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Investment Thesis
Vaxart (NASDAQ:VXRT) is an oral vaccine pioneer, whose big moment seemingly arrived back in mid-2020 at the height of the pandemic panic, when the first approved COVID vaccines were still six months away from releasing pivotal trial data.
The Trump administration had created Operation Warp Speed (“OWS”) to pour funding into companies that showed promise in the race to develop a successful vaccine against SARS-Cov-2 – Moderna (MRNA) and Novavax (NVAX) were awarded ~$2.5bn each, for example – and in July 2020 Vaxart’s share price surged from $2, to $16 on news its oral candidate would also join the program.
The “news” was inaccurate – Vaxart had been selected to enter a non-human primate study organised by OWS, not the program itself – and as I wrote in a note back in September 2020:
This turn of events allowed Vaxart’s one-time majority shareholder Armistice Capital to reportedly make a $200m profit selling shares and warrants – that it was able to exercise at prices of $0.30 and $1.10 – in bulk, in June and July, offloading nearly its entire holding in the company.
This may even have been facilitated by Vaxart – whose newly appointed CEO and President Andrei Floroiu had a prior working relationship with Armistice – changing the terms of the warrants in the weeks prior to the sales.
Andrei Floroiu remains at Vaxart, serving as the company’s President and Chief Executive Officer, working alongside Chief Scientific Officer Dr. Sean Tucker, who founded Vaxart back in 2004. The company joined the Nasdaq in 2017.
Vaxart continues to work on an oral COVID vaccine targeting the Spike protein, and recently released preliminary Phase 2 study data, which I will discuss below. There are also Norovirus, seasonal influenza and influenza, RSV, and HPV vaccine candidates in the company’s pipeline.
Vaxart stock probably never justified its peak share price of $16, and after experiencing significant volatility in 2021 – spiking >$10 in January and April – investors have not had much to cheer in 2022, as the share price has halved in value, from $6, to $3 at the time of writing.
It’s hard to question the value of an effective oral vaccine for infectious disease such as COVID and flu – Vaxart has made the case that it would be easier to distribute, cheaper to manufacture, and more palatable for needle-averse patients – which is why the company remains an intriguing investment opportunity.
In this post I will briefly discuss Vaxart’s history and progress in the clinic, updating on the Phase 2 COVID vaccine data, try to assess whether there is a genuine prospect of one of the company’s oral vaccines making it to market, and highlight some potential upcoming catalysts that could put Vaxart back in the spotlight, and send its stock price soaring once again.
Vaxart is a highly speculative opportunity, and I cannot give the company a BUY recommendation, but for anybody who can afford to lose most of their investment, there is always a chance that Vaxart will find a way to persuade a sceptical market that its approach is as valid and effective as that of an injectable vaccine, or find a way to improve its product so that it is more comparable to an injectable.
Do that, and Vaxart stock would finally be worth $16 per share, and quite possibly, substantially more.
Vaxart’s COVID Vaccines Meet Phase 1 & 2 Study Endpoints – But The Market Isn’t Buying Mucosal Immunity
A Phase 1 clinical trial of Vaxart’s first COVID vaccine candidate – VXA-CoV2-1 – met both primary and secondary endpoints back in February 2021, but was critiqued since the vaccine failed to generate neutralising antibodies, considered to be the most important line of defence against the virus, and substantially generated by all of the approved COVID vaccines to date.
Vaxart countered that T-cell responses were noted in 75% of patients in the trial – superior to Moderna and Pfizer’s (PFE) all-conquering messenger-RNA vaccines – and, in a White Paper, that “oral vaccines induce an IgA response in the GI and respiratory tracts” which may be as effective as generating IgG responses in the blood. This is known as “mucosal immunity”, and in a recent investor presentation, Vaxart suggests that the:
Cross-reactive nature of mucosal IgA response increases likelihood of variant coverage.
This first COVID vaccine targeted both S and N proteins, however Vaxart subsequently decided to continue development with a new candidate – VXA-CoV2-1.1-S – that targeted only the S, or “Spike” protein, as most injectable COVID vaccines do.
