Canadian biotech IMV Inc. (NASDAQ:IMV) can rely on government and industry financial support totaling $3.58 million to continue the development of its experimental vaccine against the new coronavirus.

IMV has a market cap of $306 million.

This support is essential in enabling the Nova Scotia-based company to perform clinical trials in humans.

More importantly, this funding which comes mainly from research and innovation support programs will also help the firm to scale up its manufacturing capacity for an eventual commercial production.

The stock shot up by 100% at the announcement of the funding news at the beginning of August, but since then, has retreated to lower levels.

Figure 1: Stock price performance

ChartData by YCharts

Nearly two months later, I provide an update of the market for COVID-19 vaccines together with an indication of IMV’s main strengths and weaknesses.

Current COVID-19 vaccine market

COVID-19 is still ravaging the whole world with more than 32.9 million cases. Many countries are now seeing second and third waves with the pressing need of a cure.

According to the Milken Institute, there are 316 treatments and 212 vaccine trials which are currently under development at various phases.

Research organizations in collaboration with biotechs have adopted different methodologies based on their past experience in cancer, virology and even DNA (body genome) research.

While the likes of Moderna (NASDAQ:MRNA) are developing RNA-based experimental vaccines aimed at providing immunity through introduction of a genetically engineered blueprint of the viral gene into patients through vaccination, IMV has chosen a different path based on expertise gained through working in cancer research.

Looking deeper, instead of introducing whole viruses to an immune system like Moderna, IMV uses only a fragment of the virus to trigger an immune response and stimulate immunity.

Figure 2: Treatments and vaccines for COVID-19

Source: Milkeninstitute.org

Furthermore, IMV’s vaccine candidate, known as DPX-COVID-19, is based on preliminary studies that have identified weaknesses in the SARS-CoV-2 coronavirus that caused the pandemic.

Also, IMV is using its proprietary Synthetic Delivery Platform called DPX which it already uses for cancer research. Hence, the company is relying on prior expertise in the development of cancer immunotherapies, which include techniques capable of stimulating the weakened immune system of the elderly.

In this way, by targeting the crucial parts which the coronavirus uses to infect human cells, IMV hopes its vaccine can generate effective and long-lasting antibodies.

As a matter of fact, DPX-COVID-19 is currently undergoing Phase 1 trials with the contribution of 84 volunteers and results are expected by this fall (October to November). Some of these volunteers come from members of the elderly population.

As per the planning update submitted on August 14, Phase 2 trials should start in H2-2020 or by December.

Figure 3: Planning of DPX-COVID-19 clinical trials by IMV

Source: Seeking Alpha

There have been some updates about proceeding to combined Phase 2-Phase 3 trials once Phase 1 has been completed on a fast-track basis with a vaccine possibly available in the first six months of 2021.

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Now, in addition to IMV and the famous Moderna, there are other companies involved in the COVID-19 therapies.

Competition, strengths and challenges

As I mentioned earlier, there are 212 vaccines being developed. Now, behind each of these, there are one or more biotech companies which not only have to compete for funding but also for research expertise.

By using RNA-Based Vaccine, Moderna and BionTech (NASDAQ:BNTX) have already reached clinical Phase 3 trials. Others like AstraZeneca (NASDAQ:AZN) with collaboration with the University of Oxford have also reached Phase 3 by using the Non-Replicating Viral Vector approach. Exploring further, Merck (NYSE:MRK) together with Institut Pasteur of France has reached Phase 2 with its Replicating Viral Vector therapy.

Still, most (70%) of the biotech companies are still at pre-clinical phase with about 20% having vaccine candidates undergoing Phase 1 clinical trials for a COVID vaccine just like IMV.

Figure 4: Different approaches to development of a vaccine against COVID-19

Source: IMV’s investors presentation

However, it is IMV’s approach which can be broadly classified into “synthetic peptides” which constitute a differentiating factor.

First, while most vaccines are currently made in eggs or plants, for IMV, it is more synthetic, signifying that it can be more easily manufactured. Hence, the Canadian biotech believes its vaccine can be produced quickly and on a massive scale depending on demand.

Second, it also requires less doses than for example a treatment using “inactivated virus” being developed by Valneva SE (OTCPK:INRLF) which also caters for those who are immuno-compromised like the elderly bearing some preconditions like heart disease.

The virus basically ensures that the older patients do not fall sick.

Third, it does not require rigorous storage systems like Moderna’s vaccines which need to be kept at sub-zero temperatures. This means that strict storage requirements can hamper fast distribution.

In contrast, DPX-COVID-19 by IMV is a more stable product with a longer shelf life enabling easy stockpiling and distribution.

Therefore, IMV’s approach to vaccine production has some strong positives. The company also has the financial support of the Canadian authorities through various research organizations and finally also has preliminary experience working with big pharmas like Merck for other vaccine candidates.

However, it faces some strong contenders numbering 26, already at Phase 2 or Phase 3. Consequently, there is a possibility that not only one but also two or more companies develop a cure before IMV and reap most of the financial benefits created by the huge vaccine market.

Still, things are not always what they seem.

