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It’s all about the science …. and the timing

Opportunities for first-in-kind breakthrough products do not come very often and, when they do, recognizing them in time to profit can be difficult. One such product is Multimeric-001 (M-001), a candidate universal influenza vaccine in the final stages of development by Biondvax Pharmaceuticals, Ltd. (NASDAQ:BVXV), a biotech founded in Israel.

News of the search for a universal influenza vaccine capable of stopping an influenza based pandemic like that seen in 1918 seems to have been eclipsed by the COVID-19 pandemic, but it is actually even more important now that we are in danger of overloading our hospitals with people suffering from one or the other (or even both) of these highly infectious, too often deadly, virus-based diseases. Imagine the market for an influenza vaccine that would not require modifications each year to address annual mutations in the influenza virus, that brings about immunity to strains of the influenza virus that do not even exist at the time of inoculation, and maintains immunity for at least four years. The savings in lives, human misery, and treasure would be virtually incalculable.

Unlike the crowded search for a COVID-19 vaccine in which there are now three competing major companies (Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), and Astra-Zeneca (NYSE:AZN)) performing phase 3 studies, Biondvax is the only company in phase 3 of their research. Actually, they have completed their two year long, 12,400 participant phase 3 study and need only await analysis of results, due sometime between later this month (September 2020) and next month. Also, unlike the three companies in phase 3 of the search for COVID-19 vaccine, Biondvax is fully dedicated to M-001 and its relative influence on change in profitability, market cap, and share price will be undiluted by effects of a pre-existing huge market cap.

Brief history

In the late 1990s, Dr. Tamar Ben-Yedidia in collaboration with Dr. Ruth Arnon in the latter’s Weizmann Institute of Science laboratory began working with influenza viruses. At the time, their goal was to advance basic scientific knowledge (the influenza virus was chosen for study primarily because of its common usage in other research). In time, they came to believe that there were significant clinical implications to their research and they created the first incarnation of Biondvax’s candidate universal influenza vaccine, M-001. In their first animal study, the immune systems of mice were destroyed and replaced with human immune systems (“anthropomorphized”). Half the mice were next inoculated with M-001 and the other half given saline. All the mice receiving saline died, while all the those inoculated with this “first draft” of M-001 survived. In 2003, Biondvax (now BVXV on the NASDAQ exchange) was formed and M-001 was strengthened to an even greater level of potency.

M-001 is considered a modern vaccine, not composed of a “weakened” version of the actual influenza virus itself but, rather, consists of specific antigen-presenting proteins. In this way, immune cells become able to identify, and remember, particular viruses. M-001’s focus is on nine different “conserved” (do not mutate) sites on the stem of the virus. It is not grown in eggs, eliminating concern for allergies and genetic drift that occurs as viruses adapt to their egg environment during the process of bringing sufficient quantities of the vaccine to meet demand. Unlike traditional viruses, it can also be stored up to three years before use. Despite its obvious advantages over traditional, egg incubated vaccines, M-001 is far less labor intensive and less expensive to manufacture. Further, it can be manufactured year round, evening out the flow of production, further diminishing cost.

Thus far, seven human studies have been completed in Israel, Europe, and, most recently (2020), in the United States sponsored and conducted by NAIAD/NIH. All seven studies met their goals, having successfully demonstrated that M-001 is safe, well tolerated, and immunogenic. In a clear indication of a primary advantage of M-001 over seasonal quadrivalent influenza vaccines, participants were followed up four years after one study had begun and it was found that the group administered M-001 showed a significant level of immunity to a strain of influenza that did not even exist when they were originally vaccinated.

Phase 3 “pivotal” study

Application to the European Medicines Agency (EMA) for a phase 3 study was completed in 2018 and the study began in the fall of that year. All participants in the study are at least 50 years old, with half older than 65. Half were given M-001 and half saline. Unlike the seven previous studies, none of the participants were given seasonal influenza vaccines. The first cohort (4,042 participants) began in the fall of 2018 and were in the study for two flu seasons when the data collection process was completed. The following fall, an additional 8,421 participants were added for a total of 12,463. Data collection was completed in June 2020. Initially, Biondvax expected data analysis to be complete by end of 2020, but noted that it was moving along faster than originally planned and completion of data analysis is now expected some time between end of this month (September 2020) and end of October 2020, although they wisely noted that they could not absolutely guarantee that time frame.

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Successful completion of the phase 3 study would likely result in acceptance for market by the European Medicines Agency, but not necessarily for the United States. Logic would dictate that positive results for such an important advance, with a very large study showing safety, tolerability, and immunogenicity, that would save so many American lives and treasure would be sufficient for it to be immediately made available in the U.S., but that is only speculation. A “bridge” study may (or may not) be required before acceptance to market in the United States by the FDA.

