Betting on Oxford.
The successful launch of COVID-19 vaccines have been a strong driver of share price growth for some of the main players. AstraZeneca shares have risen 20% since the pandemic started. BioNTech has risen 600%. Moderna shares have gained 1000% and Novavax has gained over 2000%.
However, there are many smaller companies making progress with their own vaccine technology. UK-based Vaccitech Plc (VACC - $560M) is one example.
Vaccitech is the company behind the COVID-19 vaccine that was developed in partnership with Oxford University for AstraZeneca. That vaccine has now been administered to more than 500 million people.
What Does The Company Do?
Vaccitech was set up in 2016 by two Oxford professors, Adrian Hill and Sarah Gilbert, who patented a new type of vaccine. The idea was to form a company that could create vaccines and treatments for profit, separate from the university itself.
This would make Oxford university, and the country as a whole, more competitive and commercially viable. The idea was to emulate the successful approach used by American rivals at Stanford University and MIT.
In 2020, Vaccitech developed the COVID-19 vaccine in collaboration with Oxford University. They did it at record speed and gave it to AstraZeneca under the agreement that no profits would be made from the vaccine until the pandemic was over. They did this knowing that lives needed to be saved and vaccines needed to be rolled out quickly. When the pandemic ends, Vaccitech will receive ~1.4% of vaccine sales by means of royalty and downstream payments.
The success of the AstraZeneca vaccine is an indicator of Vaccitech’s potential, which is entwined with the excellence of the University of Oxford. Many of the employees come from the University.
But COVID-19 is not the main story at Vaccitech. The company has other vaccine candidates that it hopes to commercialize in the coming years.
Technology And Pipeline
Vaccitech harnesses T cell immunotherapy using adenoviruses. The company has a pipeline of vaccine candidates for Hepatitis B, human papillomavirus (HPV), prostate cancer, lung cancer, herpes and Middle East respiratory syndrome (MERS). You can see details of the pipeline below:
Source: Company presentation.
Vaccitech’s VTP-300 is a potential cure for Hepatitis B which infects more than 250 million people in the world. More data is expected before the end of the year.
VTP-200 is a treatment for human papillomavirus. It targets the disease early before symptoms. There are 14 million cases of high-risk HPV in the US and EU each year.
VTP-800/850 is targeting prostate cancer. Preliminary results have been encouraging and more data is expected in the first quarter of 2022.
VTP-600 is a treatment for lung cancer. This is in partnership with Cancer Research UK with trials just starting now.
The COVID-19 Vaccine
One of the reasons Vaccitech was able to respond to COVID-19 so early is that they already had data regarding MERS, another coronavirus. When the vaccine first came out, there was some negative press saying that the Oxford vaccine was not as effective as the mRNA vaccines from BioNTech and Moderna.
However, this is not entirely the case. Data below shows that the AstraZeneca vaccine has a stronger single dose efficacy rate than the Pfizer-BioNTech vaccine after 40 days:
Source: Company presentation.
More recently, the AstraZeneca vaccine has been found to cause blood clotting issues in a small number of patients. However, the risk is tiny and in terms of reward it is much safer to take the vaccine than not to take it. Furthermore, we are recently hearing about inflammatory side effects with the mRNA vaccines as well.
As mentioned previously, Vaccitech stands to receive ~1.4% of net sales of the AstraZeneca vaccine once the pandemic is over and the product is priced commercially. This is likely to be later than July 1st since many countries are still in dire need of vaccines. It’s not clear when AstraZeneca will price the product or how much it will price it for.
If COVID-19 mutates like the flu, then new vaccines would be needed each year and royalty payments would start to flow to Vaccitech in regular fashion. They could range anywhere from $10 million to $100 million.
The reality is that COVID-19 royalties are unlikely to be a gamechanger for Vaccitech but they will contribute something to the top line. When the next epidemic/pandemic hits, Vaccitech may be in a better position to go it alone and generate more substantial revenues.