At this stage, it must be mentioned that COVID-19 is a complex disease with some countries being more affected than others. The reasons have largely been attributed to the complex biology of the virus as well as social behavior of the afflicted population.

Therefore, till exhaustive data becomes available, the only solution to counter the coronavirus is to have a broad range of treatments or vaccines.

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Figure 5: Different conditions of COVID-19 to be treated.

Description: https://static.seekingalpha.com/uploads/2020/7/17/49663886-15949708827820363.png

Source: Keylogin Biotech analytics

My statement concerning the need for more than just one treatment is supported by Dr. Fauci, director of the U.S. National Institute of Allergy and Infectious Diseases.

Dr. Fauci speaking during a BBC radio interview in July as reported by Bloomberg:

“I’d love to see more than one vaccine get to the goal line, as it were. The world needs more than one vaccine.”

Therefore, even if multiple vaccines emerge, the very complexity of the coronavirus, its pervasiveness through second and third waves together with the different ways that patients are afflicted, are elements which should ensure that there is a market for various vaccines.

Also, there is scope for specialization with vaccine developers treating different COVID-19 conditions (figure 5). For IMV, it will be more likely be specialization in stimulating the weakened immune system of the elderly.

Therefore, investors should not expect IMV to be among the first to commercialize a COVID vaccine but more as a longer-term vaccine play operating in a niche market.

Shifting the focus to diversification, there is more.

In this respect, IMV also has a number of drugs in development in the field of ovarian cancer and respiratory diseases.

Figure 6: IMV’s pipeline

Source: Seeking Alpha

Therefore, IMV exhibits a key feature I look for when investing in biotech companies, namely product diversification as in addition to a COVID cure, it is also involved in cutting-edge cancer research.

Valuations and key takeaways

First, concerning the pricing of a COVID vaccine, this will depend on many factors like market dynamics, the manufacturer’s pricing strategy and the forward purchase commitment mechanisms by governments.

The cost of research and capacity to scale up production which I invoked earlier for IMV are also key factors in determining pricing.

Second, as for the quantity of vaccines needed, in view of the light-speed infection rate and the fact that it is not yet clear whether infection with the COVID-19 virus makes a person immune to future infection, it can be reasonably deduced that more than just one dose will be required per individual.

Also, some governments like the US, Canada and the European Union have already secured agreements with vaccine manufacturers like Moderna and BionTech for millions of doses of a COVID-vaccine once these are available.

Figure 7: Estimate of COVID-19 vaccine prices

Source: Npr.org, fiercepharma.com, wsj.com

Consequently, for IMV, based on a revenue plan of 200 million vaccines at $10 per dose, the revenues would be $2 billion, which is mind-blowing for a company which has seen practically no sales since the last three years.

Moreover, the company had cash and equivalents of C$30.6 million as of June 30, which does not include the additional funding received for the development of DPX-COVID-19.

Now, as per the balance sheet, total debt was of $7.9 million at the end of the second quarter.

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Additionally, the Canadian biotech does not generate cash from operations or from investment. The only two cash-generating transactions were from financing activities which include an equity offering of C$26.705 million in Q1-2020 and a sale of $30 million of its share through an agreement with Piper Sandler during March of this year.

Looking into the financial sustainability, the executives expect cash burn for the remainder of 2020 to be around C$6 million per quarter, which means that the company has funding for at least one more year as long as there are no unforeseen expenses.

Thinking aloud, as a Canadian front-runner in the fight against COVID, IMV should benefit from additional external funding for clinical Phases 2 and 3.

I now check the stock’s upside potential.

In this case, a comparison with peers reveals that both Moderna and BionTech’s stock have appreciated by more than five times that of IMV which is understandable in view of the advanced stage of vaccine development.

Also, when viewed from this angle, IMV’s stock cannot be considered to be overvalued. This in turn also signifies that there is considerable upside left, all depending on the clinical trial results.

Moreover, the shares of Valneva shot higher as from mid-September after it announced a major vaccine partnership with the U.K. government.

Figure 8: Comparison of stock’s performance.

ChartData by YCharts

The same may be the case with IMV in case of positive news as to the Phase 1 clinical testing by November of this year.

Now, there has been some downside in the stock from the August peak as some investors may have become too impatient holding the stock and others cashing in for profits, but this is NOT a sell-off.

More importantly, the company has three Phase 2 clinical trial updates in the second half of the year with its lead candidate, DPX-Survivac, a T cell-activating therapy used in treatment of advanced ovarian cancer.

Consequently, the catalysts to trigger an upside are present in the worst-case scenario that COVID vaccine clinical trials are delayed.

The price momentum indicators also suggest that there will be an upside.

Therefore, the stock is a buy with a 30% possible upside. Also, I view IMV as a longer-term stock to trade.

Finally, investors will note that I have not used any of the valuation metrics like Price to Sales ratio as most of the biotechs currently involved in cutting-edge COVID research are simply not generating organic sales.

Disclosure: I am/we are long IMV. 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.

Additional disclosure: This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.
I am long GSK, SNY, NVS.



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