccines Hepatitis B market opportunityVBI breaks down Hepatitis B market opportunity. Source: corporate presentation.

The growing (or hidden) size of the Hepatitis B market has not necessarily been in evidence in recent years, with vaccine sales either falling, or underwhelming, in the space, but VBI does make a persuasive case. In the US, management claims, there may be an unvaccinated population of 5m young, otherwise healthy individuals, and the same number in the EU.

Older adults requiring vaccination total ~85m, VBI believes, and immunocompromised or high-risk adults total 50m, whilst the pediatric population could be in the region of 8m.

These figures are substantially larger than the ~5.7m doses estimated to have been dispensed in 2019, generating a market of ~320m. In VBI's eyes, the market opportunity appears to more like $3.2bn.

It certainly seems like an unsatisfactory situation to have so many people unvaccinated who could be offered better protection, although the corollary to that argument may be that historically, demand for Hepatitis B vaccinations has not been anywhere near that high, perhaps owing to the fact that most people who contract Hep B overcome it after a few weeks or months, with only a small proportion developing the chronic form of the disease.

As you can probably tell I am not an expert on the disease, but it is worth considering whether, for all its superiority over Engerix-B in clinical trials, the need to vaccinate a larger population is considered a priority, by governments or private health insurers, and whether VBI will struggle to make its case in a commercial setting.

VBI has partnered with Syneos Health - a $9.7bn market cap healthcare specialist providing outsourced clinical development and commercialization services to biopharmaceutical companies, which strikes me as an encouraging sign, although the partnership will doubtless be a costly one for VBI, either in terms of revenues sharing, or flat fee payments.

Finally, curing Hepatitis B is clearly a better solution than treating it long-term, and VBI has a candidate, VBI-2601, being developed to aid in that process. VBI-2601 is "formulated to induce broad immunity against HBV, including T-cell immunity, which plays an important role in controlling HBV infection", according to VBI management, and it has proven successful in an early stage Phase 1b/2a trial. T cell responses to HBV surface antigens were observed in >50% of the trial population.

VBI and its partner Brii Biosciences - who will attempt to secure approval in China, Hong Kong, Macau, and Taiwan - initiated Phase 2 studies in April, in combo with Brii's candidate BRII-835 - a novel small interfering ribonucleic acid (siRNA) therapeutic candidate designed to inhibit expression of HBV proteins - with interim results expected next year.

VBI's COVID Pipeline Is Built For Longer Term, But Has Catching Up To Do

VBI may not have made an impression on the COVID vaccine race, but based on its pipeline, management certainly appears to be trying to make up for lost time.

VBI Vaccines COVID pipelineVBI Vaccines COVID pipeline. Source: corporate presentation.

There are 4 separate vaccines in development. And whilst none have yet made it past the Phase 1 study stage, they have been designed, according to management, to complement existing vaccines, as boosters or to provide additional durability.

The monovalent candidate VBI-2902 has produced neutralizing titers comparable with approved messenger-RNA vaccines - presumably BioNTech (BNTX) / Pfizer's (PFE) and Moderna's (MRNA), whilst the trivalent VBI-2901 has shown efficacy against the ancestral, delta, kappa, beta and lambda variants.

The CEPI partnered study of VBI-2905, targeting "heterologous boosting to induce cross-reactive antibodies capable of protecting against numerous COVID-19 variants", is underway, enrolling ~80 healthy adults aged 18-54 years, with data expected early next year. All the while, the undisclosed, multivalent candidate, designed to increase the "breadth" of protection against COVID-19, is expected to initiate in H122.

Glioblastoma Cancer Vaccine Returns Promising Data

Cancer vaccines offer great hope to patients, and most vaccine companies - including Moderna, BioNTech, and CureVac (CVAC), are heavily invested. VBI's progress with glioblastoma, through its candidate VBI-1901 appears to be comparable with its larger and better resourced peers.

The vaccine targets CMV+ cancers, since CMV is expressed in ~90% of all solid tumors, and a CMV vaccine can turn a "cold", or unresponsive tumor "hot", i.e., potentially more responsive to immunotherapies.

In a Phase 1/2a trial, VBI-1901 achieved a 12-month overall survival ("OS") rate of 83% in Vaccine Responders (n=6) vs. 33% in Non-Responders (n=9), and Vaccine Responders saw a 6.25-month improvement in median OS - from 14 months, vs. Non-Responders 7.75 months.

In a higher dose expansion arm, 2 partial responses and 2 stable disease were observed out of 10 patients, and 5 stable disease observed from 10 patients when VBI-1901 was used in combo with GSK's AS01 adjuvant.

VBI Vaccines - Data from Phase 2 trial of VBI-1901 in glioblastomaData from Phase 2 trial of VBI-1901 in glioblastoma. Source: corporate presentation.

As we can see above, overall survival rates in the VBI-1901 Phase 2 trial appear to be superior to rates traditionally observed in glioblastoma patients, which persuaded the FDA to hand the therapy a Fast Track Designation for treatment of recurrent GBM patients with first tumor recurrence, in combo with a Granulocyte-macrophage colony-stimulating factor.

Conclusion - Lots Of Promising Data & Opportunities, But No Sure-Fire Hits - VBI Is A Bet Better Suited To Biotech Enthusiasts

In this article I have briefly guided readers through VBI's portfolio, discussed its near-term opportunity in Hep B, and its longer-term goals in COVID and glioblastoma, and a potential cure for HBV.

Over the past 18 months, some vaccine makers have made gains beyond investors' wildest dreams owing to their ability to tackle the Coronavirus, and VBI Vaccines is not one of these companies.

At the same time, countless smaller biotechs have attempted to design and develop COVID therapies - in many cases abandoning their lead candidates or work on other diseases to do so - and failed, damaging their share price in the process. I do not think VBI Vaccines is one of these types of companies either.

The best way to define VBI at the present time is possibly to suggest that although the company has developed some promising vaccine candidates, and conducted some successful studies, the jury is still out on whether they have a meaningful role to play in a real-world setting.

For example, is there genuinely a necessity for a fourth Hep B vaccine, when sales of existing ones are falling? Do the major vaccine developers need booster candidates developed by another biotech, or do they have sufficient expertise in-house to do so themselves?

These are tough questions to answer, and a cynic might argue that VBI is not necessarily bringing anything of genuine value to the table but rather candidates that are broadly comparable to current standards of care.

I don't think that is the case, however; management's interpretation of the Hep B market size may be overblown, but a better therapy that can help stamp out the disease is worth commercializing. And although COVID vaccination is now widespread and effective, there is still no end to the pandemic in sight, and e.g. boosting duration of response would still be making an invaluable contribution to the fight against COVID-19.

Every investor will have their opinion on VBI and whether it can be sufficiently commercialized to drive profits and share price. But for what it is worth, I believe that Sci-B-Vac is likely to be approved in both the US and Europe and has a good chance of being widely used over time, perhaps reaching the magical $300m per annum sales mark.

Were that to happen, a 9-figure market cap valuation would surely be an inevitability.

Regarding COVID, I was initially dismissive of Dynavax' partnering with vaccine developers such as Valneva, but now that the Pharma's vaccine is likely to be approved in Europe and the UK, Dynavax' share price is soaring. I think something similar could happen to VBI - if it sticks to its development plans, it's e-VLP technology, with its layers of lipid protection, may find a route to market.

As such, I am bullish on VBI. But I don't think the company will necessarily appeal to all investment appetites, given much of the value of its pipeline is theoretical in nature, and its Hep B vaccine has much to prove in a commercial setting, if it even makes it that far.

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This article was written by

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives 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.

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