Vaxart (VXRT): Great Potential But Issues Remain

Isn’t it a bit unnerving that doctors call what they do “practice”?”― George Carlin

We posted our first and only take on unique vaccine developer Vaxart Inc. (NASDAQ:VXRT) in June of this year. We concluded that piece with this summary:

Vaxart is currently searching for a permanent CFO. Therefore, as intriguing as Vaxart’s pipeline might be, the investment case has to get an ‘incomplete’ at this point. This is likely a story we circle back on when more information is forthcoming.”

Given a new CFO was named this week after a long search, it is time to circle back on this small cap concern. An updated analysis follows.

Company Overview:

Vaxart, Inc. is a San Francisco headquartered clinical staged biotech concern. The company is focused on the discovery and development of oral recombinant protein vaccines based on its proprietary oral vaccine platform. The stock has slipped to just under a buck a share and sports an approximate $120 million.

The company promise and potential lies in developing oral vaccines that can be stored at room temperature, two traits that should play very well in the vaccine marketplace. Vaxart is the first company on the globe to have a Phase II clinical trial underway for an oral COVID-19 vaccine pill. The possibility of an oral room temperature-stable COVID-19 vaccine that could be easily transported and distributed around the world is quite enticing given Covid looks here to stay, much like the seasonal flu. Leadership believes its Covid-19 candidate could ‘induce immune responses that are better than with existing vaccines and can potentially target multiple variants‘.

The company is also developing a pill for norovirus and three Phase 1 studies of Vaxart’s norovirus pill vaccine showed this candidate is well tolerated as well as generating systemic and local immune responses that were both robust and persistent. This affliction is the leading cause of acute viral gastroenteritis in all age groups in the United States. There are an average of 19 to 21 million cases of acute gastroenteritis and leads to 56,000 to 71,000 hospitalizations and 570 to 800 deaths in the United States annually. This mostly effects younger children and older adults. Vaxart is also developing candidates for Influenza, RSV and HPV. Vaxart has completed Phase 1 trials for an H1N1 influenza A strain and for an influenza B strain.

Recent Developments

On Monday, Vaxart named Phillip Lee, the former CFO and Chief Operating Officer at Clover Biopharmaceuticals, as its new Chief Financial Officer. The company also brought in a new Chief Technology Officer in late August. In early September, the company disclosed that its Covid-19 candidate met the main safety and secondary immunogenicity goals in the first part of a planned two-part phase 2 trial that consisted of 66 individuals. The data showed that the candidate was safe and well-tolerated. There also were no vaccine-related grade 3 adverse events or serious adverse events reported from the trial. The vaccine candidate evaluated in this study was developed based on the viral spike protein of the original Wuhan strain of SARS-CoV-2.

In late July, Vaxart posted additional phase 1 data showing that this vaccine candidate induced long-lasting mucosal IgA antibodies against COVID-19. 46% of the subjects had a 1.5 times increase or better against SARS-CoV-2 in the nasal IgA responses. Finally, over the summer, a shareholder proposal was passed to increase the number of Vaxart shares from 150 million to 250 million.

Analyst Commentary & Balance Sheet:

The company gets little attention from Wall Street. Since our last article, Brookline Capital initiated the shares as a Buy with a $7 price target in August and Cantor Fitzgerald maintained its Overweight rating and $8 price target in early September. Finally, earlier this week, B. Riley Financial dropped its price target from $6 a share all the way down to $1.50 while maintaining a Neutral rating on the stock. The target drop reflects ‘a more conservative estimate of ramp-up of Norovirus and peak market penetration from 35% to 24%‘ according to Riley’s analyst.

Nearly 20% of the outstanding float is currently held short. The previous interim CFO purchased $16,000 worth of shares in June. A director sold $9,000 of equity in January. That is the only insider activity in the stock so far in 2022. The company ended the third quarter with nearly $115 million of cash and marketable securities. Operating expenses rose nearly 70% on a year-over-year basis in the third quarter, thanks mainly to a 80% rise in R&D costs.

Verdict:

The stock basically trades for the net cash on the balance sheet. This is in despite of the potential of Vaxart’s unique vaccine program. The problem with giving an investment in VXRT a ‘thumbs up‘ is twofold. First, it is hard to project when/if its Covid-19 vaccine pill will be approved as the timing for regulatory submissions will depend on future data as well as how COVID progresses. Although this pandemic is well on its way to being ‘endemic‘. Management has stated there will be two human challenge studies in 2023, one for norovirus, and the other for COVID-19.

The second issue is one of the first tasks of the new CFO is likely to be a substantial and likely dilutive capital raise given Vaxart’s current quarterly burn rate. My guess is this happens in the first half of next year.

Therefore, despite valuation and intriguing potential, I will continue to be on the sidelines regarding VXRT as an investment. Once the company addresses its funding needs and I have a better feel on a potential approval timeline for Vaxart’s Covid-19 candidate, I might jump into the stock at that point.

The art of medicine consists of amusing the patient while nature cures the disease.”― Voltaire

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.