On May 15, MabVax Therapeutics Holdings, Inc. (MBVX) published its corporate update and reported Q1 2015 financial results for the quarter ended March 31, 2015. The company has received a lot of attention from investors over the past couple of months, and its market capitalization has trebled since March. In the development stage biotech space, volatility is often event driven and can be speculative, so with this said, is the recent price gain supported by fundamental value, or are we just looking at excitable speculators and - if so - are we due a correction in MabVax stock? Let's take a look.
First, a quick look at recent price action.
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MabVax 3 months Feb-May (source)
As the chart shows, volume spiked mid-March and we saw a run up from just below one dollar to highs of 2.7 within the space of a week. We then saw a correction, but volume once again spiked at the beginning of April and we ran up to reach highs just short of five dollars - a 357% gain from relatively stable February levels. We have since corrected from this level, and are now trading around 2.6 - a 45% decline from highs but still a 161% gain on February levels. From a technical perspective, 3.0 flat is level to watch at the moment. We may see some resistance if we retest it to the upside, and some further decline as a result.
Now, the question is, do fundamentals support the strength we can see in the chart? Reported financials can often be misleading and somewhat irrelevant for a biotech at this stage of its pipeline, but it's worth mentioning the most recent report just so we can get an idea of where MabVax stands heading into clinical trials. Revenues totaled approximately $240,000 during the first quarter of this year, while expenses totaled $1.73 million. General administrative costs totaled $981,000, and operating loss for the quarter was $2.4 million. Cash and cash equivalents totaled $4.7 million at March 31, 2015, and subsequent to the report the company closed on approximately $6.7 million of a $12 million equity financing round, at which we will look a little bit closer shortly.
Before we take a look at any recent events, here is a quick breakdown of what the company is and what its pipeline promises. MabVax is a development stage oncology drug development company that focuses on the development of human - antibody based - products and vaccines for cancer treatment. The company's lead treatment is HuMab 5B1, with two phase 1 clinical trials scheduled to begin during the final quarter of this year according to its clinical development plan. Again, this is something we will look at in a little more detail shortly, but by way of an introduction, the first is a phase 1 trial targeted at determining safety when used to treat metastatic pancreatic cancer both as a single agent and information with current standard of care. The second aims to demonstrate the efficacy of a radiolabelled version of HuMab 5B1 for use as a PET imaging agent for diagnosis and management of the same type of cancer.
How does HuMab 5B1 work? There are two primary methods of using antibodies to kill tumor cells. The first is direct tumor cell killing, whereby an antibody binds to a tumour cell surface receptor and activates it to cause apoptosis - a sort of programmed cell death that takes place in healthy cells but not in many cancer cells.
The second is immune mediated tumor cell killing, whereby a antibody induces a response from the immune system by binding to tumor cells and effectively recruiting killer immune system cells to attack the cancer cells. HuMab 5B1 is the latter of these. The company stated in a presentation at the beginning of June, 2015 that it will be taking HuMab 5B1 by the end of this year.
The company also manages a vaccine program, within which it is developing three point vaccines targeted at sarcoma, ovarian cancer and neuroblastoma. Polyvalent vaccines work by hunting down circulating tumor cells in a patient, as well as micrometastases (tumor cells that too small to detect but that can lead to metastasis over time) and killing them before they lead to recurrence.
In a recent presentation, the company outlined the vaccination program. The company kicked off the program with a randomized, double blind phase II trial of 136 patients at 13 sites for its Sarcoma vaccine. Currently the patients are vaccinated, and MabVax is monitoring candidates towards an endpoint of Overall Survival (reportedly the endpoint insisted upon by the FDA). The commercial opportunity for this vaccine is approximately $200 million to $300 million annually in the US.
Also ongoing is the ovarian vaccine. A benefit of this program is that the National Cancer Institute funded the entire program - no capital came from MabVax resources - yet the asset remains 100% owned by MabVax. The status of the trial is similar to that of the sarcoma trial - with 164 patients already vaccinated across 20 sites in a double blind phase II trial, currently being monitored by MabVax for progression free and overall survival. The commercial opportunity for this vaccine is approximately $200 million to $400 million annually in the US.
The third and final arm of the company's vaccine program is targeted at neuroblastoma in children. neuroblastomae are the second leading cause of cancer death in children, with a standard of care relapse rate of 40% - 60% across a twelve month period and high toxicities in current treatments.
The company recently announced results turned in by Sloane Kettering that reported some promising initial results in a phase 1 trial. Of fifteen second remission patients (highlight here on the fact that these are second remission and, as such, have very poor prognoses) twelve treated with the vaccine are alive at between 29-40 months post treatment, and all tolerated the treatment well. The FDA granted this treatment orphan status in 2014, and MabVax intends to launch a phase II study by 2H2015.
So what has been behind the market movements we have seen over the last few months? There have been a number of press releases and media reports associated with the company, but as far as this author can tell, three primary factors have influenced market movements.
