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Business Update
Beginning the Transition to a Fully Integrated Biopharmaceutical Company
BiondVax Pharmaceuticals Ltd. (NASDAQ:BVXV) is a biopharmaceutical company that is developing treatments for infectious diseases and other illnesses. Recently, BiondVax signed definitive agreements with the Max Plank Institute for Biophysical Chemistry and the University Medical Center Göttingen (UMG), Germany, for the exclusive development and commercialization of a nano-sized (VHH) antibody for the treatment of COVID19. The parties have also signed a term sheet (which, as disclosed, is expected to be converted into a definitive agreement in the coming weeks) for a broad, long term collaboration for the creation of a VHH antibody pipeline for the treatment of additional diseases such as psoriasis, psoriatic arthritis, asthma, and macular degeneration. BiondVax will have an exclusive option for an exclusive worldwide license to advance those additional VHH antibodies. The collaboration is a nice synergy between BiondVax's manufacturing and biotechnology drug development expertise, which includes a state-of-the-art cGMP manufacturing facility and a leadership team with extensive expertise in drug development and manufacturing, and Max Plank's world-renowned scientific ability and expertise in research and development of VHH antibodies. There is enormous potential for VHH antibodies and BiondVax is well positioned to expeditiously develop these assets as the company embarks on a new path forward.
VHH Antibodies
Almost 30 years ago, a serendipitous discovery identified antibodies in the serum of camelids (camels, llamas, alpacas, etc.) that were composed of only heavy chain polypeptides (Hamers-Casterman et al., 1993). While typical antibodies in mammals are composed of two heavy-chain and two light-chain polypeptides, camelid antibodies are devoid of light chains but continue to have an extensive antigen-binding repertoire. Camelid antibodies consist of two polypeptide chains each containing a variable binding domain (VHH) and two constant regions (CH2, CH3), which is different from conventional antibodies that contain three constant regions (CH1, CH2, CH3). When the VHH domain is expressed on its own without the constant regions it is referred to as a VHH antibody. The following image shows the composition of conventional and camelid antibodies, with the VHH portion denoted.
VHH antibodies have the same general structure as VH domains of human immunoglobulins, which consists of four conserved sequence regions (framework regions FR1/2/3/4) surrounding three hypervariable antigen-binding loops (complementary determining regions CDR1/2/3). However, there are a few important differences between human VH and camelid VHH that impact their physical characteristics (Muyldemans, 2013):
• The substitution of four hydrophobic amino acids in human VH with four smaller, hydrophilic amino acids in camelid VHH results in enhanced solubility for VHH antibodies.
• The hypervariable loops in VHH antibodies are longer than in human VH , and these extended loops are capable of forming various structures that can penetrate into the small surfaces and cavities of antigens, thus increasing their specificity and affinity. This specificity can be exploited for such applications as developing VHH antibodies that recognize different isoforms of the same protein.
In addition to the above structural differences, VHH antibodies also have a number of advantageous physical properties when compared to conventional antibodies that make them highly suitable as therapeutic agents:• VHH antibodies are stable for months at 4°C and even longer when stored at -20°C while maintaining full antigen-binding capabilities. Some VHH antibodies are even stable following extended incubation at 37°C (Ghahroudi et al., 1997).
• Most conventional antibodies denature at temperatures >70°C, however some VHH antibodies are able to withstand temperatures >90°C (van der Linden et al., 1999). The VHH antibodies developed by BiondVax's scientific partners at Max Planck are hyperthermostable, with evidence that the COVID-19 candidates are stable at 95°C (Güttler et al., 2021).
• The stability of VHH antibodies can be increased by the substitution of a cysteine residue at certain positions, which also makes them highly resistant to proteolytic degradation and may allow for oral administration or inhalation.
• Due to their small size, stable structure, and a high degree of homology with human VH (Muyldermans et al., 2001), VHH antibodies have a low immunogenicity potential, which generally correlates with a greater clinical safety profile. This can be decreased further through "humanization" of amino acids that differ between human VH and camelid VHH (Vincke et al., 2009).
• The small size of VHH antibodies leads to a short half-life, which can be useful for short-lived applications such as radiolabeling, and for treatment of acute illnesses such as infectious diseases in general and COVID-19 in particular. For other, more chronic therapeutic applications, the half-life can be extended through a number of means, including addition of Fc regions, binding to a carrier protein (e.g., serum albumin), or by creation of chained structures (e.g., dimerization or trimerization).