This candidate entered a Phase 2 study in October 2021, supposedly enrolling up to 896 participants in total, although so far, only the Part 1 element of the study is underway, enrolling just 48 participants aged 18 – 55, and 48 aged 56 – 75. This is due to difficulties finding vaccine naive individuals – half of the study also includes patients who have been double vaccinated with an MRNA vaccine, to test the ability of VXA-CoV2-1.1-S to act as a booster dose.
The initial data from this Phase 2 trial was released last week – once again primary safety and secondary immunogenicity endpoints were met, and importantly, according to a press release, the vaccine:
Boosted serum neutralizing antibodies in both naive and previously mRNA vaccinated subjects.
and
Elicited cross-reactive mucosal responses in approximately 50% of subjects.
Vaxart claimed the data represented a major breakthrough, with Dr Tucker commenting as follows:
The results reported today clearly indicate that the S-only construct improved antibody responses compared with the data we previously generated for the S+N construct (VXA-CoV2-1), and also boosted immune responses in subjects who previously received an mRNA vaccine. These are the critical data we sought when this trial was initiated in October 2021.
The market scarcely reacted to the news however, and in fact Vaxart’s share price has slipped from $3.15 on 1st September when the results were announced, to $2.85 at the time of writing.
The key question may revolve around the extent to which the vaccine generated neutralising antibodies in serum. Vaxart mentions an increase of 1.2 – 2x between day 1 and day 57. For context, Moderna’s first booster shot tested in December 2021 generated a 37x increase in neutralising antibodies, so perhaps it is not surprising that the market remains lukewarm on Vaxart’s latest data.
Another issue is the cross reactive mucosal responses. Whilst that may indicate that the vaccine can tackle a wider range of COVID variants, this candidate targets the original “Wuhan” strain of the virus, as opposed to Omicron. Vaxart does have a third vaccine targeting Omicron, but it has not yet entered the clinic.
The conclusion therefore may be that VXA-CoV2-1.1-S is safe and does have some mild efficacy, but apparently not nearly enough to compete with the incumbent MRNA vaccines. Plus it has not yet been developed to deal with the Omicron strain, although the cross-reactivity of IgA mucosal responses may prove to be more adaptable against new strains than injectable vaccines.
The latter statement is potentially contentious, however. According to Vaxart, VXA-CoV2-1.1-S has been shown in non-human primate studies to stimulate IgG serum antibody responses against the delta, alpha, gamma and omicron variants of COVID, and these are described by management as “much higher” than in the first vaccine.
That is not saying much, however, since the original vaccine failed to generate any IgG response. The reality still seems to be that Vaxart’s pill works best when generating immunity around the nose, lungs, intestine and mouth, which management interprets as “potentially providing broader and longer protection against viruses and a reduction in their transmission.”
Approved MRNA vaccines generate a much poorer level of mucosal immunity, and there is no shortage of research online suggesting that mucosal immunity can be an effective way to protect against infection. As such it is hard to pinpoint why exactly there has been so little effort on the part of the pharmaceutical industry to develop oral or even nasal spray style vaccines.
It may simply come down to the fact that levels of mucosal immunity are hard to decipher and measure, and that neutralising antibodies are most highly correlated with protection against infection. On its own, it seems highly unlikely that Vaxart will persuade the scientific community otherwise.
Vaxart’s ex-COVID Pipeline Suffers From The Same Weakness
When we consider the rest of Vaxart’s platform we come across the same problem – mucosal immunity is promising, but not a substitute for neutralising antibodies in the market’s eyes.
In influenza – a $5bn US market where vaccine doses cost ~$65 per shot – Vaxart previously showed in a study funded by the Biomedical Advanced Research and Development Authority (“BARDA”) that illness rates were 39% lower in those taking Vaxart’s oral candidate, versus 27% lower in those vaccinated with Sanofi’s standard of care Fluzone.
Vaxart said that it:
… presented data from the study demonstrating that our vaccine elicited a significant expansion of mucosal homing receptor plasmablasts to approximately 60% of all activated B cells. We believe these mucosal plasmablasts are a key indicator of a protective mucosal immune response and a unique feature of our vaccines.
