Investment Opportunities Surface With 3 Vaccine Players

Includes: IMGN, INO, NVAX
by: Cris Frangold

DNA vaccines are showing increasing potential, but two major challenges must be overcome in the process of successful vaccine development. First, scientists must further refine immune system targets in order to design DNA vaccines which can successfully induce the clinically relevant immune responses. Second, scientists must improve delivery capabilities of DNA vaccines in order to overcome the safety and efficacy limitations found in most current delivery technologies. There are very few companies that are focusing on vaccines. In this article, I will discuss three key players. Inovio (NYSEMKT:INO) is focused on fighting cancers and infectious diseases with its DNA based vaccines. Novavax (NASDAQ:NVAX) is also targeting infectious diseases through the creation of recombinant protein nanoparticle vaccines. ImmunoGen (NASDAQ:IMGN) is developing targeted anticancer therapeutics using its expertise in tumor biology, monoclonal antibodies, potent cancer-cell killing agents and engineered linkers. I will focus on the most recent developments surrounding each company to see if any new investment opportunities could surface in the coming weeks and months.

Inovio is working on the development of a broad portfolio of DNA vaccines, also known as immunotherapies, to prevent and treat cancer, HIV, hepatitis C, and host of other chronic infectious diseases. These vaccines have the potential of protecting millions of people from sickness or death from diseases for which adequate treatments are not currently available.

Inovio is focusing on groundbreaking technology to resolve the limitations of conventional vaccines that prevent their use against cancers and challenging infectious diseases by building a portfolio of proprietary "synthetic DNA vaccines". The company has nine projects in clinical development. Six of these projects are currently being funded by third parties.

Three phase 2 clinical studies are currently in progress. There is huge potential here, as the global vaccine market is expected to top $33 billion in 2013. Inovio has adopted several funding strategies, including grant funding and partnerships to reduce investor risk. The company has also built up a solid portfolio of intellectual property in both synthetic vaccines and electroporation delivery systems. Using electroporation delivery methods, the company has found a way to deliver vaccines directly to cells for pick-up by a patient's DNA. Unlike previous synthetic vaccines, which were only moderately effective, Inovio's Syncon vaccines infiltrate cells at the DNA level to encourage the production of suitable antigens.

Two of Inovio's vaccine candidates were featured in the top ten 'promising therapeutic vaccines' list this year by newsletter FierceVaccines. Inovio's SynCon vaccines are designed with two capabilities that conventional vaccines do not possess: the stimulation of T-cell immune responses to provide therapeutic capabilities, and universal cross-strain protection and treatment against known as well as new unmatched strains of pathogens. Inovio has clinical programs for cervical dysplasia, leukemia, Hepatitis-C, the flu and HIV. For many years, vaccines were used in the prevention of infectious diseases, until now.

Inovio recently announced clinical results indicating that its VGX-3100 therapeutic synthetic vaccine is capable of not only driving robust immune responses to antigens from high risk types of human papillomavirus (HPV) infection, but that these immune responses also displayed a powerful effect on cells changed by HPV into precancerous dysplasias. This effect may ultimately contribute to the regression or elimination of cervical dysplasia and cervical cancer. The company is currently assessing the ability of its DNA-based VGX-3100 to treat cervical dysplasias caused by HPV infection in a global phase 2 trial.

HPV is the agent responsible for most cases of cervical cancer. At any given time, approximately 10% of women worldwide are infected with HPV. Approximately 70% of HPV infections are cleared by the body on its own, but persistent HPV can lead to dysplasia, or premalignant changes in cells of the cervix. Researchers have estimated the global prevalence of clinically pre-cancerous HPV infections at between 28 and 40 million. Persistent dysplasias may then progress to cancer. Every year, 510,000 cases of cervical cancer are diagnosed worldwide, and about 288,000 of afflicted women die. Preventive vaccines can limit new HPV infections but cannot provide protection for women who are already infected.

Inovio also recently announced the publication of positive immunological effects in preclinical animal models of optimized electroporation (EP) parameters for its minimally invasive skin (intradermal) EP delivery devices in the peer-reviewed journal, Human Gene Therapy. The newly published conditions for Inovio's skin EP delivery systems will significantly enhance this delivery system as an effective method for mass vaccination by decreasing dosage levels, improving tolerability of the vaccination, and increasing the breadth of viable vaccine targets. It opens up the path for more efficient delivery for Inovio's universal flu vaccines as well as the HIV vaccines currently in testing in phase 1 studies. Skin is a superior target tissue for delivering DNA vaccines for several reasons. It is the largest organ of the human body and readily accessible. It is highly immunocompetent, meaning that it is the tissue most capable of developing a broad immune response to antigens.

