Vaxart: Investment Case For An Oral COVID Vaccine Not So Hard To Swallow

Dec. 09, 2021 2:41 PM ET

This article was written by Edmund Ingham

Summary

• Vaxart is the oral vaccine developer with COVID, RSV, HPV, influenza and Norovirus candidates in its pipeline.
• The company faces litigation after allegedly misinforming the market about being selected for Operation Warp Speed last year.
• A COVID vaccine success is not out of the question, however – if the company can prove in a large scale Phase 2 trial, it can generate neutralising antibodies.
• Norovirus looks a possibility also, as does influenza. Results have been positive, but Vaxart needs to find a more mainstream audience.
• The novelty of an oral vaccine is surprising given the obvious benefits. Vaxart is about the only way to place a bet on its success.
• Looking for a portfolio of ideas like this one? Members of Haggerston BioHealth get exclusive access to our model portfolio. Learn More »

Investment Thesis

It has been several months since I last posted on Vaxart (NASDAQ:VXRT), so I wanted to provide an update for those interested in this most enigmatic of companies. The oral vaccine developer is still an outlying company, with a valuation that could either be described as bloated, based on a COVID vaccine opportunity that has still not materialized, or undervalued, given that the company has candidates for influenza, norovirus, RSV and HPV besides COVID, and has recently initiated a Phase 2 trial for the latter.

Below I provide a whistle-stop guide to the company’s history, management, progress, and why I believe that Vaxart stock remains an intriguing calculated gamble for a risk-on investor, with a major near-term, catalyst upcoming in its Phase 2 COVID vaccine trial.

Vaxart – More Than Just A Covid “Meme Stock”

It may seem like a lifetime ago, but in fact, it’s less than 18 months since Vaxart stock skyrocketed in value, from a little over $2 to a peak of $16, on news the oral vaccine developer had been selected to participate in Operation Warp Speed (“OWS”), the Trump administration’s COVID vaccine accelerator.

Back in July 2020, the COVID vaccine hype cycle was in overdrive, and New York based hedge fund Armistice Capital – which owned a majority stake in Vaxart – took full advantage.

After Vaxart issued a press release about its inclusion in Operation Warp Speed, Armistice liquidated more or less its entire holding, selling 26.7m shares for a sum of $267m.

Shortly after the sale, the market caught on to the fact that Vaxart had not actually been selected for OWS, but had merely participated in one of its non-human primate trials, and the stock price fell back to $5.

There are no longer any members of Armistice on Vaxart’s board, but there are investment bankers – Michael Finney, Director of Finney Capital, Chairman of the Board, Todd Davis, a Managing Partner of RoyaltyRx Capital – and several biotech industry veterans, such as Karen Wilson, a former Senior Vice President of finance at Jazz Pharmaceuticals (JAZZ), and Julie M Cherrington, Ph.D., presently Chief Executive Officer of QUE Oncology.

Andrei Floroiu, who joined Vaxart in June 2020, and was thought to have a close working relationship with Armistice, remains Vaxart’s CEO, and Sean Tucker remains Chief Scientific Officer, having joined Vaxart all the way back in 2004. Dr. James F. Cummings, Chief Medical Officer, joined Vaxart in September this year, having formerly worked at ICON (ICLR), a contract research organisation for drug developers, and prior to that, Novavax (NVAX), a small biotech transformed in value by its COVID vaccine success.

As such, you can look at the current incarnation of Vaxart in two ways, taking either the cynical view – that Vaxart remains a classic “pump and dump” stock, exploiting the promise of an orally administered COVID vaccine without delivering a viable product, or taking the more optimistic view, that a much maligned management team are sticking to their task, and making incremental progress towards something that would constitute a major breakthrough.

Oral Vaccination Is Rare, But Advantages Are Clear and Vaxart Is A Frontrunner

It’s certainly true that Vaxart has been focused on developing oral vaccines ever since its inception in 2004, as West Coast Biologicals, through a name change, to Vaxart, and reincorporation in Delaware, and finally, through an uplisting to the Nasdaq in 2017, via a reverse merger with Aviragen.

Then, and now, Vaxart had defined itself as:

A clinical-stage biotechnology company primarily focused on the development of oral recombinant vaccines based on our Vector-Adjuvant-Antigen Standardized Technology (“VAAST”) proprietary oral vaccine platform.

Using the VAAST platform, Vaxart has completed 15 clinical trials, against seven different viruses, and vaccinated >500 people, according to the company’s latest investor presentation.

Vaxart current pipeline. Source: October investor presentation.