Long Term Outlook
One of the main reasons I’m interested in this company, and others like it, is because I believe vaccines are the future.
In the past, vaccines have been used to mainly treat infectious diseases like smallpox and measles. They have been incredible tools for saving children’s lives and extending human life. However, new evidence suggests that vaccines can be used to combat a much wider range of ‘internal’ disorders. Things like autoimmune diseases, allergies, cancer, even chronic pain.
Vaccines are also relatively cheap which makes them a viable business opportunity for companies. According to Lou Reese, we vaccinate 500 million pigs a year for less than one dollar with 70% margins.
Compared to biologic drugs, vaccines are molecularly simpler which make them easier to design and manufacture. This gives them a major advantage over expensive drug treatments.
Anecdotally, I recently spoke to a doctor with more than 30 years experience practicing medicine. He said in the future we will be getting vaccinations for a whole range of things.
How Do Vaccines Tackle Cancer?
What scientists have realized is that for diseases like Alzheimer’s and cancer, problems can take many years to develop. The human body is made up of trillions of cells which are constantly dividing and mutating. Toxic proteins can start to build up in the body 15 or 20 years before any symptoms develop.
Vaccines can therefore be used to stimulate antibodies early on and slow down the build up of these harmful proteins. Vaccine technology teaches the immune system without the body having to confront an actual infection. Vaccitech’s approach triggers a strong response when measured by CD8+ and CD4+ T cells. These are the cells the body uses to fight harmful agents.
Types Of Vaccines
Since the pandemic, a lot of the focus has been on the development of messenger RNA (mRNA) vaccines. These vaccines teach the body how to make proteins that trigger an immune response. The advantage is that these vaccines don’t need the injection of a foreign germ.
Vaccitech, on the other hand, stimulates the production of T cells and antibodies by priming the immune system. It does this through an injection of a proprietary adenovirus vector. This is a more traditional form of vaccine which is typically followed by a booster shot.
Adenoviruses are double-stranded DNA viruses that were first discovered in human tissue and later found in a wide range of other mammals, like Chimpanzees.
In an interview with the Financial Times last week, Vaccitech CEO Bill Enright said that he feels the adenovirus approach has a much higher chance of success for treating cancer than mRNA.
Nothing stimulates T cell response like adenovirus… With mRNA vaccines, the majority don’t get much or many CD8+ T cell responses. While that may not be important prophylactically, in other indications such as oncology or in chronic infections, you are definitely going to need CD8+ T cells as part of the solution.
~ Bill Enright, Vaccitech CEO.
According to the article:
59 per cent of patients in early stage cancer trials produced T cells in response to treatments made by Vaccitech’s platform. Meanwhile, only 12 per cent produced a response with mRNA. However, the studies were for different kinds of cancer and not directly comparable.
At the recent Jefferies virtual healthcare conference, Enright produced data that showed the magnitude and durability of the adenovirus approach. You can see that there is a very large increase in T Cells when the MVA boost is introduced.
Source: Company presentation.
In other words, it’s possible that Vaccitech’s adenovirus approach will prove more effective in treating cancers than mRNA. Right now, mRNA vaccines receive all the hype but Vaccitech’s approach could prove just as successful.
Vaccitech came to market in April 2021 through an IPO where it raised $110.5 million. It had previously raised $168 million in a crossover financing round. This gave the company a $267 million cash balance which should give it runway through 2024.
Further capital raising is likely but the company will be able to raise some funding through partnerships and not necessarily stock dilution. At a price of $15.40 per share the company has an enterprise value in the region of $560 million. This is a reasonably low valuation compared to peers.
Source: Company presentation.
Currently, Vaccitech has no approved products except the vaccine with AstraZeneca. This means the company generates barely any revenues and will continue to generate little revenue until the company’s other vaccines are approved. However, the company only needs one blockbuster vaccine to see a material shift in sentiment.
The following chart from Statista shows the kind of revenue that Sanofi generates from its own vaccine portfolio. As you will see, the company generates over eight billion dollars in revenue but does not have any vaccines targeting non-infectious diseases.