• The small, monomeric structure of VHH antibodies makes them particularly suited to building multidomain constructs, including multiple VHH antibodies that recognize the same antigen to increase affinity, multiple VHH antibodies that recognize different epitopes on the same molecule to increase avidity, and multiple VHH antibodies that recognize different antigens in order to tether them together (e.g., serum albumin binding to increase half-life along with target antigen binding).
• Since VHH antibodies are small, monomeric structures they do not require expression in mammalian cells. They can be easily expressed in microbes such as Escherichia coli, Saccharomyces cerevisiae, and Pichia pastoris using standard industrial fermenters, which greatly reduces manufacturing costs. BiondVax's cGMP manufacturing facility has been designed precisely for such microbial fermentation processes.
• Whereas monoclonal antibodies (mAbs) are administered intravenously or subcutaneously in hospital settings, the small size of VHH antibodies allows for their potential self-administration at home by inhalation. This is significantly more convenient for the patient and more cost effective for providers.
Initial Indication: COVID-19
The COVID-19 pandemic has now been ongoing for almost two years, and most experts now expect the virus will become endemic (Morens et al., 2022) and require multiple types of treatment options for patients. In addition, the continued emergence of new viral variants will likely make the current vaccines less effective, and the development of new vaccines will, unfortunately, always lag the emergence of additional variants, both of which are expected to keep pressure on the healthcare system.
Monoclonal antibody treatment of COVID-19 has been shown as an effective therapy for patients with mild to moderate COVID-19 who are at high risk for progressing to severe disease and/or hospitalization. While the U.S. FDA had granted Emergency Use Authorization (EUA) to three anti-SARS-CoV-2 mAb products, two of them have had EUA removed due to their hypothesized ineffectiveness against the Omicron variant.
Bamlanivimab & Etesevimab (Eli Lilly): These are neutralizing mAbs that bind to different, but overlapping, epitopes on the receptor binding domain (RBD) of the SARS-CoV-2 spike protein. A Phase 3 trial of 1,035 patients showed that by day 29, 11/518 (2.1%) of patients in the bamlanivimab-etesevimab group had a Covid-19-related hospitalization or death from any cause, compared to 36 of 517 (7.0%) of patients in the placebo group (Dougan et al, 2021). There were no deaths in the bamlanivimab-etesevimab group and 10 deaths (9 of which were designated as Covid-19-related) in the placebo group. Both antibodies appear to have reduced neutralizing activity against the Omicron variant of SARS-CoV-2 and the FDA currently recommends against their use.
Casirivimab & Imdevimab (Regeneron): These are neutralizing mAbs (refered to as REGN-CoV2) that bind to different, non-overlapping epitopes on the RBD of the SARS-CoV-2 spike protein. A Phase 3 trial of 2,696 patients showed that by day 29, 18/1355 (1.3%) of patients in the REGN-CoV2 group and 62/1341 (4.6%) of patients in the placebo group had a Covid-19-related hospitalization or death from any cause (Weinreich et al., 2021). In addition, the median time to resolution of symptoms was 4 days shorter and viral load reduced faster in the REGN-CoV2 group compared to placebo. These antibodies appear to have reduced neutralizing activity against the Omicron variant of SARS-CoV-2 and the FDA currently recommends against their use.
Sotrovimab (Vir/GSK): This antibody was derived from a parent antibody first isolated in 2003 from a patient that recovered from SARS. It binds to an epitope containing a conserved glycan that does not compete with ACE2 binding. In a Phase 3 trial, an interim analysis showed that 3/291 (1%) of patients in the sotrovimab group and 21/292 (7%) of patients in the placebo group had disease progression leading to hospitalization or death (Gupta et al., 2021). In contrast to the other two approved mAb treatments, sotrovimab appears to retain in vitro neutralizing activity against the Omicron variant of SARS-CoV-2.
In addition to the above antibodies that have received EUA from the FDA, we have identified seven mAb therapies in Phase 3 trials that target the SARS-CoV-2 virus. A list of these treatments is shown in the following table. In addition, we have identified multiple VHH antibodies targeting SARS-CoV-2 in the early stages of development. While most VHH antibodies targeted to SARS-CoV-2 are in preclinical development, ExevirBio is currently evaluating XVR011, a VHH antibody that targets conserved regions on the SARS-CoV-2 spike protein, in a Phase 1b/2 clinical trial that initiated in September 2021.