That may not seem like a great deal of progression over a 15-plus year period, but it’s worth noting that there are no oral vaccines on the market today in any indication, and that Vaxart’s pipeline appears to stand as good a chance as any biotech, or pharma, of being the first to produce and oral vaccine worthy of FDA approval (or approval by a foreign government).

The advantages of an oral vaccine are self-evident. Oral vaccination may be preferable to a large proportion of people to the pain of a needle, and the irrational fear it often induces. Vaxart has conducted its own research that suggests, of the 32% of Americans who do not plan to get a COVID vaccine, 23% would be likely to accept an oral vaccine, increasing the overall vaccinated population by ~19m.

Oral vaccines would be easier to distribute and save people time and money, by taking away the requirement to travel to a vaccination center – although it would be admittedly hard to determine whether people who received an oral vaccine in the mail had actually taken it or not.

Mucosal Immunity May Compensate For A Lack Of Traditional Efficacy

Vaxart has made much of the fact that its oral COVID vaccine confers something called “mucosal immunity,” which protects against infection via the nose, lungs, intestine and mouth, while an injectable vaccine activates systemic immunity only.

There does appear to be some evidence that Vaxart’s approach – which uses a recombinant adenoviral vaccine and a Toll Like Receptor 3 (“TLR3”) based adjuvant – may be successful.

First of all, a Phase II flu challenge study comparing Vaxart’s oral tablet flu vaccine and Sanofi’s Fluzone injectable flu vaccine came out in favor of Vaxart, with illness rates 39% lower in those taking Vaxart’s oral vaccine, versus 27% lower in those using Fluzone.

The trial was conducted in collaboration with the government’s Biomedical Advanced Research and Development Authority (“BARDA”), with results published in the Lancet back in January 2020.

Secondly, as recently as November, Vaxart stock made gains – rising from a price of ~$6.5 to $8, on news that a Duke University study using hamsters exposed to COVID-19 showed that hamsters vaccinated with Vaxart’s S-protein only tablet VXA-CoV2-1 cleared infectious virus in the nose and lungs quickly, and when exposed to unvaccinated hamsters, infected fewer and created less severe clinical symptoms than did unvaccinated hamsters.

Vaxart stock also spiked as high as $23 in February this year, immediately ahead of the company’s release of results from a 35-patient, Phase 1 trial of VXA-CoV2-1, which ultimately disappointed the market.

The trial met its safety and efficacy endpoints, eliciting CD8 T-cell responses to both the S and N proteins expressed by the coronavirus, theoretically lasting up to 17 years and cross-reacting with SARS-Cov-2 in the case of the N protein, and in greater volumes than are generated by either Pfizer (PFE)/BioNTech (BNTX) of Moderna’s (MRNA) successful messenger-RNA vaccines.

Or, It May Not Compensate

The truth is, however, that Vaxart’s Phase 1 trial of VXA-CoV2-1 was considered a failure by most observers, on account of the fact that no neutralizing antibodies were detected. Vaxart published a White Paper in response, arguing the case for mucosal immunity over systemic immunity, but it failed to re-ignite the share price, which traded at ~$6 by the beginning of May.

Vaxart also had argued that the enhanced T-cell response and targeting of the N, as well as the S (“Spike”) protein may help its vaccine to overcome new strains of the virus, but since the likes of Pfizer’s Comirnaty and Moderna’s Spikevax have done an admirable job protecting against Delta, and it looks like Omicron too (provided patients have received three doses), it seems that the market will continue to take a dim view of any vaccine that does not generate neutralizing antibodies.

Undeterred, Vaxart Will Initiate A Larger Phase 2, And Has Added A New COVID Candidate

Vaxart rarely makes any mention of the lack of neutralizing antibodies in its presentations, continuing to push the mucosal immunity and T-cell response advantages, as well as the convenience of an oral pill.

The company is certainly not backing away from proving the efficacy of its vaccines, however. A Phase 2 trial was initiated in October that will enroll 896 patients, with trial protocols as below.

Vaxart’s Phase 2 study design for its S Protein expressing COVID vaccine. Source: investor presentation.

VXA-CoV2-1.1 is in fact Vaxart’s second COVID vaccine, targeting just the S protein – it was VXA-CoV2-1 that generated the Phase 1 results, but Vaxart’s belief is that targeting the S protein may generate an improved antibody response. The new candidate has demonstrated activity against the COVID beta and delta variants in clinical trials, which is encouraging.

As we can see above, the first part of the trial will last just four months, and the second six to eight months and the size of the trial suggests that it will be conclusive one way or the other. The caveat, possibly, is the lack of specification over what the efficacy endpoints will be. Will there be a requirement to see neutralizing antibodies?