The first was the February 26, 2015 announcement that S&P Capital IQ - a division of McGraw-Hill (MHFI) - had initiated coverage on MabVax. In its reports, S&P Capital IQ assigns a number of quantitative evaluation values to a company - one of which is a relative strength rank, defined in the companies evaluation glossary as:
"(sic) showing, on a scale of 1 (lowest) to 99 (highest), how the stock has performed, as compared with all other companies in Standard & Poor's universe of companies on a rolling 13-week basis."
As a relative strength rank, MabVax scored 72, classed as "strong" according to the report. The initiation of this coverage alongside the awarding of a strong relative strength rank by S&P to MabVax likely translated to some increased investor attention - driving the spike in volume we saw that led to the bullish momentum in the company's stock. You can read the report here.
Next up, on April 6, 2015, the company announced the closing of a financing round that grossed approximately $11.6 million. This, in itself, should have been enough to boost MabVax stock, but alongside the announcement (and perhaps more pertinent longer-term) we learned that OPKO Health, Inc. (OPK) and Dr. Phillip Frost, CEO and Chairman of OPKO Health led the round. This is a very big deal for MabVax. Most reading this will likely be familiar with Frost, but for those that aren't, he is the billionaire biotech investor that made his fortune selling Ivax to generic drugmaker Teva Pharmaceutical Industries for $7.4 billion back in 2006, and then serving as the vice chairman and chairman of the board for the latter. He currently has active investment positions in a number of organizations across a spectrum of industries, and brings both an element of financial security (it is unlikely Frost will allow MabVax to fail through lack of financial support anytime soon) and managerial experience to the table.
The third key announcement came on May 5, 2015. MabVax reported that HuMab 5B1 and successfully played important early toxicology testing, and that plans to begin phase 1 trial for metastatic pancreatic cancer remain in place. The toxicology report highlighted the fact that regardless of whether giving as single dose or repeated doses, the antibody had no significant adverse findings, even at the higher end of the dosage. On the face of it, this sounds like pretty minimalistic news - especially as far as gaining any insight into whether the treatment will receive approval or not is concerned. However, as late, we have seen a number of instances in which a treatment has received FDA approval despite not demonstrating a huge amount of efficacy, instances in which it seems the FDA has overlooked the efficacy in favor of the potential benefits as - with toxicology low - the risk of approving such drugs is almost non-existent.
As a side note, and referring to something mentioned earlier in this article, MabVax is also aiming to trial HuMab 5B1 as a PET imaging agent for Pancreatic Cancer, with the trial running concurrently to that for the antibody as a treatment. At a glance, one could be forgiven for thinking that this second trial is also lower priority than the first. After all, surely there is more money to be made treating pancreatic cancer than diagnosing it? Well, not yes and no. The antibody is specific to a pancreatic cancer antigen, and - as recommended by the vice-chair of radiology at Sloan-Kettering, Dr Jason Lewis, the second trial targets this thesis. If the trials are successful, MabVax could gain a decent portion of what analysts estimate to be a close to $500 million market in the US. Importantly, it means that - even if HuMab 5B1 fails as a candidate for the treatment of pancreatic cancer, MabVax could still generate revenues through its PET application.
All this aside, it is important to mention the risks. Those familiar with the space will be all too aware that the vast majority of development stage biotech products - and indeed, development stage biotech companies - fail. While Frost's involvement eliminates a certain amount of risk with regards to funding, the average cost from inception through to approval to a drug company for getting a drug approved and to market is around $5 billion, and further funding sources and funding rounds will be required in the coming years. If MabVax fails on either of these counts, or if HuMab 5B1 fails in either of its application trials, its pipeline is likely not strong enough - in terms of a potential secondary candidate receiving approval before the company runs out of money - to maintain ongoing concern status.
Essentially, we are looking at a young company with an antibody that has the potential to be applied to two different, but lucrative markets. However, there is a long way to go before the company can generate any sort of substantial revenue from either, and early-stage investors must be aware that market valuation of MabVax over the coming few years could swing considerably and will be driven by trial outcomes, not sales. The company's vaccine program looks robust, and early indications are positive, but all too often positive indications change as trials are scaled up, and so they should not form the basis of an investment by themselves.
From a balance sheet perspective, MabVax reported $4.7 million cash as of March 31, 2015, and a burn rate of a little over $2.1 million per quarter. This gives the company until the end of 2015 before it needs to raise capital. Investors should be aware that the raising of this capital will likely involve share issuance and, in turn, dilution of current holdings.
So what about the initial question? Is the recent upswing in MabVax's valuation warranted, and do the fundamentals support this strength? This author believes so. We may be set for a short-term continuation of the correction we have seen over the last week or so, but the biotech space as a whole is currently undergoing a corrective phase, and when things turn around (many reading this will likely question my use of the word when and suggest that if might be more appropriate), MabVax could benefit from further upside. With the latest toxicology reports completed and accounted for, all eyes should now be on the approach to the trials at the end of the year, and on the press releases that address the company's financial situation. If MabVax can continue to fund it burn rate over the coming couple of quarters, it is reasonable to conclude that it's valuation will likely increase before we hit trials.