The COVID-19 treatment market, which includes mAbs, antivirals, and other therapeutics is expected to total approximately $2.2 billion in 2026 (EvaluatePharma). While difficult to predict how the pandemic will progress, it is becoming more and more clear that the virus is likely to be with us for the foreseeable future. In addition, the current vaccine options are not providing adequate protection, thus necessitating the development of a wide range of effective therapeutics. These therapeutics are targeted towards a small fraction of the population that becomes infected, while vaccines, being a preventive treatment, need to be administered to entire populations before their full benefit is realized. What's more, therapeutics are effective immediately upon administration while vaccines' immune protection takes time to build, especially when herd immunity is the goal. Hence, as part of their pandemic preparedness programs, governments may initiate stockpiling of anti-SARS-COV-2 therapeutics as first line protection to a future surge of disease until an adequate vaccine is developed, supplied, administered, and generates the required immunity.
Proof-of-Concept Data for Anti-SARS-CoV-2 Nanobodies
In October 2021, researchers at the Max Plank Institute published a peer-reviewed manuscript in The EMBO Journal entitled "Neutralization of SARS-CoV-2 by highly potent, hyperthermostable, and mutation-tolerant nanobodies" that detailed the production of multiple anti-SARS-CoV-2 VHH antibodies that neutralized infectivity at concentrations as low as 17 pM (Güttler et al., 2021).
The researchers tested 60 VHH antibodies by a range of assays to identify optimal candidates for further development. A number of these antibodies had extremely tight binding to the receptor binding domain (RBD) of the SARS-CoV-2 spike protein, including some ≤ 1 pM. In a neutralization assay, VHH antibodies were identified that blocked infection of different variants of concern (VoCs) down to 50 pM, which corresponds to 0.7 μg/L. This is interesting, as just 1 mg of that VHH would be sufficient to exceed the therapeutically effective concentration in a 70 kg patient by a factor of 100.
Additional mutational scanning of promising VHH candidates was performed, with > 30 variants analyzed. Two of the optimized VHH antibodies resisted temperatures up to 95°C and still neutralized SARS-CoV-2 infection down to 17-50 pM. Given that thermostability is perhaps the single best predictor of "developability" (e.g., successfully turning a pre-clinical compound into a therapeutic candidate) (Goldberg et al., 2011), the very high thermostability and extraordinary viral neutralization found with these VHH antibodies are very encouraging.
To increase the avidity of the monovalent VHH candidates, a homo-trimerization strategy was employed using collagen XVIII (Boudko et al., 2009). While fusion of the VHH to the Fc portion of human IgG would typically be employed to increase avidity, in this case the dimeric IgG would likely bind well to two of the Spike protein molecules of a homotrimeric Spike complex, however it would leave the third one in an unbound state. Interestingly, the most potent VHH monomer did not end up being the most potent VHH in the trimerized format, however the researchers did show that trimerization increased avidity while maintaining thermostability.
Now that a definitive agreement has been signed by BiondVax, Max Plank, and UMG, we anticipate BiondVax having proof-of-concept animal data in 2022 and to initiate clinical trials in 2023.
Additional Treatment Areas for VHH Antibodies
An additional agreement, expected to be signed in the first quarter of 2022 with the Max Plank Society (a term sheet with binding financial terms has already concluded), will include a research collaboration of five years, during which Max Planck and UMG will design new VHH antibodies and offer an exclusive option to BiondVax for an exclusive worldwide license (with pre-defined terms) to develop and commercialize those newly created VHH antibody candidates. The target molecules for the research collaboration agreement will be ones that have already been validated for the treatment of psoriasis, psoriatic arthritis, asthma, and macular degeneration using monoclonal antibodies. However, those indications are just examples of what the company could pursue, with additional indications being possible based on the chosen molecular targets. The end result is that BiondVax will be developing a pipeline of candidates and each of those candidates could then have multiple applications.
Psoriasis: This is a common, chronic, noncontagious, multisystem inflammatory condition that most commonly presents on the skin of the elbows, knees, scalp, back, and thighs. While there are multiple types of psoriasis, plaque psoriasis is the most common as it affects approximately 80-90% of all psoriasis patients. There are multiple treatment options available including topical treatments for mild disease and systemic treatments for moderate to severe disease. Systemic treatments include oral therapies such as Otezla® and a host of antibody therapies that target tumor necrosis factor alpha (TNF-α), interleukin (IL)-23, and IL-17. The psoriasis market totaled approximately $20 billion in 2020 and is expected to grow to $32 billion by 2026 (EvaluatePharma).