And, if there’s not, what will the FDA think of the trial results? It would make sense for Vaxart to gauge what the FDA’s stance will be prior to the initiation, otherwise, it may end up generating the results it wants to see, but be unable to persuade the authorities that VXA-CoV2-1.1 is worth approving.

It looks to me as though Vaxart is attempting to generate neutralizing antibodies, and possibly to demonstrate that its pill could be used as a booster shot in combo with an MRNA vaccine, given the four cohorts of vaccinated patients that will be evaluated in part 1 of the trial.

COVID Is The Holy Grail, But Norovirus, Flu, RSV Are All Worth Persevering With

As we can see in Vaxart’s pipeline chart above, it is the company’s Norovirus vaccine that has progressed furthest, into a Phase 2 challenge study, that will allow initiation of vaccine phase dosing in January 2022.

This marks the resumption of a campaign that was suspended in 2019 – presumably due to a lack of funds – with a booster of Vaxart’s bivalent oral tablet vaccines for the GI.1 and GII.4 norovirus strains given to patients.

According to Vaxart’s 10-Q statement Q321:

In results announced on July 29, 2021, we showed that we were able to successfully boost immune responses with the G1.1 norovirus tablets.

Currently, we are planning a Phase 2 safety and dose confirmation study with Vaxart’s bivalent norovirus vaccine in subjects aged 18 years and older and considering the feasibility of conducting a Phase 2 norovirus challenge study in parallel with the Phase 2 dose confirmation study.

These sets of studies would form the basis (safety, immunogenicity and preliminary efficacy data) for an End of Phase 2 Meeting with the FDA to gain concurrence on the scope of the Phase 3 pivotal efficacy study in adults over 18 years of age.

This appears to be an exciting development for the company – the opportunity to potentially enter a Phase 3 trial – which has been slightly overlooked by the market, although in fairness, Vaxart’s share price had been picking up – reaching a high of $10 in August, before correcting across the past couple of months, to $6.5 at the time of writing.

Cantor has given Vaxart stock a price target of $15, based on >$1bn opportunities in COVID and Norovirus, and as recently as last month, Vaxart was publishing results from its influenza studies, demonstrating that VXA-A1.1 – its investigational oral tablet flu vaccine – had cellular correlates of protection against influenza infection.

Meanwhile, RSV and HPV programs remain on hold, but more due to funding concerns and the prioritisation of COVID/norovirus, than any major doubts over the efficacy and safety profiles of the candidates.

Conclusion – Vaxart Is An Enigma That Needs To Find A Mainstream Angle For Its Vaccine Candidates To Be Successful

In many ways, Vaxart is the antithesis of a “pump and dump” style company or stock.

Some of its staff have been studying the science behind oral vaccination since 2004, yet the company is more renowned for allegedly taking investors for a ride during the height of the COVID vaccine hype cycle, by implying it had been selected for Operation Warp Speed.

Vaxart’s stock price never quite returned to pre-pandemic lows of <$1, however, which suggests that the market was keeping half an eye on progress, aware of the benefits of oral vaccination either as a replacement, or more likely an alternative or complement to injectable vaccines.

The stock jumped as high as $23 in February on little more than a rumor about some positive Phase 1 results, and now there is a Phase 2 in full swing, that will attempt to address the neutralizing antibody issue by targeting the S protein only.

If that trial were to succeed – and it is a bit “if” – Vaxart’s stock price would likely double at least – current market cap of $814m seriously undervalues the prospect of an oral vaccine available as an alternative to a booster shot, for example, or for injectable vaccine naive populations.

Vaxart has been able to build a cash position of ~$100m, which has helped it to re-open its Norovirus studies, and influenza is a third opportunity that offers a >$1bn per annum reward, where approval to be secured.

In conclusion, Vaxart remains one of those enigmatic companies that offers investors either boom or bust – and we may be getting closer and closer to finding out which, given that Phase COVID vaccine results ought to be available early next year.

It’s mysterious that no other biotechs or pharmas are pursuing the oral vaccine opportunity – and that may be an uncomfortable truth for Vaxart’s investors, or an incredible opportunity.

We’re getting closer to finding out which, although it also would not surprise me if, in a year’s time, Vaxart had somehow managed to prolong the verdict over whether its vaccine can work for another 12 months.

I argued for a target price of $17 in a prior note on the company and its shares, and I still believe that is a likelihood going into 2022, but equally, Vaxart seems to be permanently positioned on a knife-edge and the risk of opening a position is very substantial.

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