On December 6, 2016, VBI Vaccines Inc (NASDAQ:VBIV) announced it had raised $23.6 million in concurrent equity and debt financing transactions. The raise came through a deal with Perceptive Advisors, and the transaction transaction increased Perceptive's beneficial ownership of VBI from 7.8% to 15.8%. Perceptive is leading the pack of institutional backers of VBI, with Clarus Advisors holding a 7.5% stake, and Cambridge Investment Research Advisors a 3.8% position.
On December 12, Perceptive reported that it had increased its position again, and as of December 6, holds a 20.5% stake in VBI. In 2015, Perceptive took the title for the best performing hedge fund with assets under management of less than $1 billion. For a fund with this sort of reputation to be aggressively increasing its position in a company like VBI, its analysts must believe there is considerable potential for gains going forward.
With Perceptive's activity having highlighted the company as one to watch, here is a look at what likely underpins the fund's thesis.
VBI is a company with a focus on the development and commercialization of vaccines. The company has three distinct focuses, each of which contributes a unique potential for value growth as it matures towards revenue generation.
The first is, technically, is already at the revenue generation stage, but is generating far less than it should (and almost certainly will) be doing near term. It's a hepatitis B vaccination called Sci-B-Vac, and its mechanism of action sets it apart from pretty much everything else on the market and in development in this indication. It's been tested in more than 20 clinical trials across the globe, and it is already approved in a host of countries, including Israel, where it is administered to almost all children as a preventative vaccine. It expresses all thee surface proteins of the HBV virus, giving it a far higher immunogenicity that current standard of care in the US and Europe, yet its not current approved in the former. Why? Because VBI has not yet submitted an application. When it does (and the company expects to file for approval in the US in 2017) it will almost certainly get the green light, and open up a considerable revenue stream for the company. Analysts put a peak global sales figure on the vaccine of $600 million to $1 billion. For reference, VBI currently trades for a market capitalization of $127 million.
The study in question, the pivotal that will underpin the US application, should take around eighteen months. Assuming the company gets the trial underway during the first half of 2017, this paves the way for a submission late 2018, and an approval, mid 2019.
The latest news on the drug saw the company report data from an Israel-based post marketing study investigating long term seroprotection. These types of studies are standard procedure in Israel, but the data drawn from the investigation can be used to influence the protocol for the US trial, as well as presented to the FDA in pre-trial meetings, so the results are important. The data showed two things: that 91.9% of study participants were seroprotected at month two, one month after receiving a second dose of the vaccine, and that 98.8% of participants were seroprotected at month three, two months after receiving a second dose of Sci-B-Vac, and prior to receiving a third dose.
These levels of long term seroprotection, especially at this low dose, low frequency administration regimen, are unheard of in hepatitis B, and reinforce the thesis that the vaccine will have a smooth ride to approval in the US over the next 24 months.
The second area of growth derives from an early stage development program in infectious diseases, specifically cytomegalovirus (CMV) vaccination.
The Sci-B-Vac vaccine discussed above is a so-called third generation vaccine – it expresses a higher number of surface proteins than anything in its class, increasing immunogenicity by affording it a closer mimicry of the hepatitis B vaccine it's seeking to protect against. VBI has taken this concept and applied it to the development of a CMV vaccination, creating a vaccine candidate that expresses multiple CMV surface proteins. If the success of Sci-B-Vac is indicative of the success of the CMV vaccine, then VBI could bring to market an asset that fills a very large unmet need.
Five thousand infants develop permanent problems due to CMV every year in the US, some of them severe, including deafness, blindness, and mental retardation. Direct economic costs of the condition exceed $2 billion in the US alone. There's a billion-dollar annual market for a vaccine as measured by the current vaccine landscape in comparable (but often smaller) indications.
Preclinical investigation suggested the neutralization of CMV (which is the end goal of any CMV vaccine) up to 32X greater than natural immunity in multiple animal models. VBI has moved this one in to the clinic, and is investigating safety and tolerability in circa 125 healthy adults. Safety is primary, but there are a number of efficacy related secondary endpoints, and these have the potential to serve as catalysts as data reads out from the trial. It should run 20 months start to finish, and VBI reported that it had completed enrollment in September this year. There are also ongoing preclinical programs using the technology that underpin the CMV vaccine ongoing in a host of other indications, including glioblastoma multiforme and medulloblastoma (both types of brain cancer), Zika and Respiratory syncytial virus.
The important thing to note here is that each of these indications can be considered an extension of the already succesfull Sci-B-Vac program. VBI has proof of concept in place by way of the more than 500,000 administered hepatitis B doses, and is merely applying the same technology to different therapeutic areas. This sort of 'platform approach' can allow for rapid pipeline expansion, and by proxy, portfolio expansion, at a far reduced cost when compared to the development of a completely new asset.
Finally, the third area of growth derives from a vaccination formulation technology, which – if succesfull – has the potential to change the way vaccines are transported and stored. That sounds like a big claim, but there's evidence to support it. VBI has developed a technology that allows for the removal of vaccinations from the cold chain, which is the narrow scope of temperatures within vaccines (most of them, anyway) must remain in order to maintain efficacy. Analysts suggest that the cold chain requirement adds 20% on to the cost of vaccinations. With its cold chain removal technology, VBI could essentially remove this cost entirely, making vaccines developed using its platform cheaper and easier to store/transport than those created by other companies.
The assumption here is that the company will license the technology to the larger vaccine producers, and VBI's efforts to date reinforce this assumption. The company has teamed up with GlaxoSmithKline plc (ADR) (NYSE:GSK) to evaluate the application of its technology to a range of as yet unnamed GlaxoSmithKline vaccines, in a collaboration announced in February 2016. The companies kept the terms of the agreement under wraps, but we know that GlaxoSmithKline has the option to negotiate an exclusive license to VBI’s platform for use in a defined field, if it chooses to, based on its findings during the initial collaboration period. If the pharmaceutical giant chooses to exercise its option, there's likely a large upfront capital injection in it for VBI. Interestingly, and as a relevant side note, there's direct competition between the two companies in the hepatitis B space, with Sci-B-Vac likely to take a large portion of revenues in the space fro GlaxoSmithKline's Engerix. It is a reasonable suggestion, therefore, that any option exercising wouldn’t involve hepatitis B as the therapeutic area of choice.
The bottom line here is that VBI has a host of big name backers, not just limited to the above discussed Perceptive Advisors, but also including Dr. Phillip Frost, renowned healthcare entrepreneur and self made billionaire; and Dr. Steven Gillis, again a self made healthcare billionaire and the current Managing Director at Arch Ventures. Sam Chawla, a VBI Board member, is also Portfolio Manage at Perceptive. These backers highlight the company as one with potential yet to be recognized by wider markets.
The company has multiple shots on goal in billion dollar markets, and a flurry of catalysts over the next 12-24 months, each of which has the potential to boost its market capitalization.