Likelihood of successful completion of phase 3 and approval for market

So, what is the likelihood that Biondvax’s phase 3 study will succeed and that M-001 will be accepted for market? A recent study, “Estimation of Clinical Trial Success Rates and Related Parameters” by Wong, Siah, looked at 609 phase 3 candidate vaccines between January 1, 2000 and October 31, 2015. They concluded that these candidate vaccines had an 85.4% probability of successfully completing their phase 3 and of gaining approval for market. That may be an accurate appraisal of Biondvax’s probability of success at this point, but I believe it to be an underestimate of the likelihood that M-001 will make it to market. M-001 has been tested more thoroughly than most candidate vaccines before even having begun its phase 3 trial, with seven previous human trials across numerous countries, many centers within each of those countries, 11 years, and many different strains of influenza, all successfully demonstrating safety, tolerability, and immunogenicity to the satisfaction of many independent, impartial evaluators.

Another indication of likely success of the phase 3 comes from a look at the still blinded data from the first cohort, the 4,042 participants who were in the study during the 2018-2019 flu season. It was found that only 3.3% of participants had suffered from influenza during that season, well below expectations. In the United States during that season (please note this number is only to provide a frame of reference, however, and that the study actually took place in Eastern Europe), the U.S. Centers for Disease control estimated that there were 35,520,883 (about 10.7%) cases of influenza. Since, unlike in the United States, none of the participants in Biondvax’s phase 3 study were inoculated with a seasonal influenza vaccine, one would expect that prevalence would have been even higher than 10.7% in those participating in the phase 3 study, not 3.3%.

Since the data remain blinded, it is not logically possible to conclude whether it was the M-001 or the saline that could have been responsible for such an extreme discrepancy in the found as opposed to expected discrepancy in rate of infection. I’m leaning toward the M-001.

Competition

While there are a number of companies in the process of developing universal influenza vaccines, none that I’m aware of have even reached the point at which they have begun a large, lengthy phase 3 study and, should their ongoing research be successful, appear to be years away from market. None are covered in this article because there simply is not enough space to do their good work justice, the reader is encouraged to perform due diligence in that regard.

Given the current COVID-19 pandemic, moving into a large phase 3 study of a candidate universal influenza vaccine would now be problematic due to presence of confounding variables (increased isolation, soon to be released COVID-19 vaccines, and drop outs due to COVID-19 infection are three that come to mind) as well as various safety concerns of performing such a study until the pandemic is resolved. While it is possible to do a “challenge” study, whereby participants are purposely exposed to influenza (much as the anthropomorphized mice in the earliest M-001 trials more than 20 years ago), there are ethical concerns about purposely administering a known disease with possible serious consequences to paid participants and only providing them with a vaccine of unknown potency or, more problematic, no vaccine at all. The advantages of need for a lower ‘n’ and speed of completion of such a study are, in the author’s opinion, overridden by inability to accurately test for side effects, the prevalence of which can only be determined by involvement of many participants, such as the approximately 12,400 who have already completed the Biondvax phase 3 study.

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Concerns

Biondvax is a biotech company in what appears to be a binary situation. In the unlikely event that the phase 3 study should fail, there are no other products in the pipeline to replace it, at present. As noted earlier, that there are no other products could also increase effects of success on the relative (as opposed to absolute) change in market cap.

Another possibility is that some heretofore undiscovered serious side effects will be found, although that seems unlikely because each of the previous seven human studies has demonstrated significant safety and tolerability by independent groups evaluating the data resulting from each of those double-blind studies. Further, still blinded data from the first cohort of 4,094 participants has been released and it was concluded that there are no safety concerns related to M-001.

There is a possibility that the level of immunity conferred will be statistically significant, but will fall below the hoped for levels. While various estimates of acceptable efficacy have been bandied about, it seems most reasonable to me that we first look at historical efficacy of seasonal influenza vaccines for insight.

On their website, the U.S. Centers for Disease Control lists estimated effectiveness of seasonal influenza vaccines for the 2004-2005 through 2018-2019 seasons. Least effective was the 2004-2005 season at 10%, followed by the 2014-2015 season at 19%. Most effective were the 2010-2011 season (60%), and the 2009-2010 (56%). The median percentage score for these 15 years was 41%, so, for present purposes, efficacy of seasonal influenza vaccine over the course of the past 15 years may be assumed to have been 41%. Arguably, that may be the standard to which M-001 will be held.

Assuming efficacy is found to be 41% or higher, it would appear that Biondvax would provide a superior product. That’s because, unlike old fashioned vaccines-du-an, it requires no months in advance (too frequently wrong) prediction as to which incarnation of influenza may be active in society, may be taken by those with egg allergies, can be stockpiled and stored, is effective for at least four to five years without need for another inoculation, and is understood to be very resistant to real world and production related genetic drift and outright mutation. It could also be used in addition to a seasonal vaccine as a means of ensuring maximal possible immunity to the constantly changing flu virus.

Thoughts on Biondvax’s Valuation

According to a recent analysis by Allied Market Research, the annual international market for influenza vaccines was $3.96 billion in 2018, rising to $6.2 billion by 2026. Interpolating for 2022 using a linear estimate would bring world wide sales to $5.08 billion. Should M-001 be accepted by the EMA and the FDA as the first and only approved universal, pandemic influenza vaccine, initial demand would likely be very high, but the new approach to influenza inoculation that M-001 represents will have contradictory effects on sales. Inoculations of M-001 are effective for approximately four years (perhaps more), as opposed to several months for traditional seasonal vaccines, which will likely increase demand for one or two flu seasons, but diminish need for some volume, in time.