Psoriatic Arthritis: Approximately 20% of psoriasis patients suffer from psoriatic arthritis, an inflammatory joint disease associated with psoriasis. It can affect any part of the body, including the fingertips and spine, and can range from relatively mild to severe. The same agents that are used to treat psoriasis are also used to treat psoriatic arthritis. The psoriatic arthritis market totaled approximately $4 billion in 2020 and is expected to grow to approximately $5 billion by 2026 (EvaluatePharma).
Asthma: Asthma is an inflammatory condition in which a patient's airways narrow, swell, and produce excess mucus. This results in difficulty in breathing, coughing, and shortness of breath. It can range from mild to severe, in which case patients can experience life-threatening asthma attacks. Long-term treatment typically involves the use of inhaled corticosteroids and/or leukotriene modifiers, while short-term symptom relief is typically provided by short-acting beta agonists or anticholinergic agents. Newer systemic therapies include monoclonal antibodies that target IL-13/IL-4 and IL-5. The asthma market totaled approximately $14.5 billion in 2020 and is expected to grow to $19 billion by 2026 (EvaluatePharma).
Macular Degeneration: This disease results in damage to the macula, the portion of the eye that provides sharp, central vision. When the macula is damaged, it can result in blurry, distorted, or dark vision. The two forms of macular degeneration are dry and wet. In dry macular degeneration, the cells of the macula slowly break down, which produces blurring and then blank spots in the eye's central vision. Some cases of dry macular degeneration will then proceed to wet macular degeneration, in which new blood vessels begin to grow beneath the retina. The blood vessels leak fluid into the macula, which causes scarring. Since it proceeds slowly, dry macular degeneration can be treated effectively for most patients with vitamin supplements and eating a well-balanced diet. If it progresses to wet macular degeneration, treatment includes anti-VEGF therapy, laser surgery, or photodynamic therapy. The wet macular degeneration market was approximately $7 billion in 2020 and is expected to increase to $8.7 billion in 2026 (EvaluatePharma).
2021 Additions to Leadership Team
Amir Reichman became full time CEO of BiondVax in March, 2021. Prior to joining BiondVax, Mr. Reichman held senior manufacturing and supply chain leadership positions at GSK Vaccines global headquarters in Belgium. Prior to that, he worked in the U.S. with Novartis Vaccines R&D and Global Supply Chain. Before leaving to the U.S., Amir was the first employee of NeuroDerm Ltd., an Israeli Biotech start-up that was founded to commercialize the technology which was at the base of Amir's academic work on transdermal delivery of drugs for treatment of Parkinson's disease. NeuroDerm was ultimately acquired by Mitsubishi Tanabe Pharma in 2017 for $1.1B.
On December 27, 2021, BiondVax announced that Mr. Jay Green was appointed to the company's board of directors. Mr. Green recently completed a six-year term as Senior Vice President Finance and Chief Financial Officer of GlaxoSmithKline's global vaccine business. In addition, since 2020 he has served in an advisory role to Gavi for COVAX, an international initiative to support equitable distribution of COVID-19 vaccines.
Intellectual Property
The Max Plank Institute holds two patents that cover VHH antibodies and their manufacturing. The final agreement signed between BiondVax, Max Plank, and University Medical Center Göttingen will give BiondVax an exclusive worldwide license to the intellectual property for the COVID-19 asset. The final agreement will also give BiondVax an exclusive option to an exclusive worldwide license to the intellectual property surrounding any of the other assets covered in the agreement for conditions such as psoriasis, psoriatic arthritis, asthma, and macular degeneration.
Manufacturing Capabilities
BiondVax designed, built, and operates a GMP biologics manufacturing facility which is well suited to produce recombinant protein products such as VHH antibodies that are fermented in bacterial systems. In addition, the company's CEO and COO have extensive experience building and operating biologics manufacturing sites in Europe, Asia, and the US.
Financial Update
On November 30, 2021, BiondVax announced financial results for the third quarter of 2021. The company reports its financials in New Israel Shekels (NIS), which were translated to $US for that quarter using the exchange rate of 3.229 (NIS/$US), the rate as of September 30, 2021. As expected, the company did not report any revenues for the third quarter of 2021. R&D expenses for that quarter were NIS 2.0 million (approximately $0.6 million) compared to NIS 12.6 million for the third quarter of 2020. The decrease was primarily due to expenses related to the Phase 3 trial of M-001 that were recorded in 2020. G&A expenses for the third quarter of 2021 were NIS 6.2 million (approximately $1.9 million) compared to NIS 7.3 million for the third quarter of 2020. The decrease was primarily due a decrease of NIS 0.4 million (approximately $0.13 million) in salary and salary related expenses, and a decrease of NIS 1.6 million (approximately $0.5 million) in share-based payment expenses offset by increased professional expenses of NIS 0.7 million (approximately $0.21 million).
