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Business Update
Definitive Collaboration Agreement for Pipeline of Nanosized Antibodies (NanoAbs)
On March 24, 2022, BiondVax Pharmacueticals Ltd. (NASDAQ:BVXV) announced a definitive collaboration agreement has been signed with the Max Planck Society, the parent organization of the Max Planck Institute for Multidisciplinary Sciences (MPG) and the University Medical Center Göttingen (UMG), both located in Germany. The collaboration will focus on the development of nanosized antibodies (NanoAbs), with BiondVax having an exclusive option for an exclusive worldwide license for each generated NanoAb. The target molecules for the research collaboration agreement will be ones that have already been validated for the treatment of conditions such as psoriasis, psoriatic arthritis, asthma, and macular degeneration using monoclonal antibodies.
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).
Investors should keep in mind that 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. Lastly, this agreement is in addition to the one previously announced between BiondVax and MPG/UMG for the development of a NanoAb targeting SARS-CoV-2. The end result is that BiondVax is in the process of building a robust pipeline of NanoAb development candidates. The collaboration between BiondVax and MPG/UMG is a nice synergy between the former's manufacturing and drug development expertise and the latter's world-renowned scientific ability and expertise in research and development of NanoAbs. Researchers at MPG have already initiated injecting alpacas with the molecular targets covered in the collaboration agreement and should be able to begin work on initial NanoAb identification in the next couple of months, with the hope that initial animal studies can commence in 2023.
Anti-SARS-CoV-2 NanoAb Protects Hamsters Following Inhaled Administration
BiondVax recently conducted a webinar with Professor Dr. Matthias Dobbelstein, a Fellow at MPG and Professor at UMG, who provided an overview of NanoAbs, including data for a SARS-CoV-2 NanoAb. During his presentation, Professor Dobbelstein showed data from a small pilot study in which hamsters were protected from COVID-19 by SARS-CoV-2-specific NanoAbs. The following figure shows that hamsters treated with either injected or nasal NanoAbs were protected from infection with SARS-CoV-2 (as judged by the change in body weight on Day 6 post challenge). These are very encouraging results and if replicated in a larger study could also serve as proof-of-concept for inhaled delivery of NanoAbs, which would be an additional advantage over monoclonal antibody treatments for pulmonary conditions such as asthma.
While the pandemic phase of COVID-19 appears to be on the decline, almost all experts agree that SARS-CoV-2 is not ever going to be eradicated and there will likely be seasonal increases in COVID cases similar to what is seen with influenza and other respiratory viruses. Thus, the world is going to continue to need effective COVID treatments. While monoclonal antibody treatments were effective against earlier strains of SARS-CoV-2, with the emergence of the Omicron variant and its subvariants all of the previously approved monoclonal antibody therapies have had their emergency use authorizations rescinded. This presents an opportunity for additional COVID treatments to enter the market, which is expected to total approximately $2.2 billion in 2026 (EvaluatePharma).
In the near-term we anticipate data from a larger preclinical inhalation study to be reported later in 2022. This should lead to a Phase 1/2a trial in COVID-19 commencing in 2023.
Financial Update
On March 28, 2022, BiondVax announced financial results for the fourth quarter and full year 2021. The company reports its financials in New Israel Shekels (NIS), which were translated to $US for that quarter using the exchange rate of 3.11 (NIS/$US), the rate as of December 31, 2021. As expected, the company did not report any revenues for the fourth quarter or full year 2021. R&D expenses for the fourth quarter of 2021 were NIS 3.6 million (approximately $1.15 million) compared to NIS 7.8 million for the fourth 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 fourth quarter of 2021 were NIS 7.3 million (approximately $2.3 million) compared to NIS 4.2 million for the fourth quarter of 2020. The increase was primarily due an increase in salary and salary related expenses, consulting and legal services, and other related expenses in support of the change in corporate strategy and management during 2021.
For the full year 2021, R&D expenses were NIS 10.3 million (approximately $3.3 million) compared to NIS 51.4 million in 2020. G&A expenses in 2021 were NIS 24.5 million (approximately $7.8 million) compared to NIS 16.7 million in 2020. Total operating expenses in 2021 were offset by other income of NIS 75.4 million due to the revaluation of the European Investment Bank (EIB) loan.
On March 14, 2022, BiondVax announced that the EIB agreed in principle to extend the maturity date of its loan until December 2027 from 2023 (€20 million) and 2024 (€4 million). In addition, interest on the loan will only begin accruing starting January 1, 2022 (the loan has been outstanding since 2018) and the interest payments will be deferred until the new maturity date and will be added to the principal balance at the end of each year during the loan period. BiondVax will make a $900,000 payment towards reduction in principal shortly after the new loan terms become effective and will put 10% of any future capital raises toward the repayment of the loan principal. Once BiondVax commercial sales exceed €5 million, 3% of the topline revenue will be paid to EIB as royalties up to a combined maximum of 2.8 times the original €24 million principal amount of the loan. Lastly, if BiondVax chooses to prepay any portion of the loan, the amount prepaid will be calculated such that the EIB realizes at least a 20% internal rate of return (IRR) on its investment. The EIB still needs to go through an internal review process about the new loan terms, and once the new terms are agreed to by EIB's management committee, a new amended agreement will be signed by both BiondVax and the EIB.
As of December 31, 2021, BiondVax had approximately NIS 54 million (approximately $17.4 million) in cash and cash equivalents, which was partly due to an underwritten public offering in December 2021 that resulted in gross proceeds of approximately $9.0 million. With a current burn rate of approximately $1 million per month, we estimate the company has sufficient capital to fund operations for the next 17 months. As of December 31, 2021, BiondVax had approximately 18.5 million ADS outstanding (of which approximately 21% is owned by a single long-term shareholder) and, when factoring in options and restricted stock units, a fully diluted ADS count of approximately 20 million.
Valuation and Conclusion
We value BiondVax based on the potential for the company's SARS-CoV-2 NanoAb candidate as well as the NanoAb pipeline that the company will be developing now that the final agreements with the MPG 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 current situation 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 NanoAb 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 NanoAb of $122 million.
For the NanoAb 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 NanoAb pipeline matures, but we believe this is a fair valuation estimate as of today.
Combining the net present value for the SARS-CoV-2 NanoAb candidate, the NanoAb 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 NanoAb pipeline develops.
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