Inovio reported total revenue of $436,000 and $2.1 million for the three and six months ended June 30th, 2012, compared to $2.4 million and $5.5 million for the same periods in 2011.The net loss attributable to common stockholders for the three and six months ended June 30th, 2012, was $4.1 million, or $0.03 per share, and $12.4 million, or $0.09 per share, compared to a net loss attributable to common stockholders of $2.8 million, or $0.02 per share, and $5.2 million, or $0.04 per share, for the three and six months ended June 30th, 2011.

Three data releases are expected from Inovio before the end of 2012. Hepatitis-C is re-emerging as an M&A target because current regimens are too toxic. But we should also consider the phase 1 HIV data, which the company believes will show an immune response similar to the HPV vaccine. This data showed best in class T-cell response without toxicity. Because the two regimens were discovered using the same vaccine platform, the response should be similar. Inovio's cash position is strong, and the company has done an incredible job of winning over grants and government contracts in the last few years. Inovio is currently trading around $0.68, between a 52-week range of $0.35 and $0.90. I believe this stock has the potential to trade several dollars higher on positive news surrounding its three upcoming data releases.

Novavax is a clinical-stage biopharmaceutical company creating recombinant protein nanoparticle vaccines to address a broad range of infectious diseases. The company is developing a portfolio of vaccine candidates targeting seasonal and pandemic influenza (H5N1), a vaccine designed to protect children and the elderly against respiratory syncytial virus (RSV), a vaccine for rabies, and other vaccine candidates. In addition, the company is developing its vaccine candidates for worldwide commercialization including through a joint venture in India with Cadila Pharmaceuticals, a licensing arrangement with LG Life Sciences in Korea, a collaboration with PATH for the development of an RSV vaccine for the protection of infants through maternal immunization, an advanced seasonal and pandemic influenza vaccine development contract with the U.S. Department of Health and Human Services Office of Biomedical Advanced Research and Development Authority (BARDA), and a research collaboration with the U.S. Department of Homeland Security to develop a virus-like particle (NYSE:VLP) vaccine countermeasure to protect the U.S. from foot and mouth disease. The goal is to be able to rapidly deliver a customized vaccine in the midst of a declared pandemic.

Novavax has developed a platform upon which it can manufacture a variety of proprietary recombinant nanoparticle vaccines. The proprietary platform is a combination of the flexibility and speed of genetic engineering with the efficiency of single-use disposable technology to produce highly immunogenic nanoparticle vaccines. This platform is being used to develop vaccines against viral, bacterial, and parasitic diseases to address major unmet medical needs. Unlike traditional vaccines, which are based on killed viruses or live, attenuated viruses, the company uses recombinant technology which permits it to customize the components of its vaccine candidates and solve challenges presented by novel infectious diseases. For example, in the event of a pandemic influenza threat caused by a new influenza strain, its scientists can use the genetic code of the novel pandemic influenza viruses provided by the World Health Organization (WHO) and produce within weeks a vaccine candidate designed to generate protective immunity to specifically target that novel virus.

Novavax's proprietary manufacturing platform has many advantages. The carefully designed genetic constructs allow the company to focus the vaccine's immune responses on key components of pathogens which enhances functional immunity and provides better prophylactic protection. The manufacturing platform produces proteins that are properly folded, which is critical for functional, protective immunity. Unlike traditional influenza vaccine manufacturing, the company does not need to grow an actual influenza virus, obtain embryonated chicken eggs, and adapt the virus or optimize new strains to grow in eggs.

Novavax has announced financial results for the third quarter and nine months ended September 30th, 2012. The company reported a net loss of $7.2 million, or $0.05 per share, for the third quarter of 2012 compared to a net loss of $3.2 million, or $0.03 per share, for the third quarter of the previous year. For the nine months ended September 30th, 2012, the company's net loss was $20.5 million, or $0.16 per share, compared to a net loss of $15.7 million, or $0.14 per share, for the same period in 2011. The primary reason for the increased loss for the third quarter of 2012, as compared to the same period in 2011, was due to higher research and development costs as well as the unfavorable impact of the change in the fair value of the warrant liability. As of September 30th, 2012, the company had $28.4 million in cash and cash equivalents compared to $18.3 million as of December 31st, 2011. The company raised $27 million through the sale of common stock to institutional investors under an existing shelf registration statement. The company's cash on hand is expected to support operations for atleast two years.