As of September 30, 2021, BiondVax had approximately NIS 34.6 million (approximately $10.7 million) in cash and cash equivalents. On December 27, 2021, the company announced an underwritten public offering of 3,813,560 ADS at an offering price of $2.36 per ADS that resulted in gross proceeds of approximately $9.0 million. We estimate the company now has sufficient capital to fund operations through 2022. As of September 30, 2021, BiondVax had approximately 14.3 million ADS outstanding and when factoring in the recent financing, options, and restricted stock units a fully diluted ADS count of approximately 20 million. As of December 31, 2021, we estimate that BiondVax had approximately $17.5 million in cash and cash equivalents and 18.5 million ADSs outstanding, of which approximately 21% is owned by a single long-term shareholder.
Valuation and Conclusion
We value BiondVax based on the potential for the company's SARS-CoV-2 VHH candidate as well as the VHH pipeline that the company will be developing once the final agreements with the Max Plank Society and UMG are signed. Investors should be aware that a valuation assigned to a therapeutic for a pandemic virus is fraught with uncertainty and will likely need to be adjusted many times both as the therapeutic is developed and the trajectory of the pandemic unfolds. Thus, what we present below is how we view the situation as of the date of this report and as events change our analysis is likely to change along with them.
At this juncture, we see the most likely outcome for an effective SARS-CoV-2 treatment being a U.S. government procurement contract such that the therapy can be administered in a judicious and fair manner. We anticipate BiondVax obtaining proof-of-concept data for the SARS-CoV-2 VHH in 2022 and obtaining initial clinical trial results in 2023. Our estimate for approval is currently 2025, at which time we model for a $350 million contract. We assign a 4x multiple, a 15% probability of approval, and a 20% discount rate, which leads to a net present value for the SARS-CoV-2 VHH of $122 million.
For comparisons sake, the following table lists other SARS-CoV-2 antibodies that are either approved or in development along with their projected 2026 revenues in the U.S. (EvaluatePharma). There are a wide range of estimates for these compounds with an average estimate for the group of $359 million. We believe that BiondVax's VHH antibody candidate will have multiple favorable characteristics (e.g., stability, multimeric complexes, possible inhalation administration) that could lead to revenues in line with that average estimate.
For the potential VHH pipeline, we assign a valuation of $150 million. This is derived from estimating peak sales ten years from now for the candidates in psoriasis, psoriatic arthritis, asthma, and macular degeneration of $1.5 billion, $750 million, $1.5 billion, and $1 billion, respectively, applying a 4x multiple to peak sales, a 5% probability of approval, and a 20% discount rate. These values are going to change as the VHH pipeline matures, but we believe this is a fair valuation estimate as of today.
Combining the net present value for the SARS-CoV-2 VHH candidate, the VHH pipeline, and the company's current cash position leads to a valuation of approximately $288 million. BiondVax currently has a fully diluted share count of approximately 20 million ADSs and we add 4 million ADSs for future dilution as the company will need to raise additional funds to acquire clinical proof-of-concept data for the SARS-CoV-2 asset. This leads to a current valuation of $12 per ADS and we note that there is still room for upside to that valuation as the VHH pipeline develops.
Lastly, we think investors should also be aware of the huge discrepancy in Biondvax's current valuation and the valuation of other companies developing SARS-CoV-2 antibody treatments. For example, Adagio Therapeutics (NASDAQ:ADGI) is developing ADG20, an anti-SARS-CoV-2 monoclonal antibody that is currently in two Phase 2/3 clinical trials. In December 2021, the company announced that ADG20 may not be effective against the Omicron variant. This news caused the company's market cap to decrease by approximately $5 billion. The stock has since recovered some of those losses, and the company has since announced that ADG20 does in fact retain activity against the Omicron variant, with the company's current market cap being approximately $1 billion. The $5 billion loss in market cap gives some indication of how the market was valuing an advanced SARS-CoV-2 antibody treatment. This is in stark contrast to BiondVax's current market cap of approximately $25 million. Since BiondVax is only approximately 2 years behind Adagio, we believe the discrepancy between the respective market caps is untenable and there is the potential for massive upside for BVXV investors.
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