Perhaps it is foolish to compare Vaccitech with an established name like Sanofi but these numbers do show the kind of revenue that can be generated by an approved vaccine. With multiple treatments in the pipeline, Vaccitech only needs to get one vaccine approved to see its shares explode higher.
According to Jefferies analyst Peter Welford, Vaccitech’s HPV vaccine alone could generate peak sales of $925 million. If so, the stock is well valued at only $560 million.
Vaccitech’s competitive advantage lies in its deep connections with the University of Oxford. This is the prestigious university that brought us penicillin and sits at the cutting edge of science. Vaccitech has an incredible team of scientists, many of which hail from Oxford, and has several patents.
That said, there are numerous competitors in this space. Some are using mRNA technology and some are going after similar treatments like Hepatitis B. The table below lists just some of the main competitors that I found in public markets:
Although there are many competitors, it’s also telling that Vaccitech has one of the lowest market valuations in the group. This is despite being the developer behind the AstraZeneca COVID-19 vaccine.
Vaccitech’s largest shareholder is university-backed venture firm Oxford Sciences Innovation (OSI) which owns around 46% of the company. Other high profile investors include Google Ventures, the Wellcome Trust, Sequioa Capital China and Fosun.
One of OSI’s biggest investors is Braavos Capital, headed by Andre Crawford-Brunt. In an article from the Wall Street Journal Crawford-Brunt is quoted as saying “I have a very long-term view. Covid has shone a huge light on what’s actually going on at Oxford.”
Aside from these large investors, Vaccitech also has a significant amount of insider buying. Director Robin Wright purchased $238,000 worth of shares and Anne Phillips purchased $51,000 worth on may 4th at a price of $17 a share. Most of the directors also own share options.
As with my last writeup on Finch Therapeutics, Vaccitech is an early stage biotech company and therefore possesses a long list of risks. It’s worth going over the risk factors in the company’s S1 as there are too many to list here. But they include:
No approved products, minimal revenues.
Expect to incur losses for the foreseeable future.
Clinical development involves a lengthy and expensive process with an uncertain outcome.
Vaccine rollouts could be stopped or subject to additional clinical testing.
Company is a foreign ADR and has the risks that go along with it.
Notably, the biggest risk is that the company’s vaccine candidates are either unsuccessful, unprofitable or not as good as the competition.
Final Thoughts - What’s Going On Here?
Vaccitech stock represents something of a moonshot. The company needs to get vaccines approved and turn them into profitable products. There are numerous risks associated with these sorts of companies.
However, the Vaccitech platform has already been validated by the success of the AstraZeneca vaccine. The likelihood of having future epidemics and the prospects for vaccines generally are robust. Furthermore, Vaccitech has a highly regarded team with enduring ties to the University of Oxford.
Vaccitech stock has strong insider buying and high profile backing. The fact the company is new and based in the UK means coverage is relatively limited on Wall Street which is another positive.
With multiple opportunities to score their own vaccine success (not hiding in the shadows of AstraZeneca) I feel the stock has decent risk: reward while trading below $1 billion.
My main concern is the number of other competitors in this space and the time it takes to get products to market. But I’m happy to buy a small position and hold for the long-term.
Thank you for reading Unexpected Value. This newsletter relies on word of mouth. If you enjoyed this post please help spread the word!
New? Sign Up Here.
Got Feedback? Just hit reply or leave a comment
Disclosure: I am/we are long VACC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. VACC is a foreign ADR.
Additional disclosure: This post expresses the opinions of the writer and is for information, entertainment purposes only. Joe Marwood is not a registered financial advisor or certified analyst and does not purport to tell or suggest which securities customers should buy or sell for themselves. The reader agrees to assume all risk resulting from the application of any of the information provided. We strive to provide accurate data and analysis, however, mistakes and errors do occur. Financial investing is risky and not for everyone. You should not bet more than you can afford to lose. Past performance is not indicative of future results.