- Vaccitech is known to be the spin-off from Oxford University behind AstraZeneca's SARS-Cov-2 vaccine.
- The stock suffered from a massive sell-off and is now trading below net cash.
- Science is promising and upcoming catalysts could lead to a rally of this oversold stock.
- We are reviewing their main product, ChAdOx1/2 vaccines, and its MVA boost in the context of chronic hepatitis B.
Presentation and investment thesis
Vaccitech (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 (AZN) 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 (MRNA) or BioNTech (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 in H2 2022.
The investment thesis is Vaccitech presents 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 vaccine development that either prevents or cures a specific disease. Their main technology is based on simian adenovirus (isolated from chimpanzees) that can present 2 specific antigens: ChAdOx1 and 2. The company uses those 2 antigens to provide specific effects we will see later. Additional antigens related to the treated disease are then incorporated into the simian adenovirus to be delivered inside the body.
While the ChAdOx vaccine is the initial dose, another technology is used as the 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 ChAdOx1/2 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 of combination of both, containing multiple 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 avoids exhaustion of immune cells: Nivolumab. The rationale 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 other hand, anti-PD1 such as Nivolumab, have shown results in a subset of hepatic cancer patients presenting CHB and then in combination with another vaccine.
We will review the available data of the trial focusing first on the design and then discussing the two main read-outs: 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 group is divided into 2 subgroups receiving the ChAdOx1 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 report 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 was 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 ChAdOx1 vaccine has 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 appear to me as very low.
Altogether, available data suggest a positive safety profile with a low risk of severe side effects 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 ChAdOx1 vaccine. This observation is supported by other authors as well, indicating a strong CD8+ immune response following the vaccine.
To assess the clinical translation of the immune response induced by the vaccine, the company measured HBsAg, a marker of 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 group 3, leading to a significant difference in mean HBsAg between Group 3 and the other groups (p < 0.01).
In 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 another 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 suggests a positive synergy between ChAdOx1 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 of cash and cash equivalents. The total amount of cash in hand 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 $125.2M, and to the initial public offering in the second quarter, which raised gross proceeds of $110.5M.
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 $20.4M in 2021. This is an increase from the $14.4M in 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 hand 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 hand 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 leads 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 are 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 presents 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 in the long term and relies on cash in hand 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 file for bankruptcy.
Vaccitech suffered from a downtrend that impacted all vaccine 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 has 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.
This article was written by
Analyst’s 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 VACC 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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