Stockpiling by nations guarding against the likelihood of an influenza based pandemic will work toward increasing demand initially and, since it can be stored for only three years, will become a recurring source of large sales orders. A premium may be acceptable, since M-001 could be effective for at least four years, obviating the need for annual influenza inoculations. Other advantages to Biondvax’s approach to production aside, cost of production is significantly less than that of traditional, egg based production approaches.

Valuation of a company such as Biondvax involves inference on a number of dimensions. Probability of reaching market looks to exceed 85% and, assuming success, time to market looks like less than one year. Assuming 50% market share of what looks like a $5 billion market and 100% of the additional stockpiling against the possibility of pandemic by numerous countries across the world, annual sales could easily exceed $3 billion. Given that M-001 would be first-in-kind, marketing expenses would likely be minimal, initially not requiring expensive grass roots saturation. Cost per dose is not known or, at least, not publicly available. Price per dose is not known, as this first in kind vaccine should be more valuable than traditional vaccines.

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As such, prediction at this point would go beyond data that are available to me It would appear that $3 billion in annual sales is a reasonable starting point in figuring valuation and would conclude, without going beyond available data, that present market cap of less than $500 million is significantly less than where it is likely to be upon release of the phase 3 data.

A comprehensive, well researched article published by the Zacks Small Caps Research Digest in June 2020, concludes “Combining the net present value for M-001 as a stockpiled and standalone vaccine along with the company’s current cash position and an additional 2 million ADS to account for future capital raises leads to a valuation of $81 per share.” That estimate includes planned future dilution.

I believe the estimate of $81 present value share price to be leaning toward the conservative end for the following reasons:

– While Zacks’ estimate of peak sales of $1.5 billion (Europe) and $1.0 billion (U.S.) seems appropriate, they seem to overestimate time to approval as 2022 (Europe’s EMA) and 2023 (U.S. FDA). The present author believes each of the approvals for market to come a year earlier.

– Zacks’ valuation of $81 was based upon a 70% likelihood of approval. The present author believes that estimate of the likelihood of approval would exceed 85%, based upon results of the aforementioned study performed by Wong, Siah, and Lo (2020), along with the fact that all seven of the previous studies of M-001 successfully demonstrated safety, tolerability, and immunogenicity across many centers, 11 years, and many different influenza virus types to the satisfaction of numerous sets of independent evaluators.

Given the above, I believe Biondvax’s present value to be $98 per share.

Current financial situation

M-001 is the only product in Biondvax’s pipeline and it has not yet been approved for market. They began the current year with approximately $20.9 million in cash and cash equivalents. During the current year, they received an additional $4.2 million from the exercise of warrants.

According to Biondvax’s first quarter 2020 financial summary, operating expenses totaled about $1 million and R&D expenses amounted to $5.3 million Their second quarter of 2020 operating expenses were $4.705 million, R&D expenses had dropped to $3.7 million, as the data collection aspect of their phase 3 study wound down, and cash on hand was approximately $11.2 million.

Biondvax is a fairly lean company, employing only 25, at present. R&D expenditures should diminish significantly for the short term, since the expensive phase 3 study is in the final stage of data analysis. Marketing expenses are likely to be minimal, given the first-in-kind nature of, and likely high demand for, M-001. As production requirements come to the fore and, unless there is a buyout, related expenses will increase according to changing requirements. Given the above, it would appear that Biondvax has the financial resources to make to beyond the release of topline data from the phase 3 results. Once the phase 3 data are released, if positive, share price is likely to increase dramatically, the company having been, for all intents and purposes, derisked, and the effects of any dilution at that point diminished.

Biondvax’s production facility nearing completion in Jerusalem, is capable of producing 10 million to 20 million doses of M-001 per year. Should Biondvax achieve acceptance to market in Europe, it is likely demand will far outstrip supply and they will need to either find a way to increase production in-house or sub-contract, with the attendant loss of some profitability, but with the gain of greatly increased sales. Alternatively, a major pharmaceutical company may offer outright or partial purchase of Biondvax.

Conclusion

Biondvax’s M-001 is well positioned to become the first in kind vaccine designed to be effective against all strains of influenza. Completion of the data analysis for their pivotal 12,463 participant phase 3 is due between the end of this month (September 2020) and end of October. I believe that the chance for successful completion of the pivotal phase 3 study and approval for market exceeds 85%. The share price appears to overestimate level of risk and time to market. Should phase 3 be successful, Biondvax may well have to decide among more than a few attractive offers from big pharma as the COVID-19 vaccine market is winnowed. I recommend a strong buy with the data-driven and historical research based belief in the likelihood that M-001 will make it to market in a relatively brief period of time.

Disclosure: I am/we are long BVXV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Other than a holding a long position, I have no other financial relationship with Biondvax.



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