Noravax has many exciting projects in its pipeline. Novavax has been hovering around $2, after jumping from the $1.50 level back in early July. Investors should watch this company closely for new developments surrounding its vaccine projects.

ImmunoGen develops targeted anticancer therapeutics using its expertise in tumor biology, monoclonal antibodies, potent cancer-cell killing agents and engineered linkers. Its Targeted Antibody Payload (NYSE:TAP) technology uses monoclonal antibodies to deliver proprietary cancer-cell killing agents specifically to tumor cells. There are now many TAP compounds in clinical development with a wealth of clinical data reported. ImmunoGen's collaborative partners include Sanofi (NYSE:SNY), Novartis (NYSE:NVS), Eli Lilly (NYSE:LLY), and Bayer (OTCPK:BAYRY). A marketing application for trastuzumab emtansine (T-DM1), the most advanced compound using ImmunoGen's TAP technology, has been submitted in the U.S. Roche Holding (OTCQX:RHHBY) is developing this compound under an agreement between ImmunoGen and Genentech, a member of the Roche Group.

ImmunoGen reported a net loss of $25.2 million, or $0.30 per basic and diluted share, for the quarter ending September 30th, 2012 as compared to a net loss of $19.5 million, or $0.26 per basic and diluted share, for the same quarter in 2011. Revenues were $4.1 million for the first quarter of fiscal year 2013, compared to $2.5 million for the same period in 2012. Revenues include $1.4 million in research and development support fees and $0.9 million in license and milestone fees, compared to $1.1 million and $1.2 million respectively, for the same quarter in the previous year.

Revenues also include $1.8 million of clinical material reimbursement, compared to $0.3 million for the first quarter of fiscal year 2012. ImmunoGen had approximately $233.6 million in cash and cash equivalents as of September 30th, 2012 - inclusive of $94 million in net proceeds from the company's public stock offering in July 2012, compared with $160.9 million as of June 30th, 2012, and had no debt outstanding in either period. Cash used in operations was $21 million this quarter, compared to $11.6 million in the same quarter of 2011. ImmunoGen expects its net loss for its fiscal year ending June 30th, 2013 to be between $70 million to $74 million, and net cash used in operations to be between $78 million to $82 million. Cash and cash equivalents as of June 30th, 2013 are expected to be between $172 million to $176 million.

ImmunoGen also provided an update on its product pipeline. In August, Roche has applied for marketing approval in the U.S. and Europe of T-DM1 for the treatment of HER2+ metastatic breast cancer (NYSE:BC) in patients who had previously received Herceptin. T-DM1 was found to significantly improve both overall survival and progression-free survival compared to standard-of-care in the EMILIA phase 3 trial. Patient enrollment for phase 3 trial, MARIANNE, for first-line treatment of HER2+ metastatic breast cancer was completed in the spring and data is now expected from this trial in late 2013/early 2014, which is earlier than originally projected. Roche Holding plans to evaluate T-DM1 in early stage HER2+ breast cancer for neoadjuvant use, for adjuvant use and for treatment of residual invasive disease following surgery. Roche Holding has initiated a trial assessing T-DM1 for second-line treatment of metastatic HER2+ gastric cancer and expects to apply for marketing approval for this use in 2015. In addition to T-DM1, seven other compounds are in clinical testing through ImmunoGen's collaborative partnerships.

The most advanced compound in the partner pipeline, T-DM1, is viewed as a successor to Genentech's hugely successful monoclonal antibody for breast cancer, Herceptin, which has a potential patent cliff problem. Roche Holding's third best selling product, Herceptin, which has become the standard treatment for a certain type of breast cancer, will lose patent protection in Europe in 2015 and the U.S. in 2019. To overcome this problem, Roche Holding is betting on products such as T-DM1 as a move away from Herceptin to successors that are much better.

The case for investing in ImmunoGen is strengthened by its partnerships and the high potential of its product development pipeline. Investors following ImmunoGen should watch its phase 3 trials for first-line treatment of HER2+ metastatic breast cancer closely and be prepared to buy on positive new developments.

Disclosure: I 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.