The study was completed in 2018, however, and clearly the company lacks either the funding, the conviction, or the partner to move this project forward. Once again, this may be put down to a rejection of the mucosal immunity thesis. The fact that BARDA is no longer interested in funding research appears to be a significant red flag.
It seems to be the same story with Norovirus – a $10bn opportunity, management estimates. The company resumed its Phase 1b study in subjects aged 55 – 80 in 2021 and published data in June this year, reporting:
Robust immune response across all doses, with a dose dependent IgA ASC response.
There is a Phase 2 trial underway in the form of a challenge study designed to evaluate safety, immunogenicity and clinical efficacy of a norovirus GI.1 vaccine compared to a placebo control, and another planned, to evaluate the safety and immunogenicity of a bivalent vaccine. The data from these two studies will be used to try to persuade the FDA to authorise a pivotal Phase 3 study. This at least is a potentially interesting catalyst, but if Vaxart once again pushes the mucosal IgA thesis, will the FDA listen?
Meanwhile, RSV and HPV vaccines have been developed and tested, but Vaxart is not prioritising their development, apparently, likely due to a lack of funds.
Conclusion – The Market Isn’t Buying What Vaxart Is Selling – Somehow That Needs To Change
To summarise, I find Vaxart an intriguing company developing a product that has clear and obvious benefits. An oral vaccine is more easily manufactured, distributed, and marketed than an injectable one.
The reality seems to be however that Vaxart is unable to design an oral vaccine that can deliver the same type of immunity that injectables can, and despite there being plenty of evidence to suggest that mucosal immunity offers valuable protection against infection, Vaxart is unable to persuade the relevant authorities that its product may be approvable in its current form.
In my view, what may be needed from Vaxart is a larger trial, that perhaps pitches either its COVID or its norovirus candidate against a rival head-to-head, where there is real and actionable data in play, such as a measure of efficacy similar to that used when approving the Pfizer and Moderna vaccines.
Vaxart – which reported a net loss of $54m across the first six months of 2022, and near term assets of ~$130m, won’t be able to afford to conduct such a trial, however, which seems to be the only way to demonstrate that mucosal immunity can be as effective as neutralising antibodies. There may still be a lucrative gap in a private COVID vaccine market to exploit.
Vaxart urgently needs a partner to assist with funding, and I do find it surprising that there is not a single pharmaceutical company out there willing to work with an oral vaccine developer. In fairness, Vaxart has conducted preclinical studies of a “non-GMP oral vaccine candidate containing certain proprietary antigens” from Janssen, Johnson & Johnson’s (JNJ) drug development subsidiary, but like many of Vaxart’s projects, this seems to have reached an impasse.
To conclude, although I don’t find the outlook for Vaxart encouraging – chiefly because the company is attempting to push a thesis that the market does not seem to be interested in – all it would take for the company’s share price to take flight would be, for example, further validation of the mucosal immunity thesis, perhaps triggering a lucrative partnership with a Big Pharma, or even an M&A deal. Or, a genuinely positive trial result – perhaps in norovirus, triggering a pivotal trial and a tacit acceptance from the agency that it endorses Vaxart’s approach.
At present I do not consider the chances of either of these things happening to be high enough to warrant an investment in Vaxart, and the company cannot simply continue to produce the same vaccines with the same mechanism of action and simply hope that something changes before it runs out of funding.
Vaxart rightly refers to itself as a global leader in oral vaccine technology, and announcing its Phase 2 Covid results last week, Chief Medical Officer James Cummings declared:
We believe that activating multiple mechanisms of the immune system that can address emerging variants may help the global community get ahead of the immunologic curve of protection. It could transform how we fight this and future pandemics.
That does not seem to be a completely outlandish statement, but Vaxart either needs to find a way to be more persuasive, or adjust its approach so that its products present a safety and efficacy profile that is more comparable to injectables.
I don’t quite understand why there is so little interest in Vaxart’s approach, but I suspect the onus may be on the company to change it, rather than wait for the market to change its own mind.
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