Description

PDS Biotechnology (PDSB)

This small biotech company (~$175 million market cap) has a proprietary T-cell activating platform technology called Versamune^® that is designed to train the immune system to better protect and fight against disease. It has broad applicability from cancer immunotherapy to infectious disease.

Like most public biotechs, the company’s stock has been decimated by the recent drawdown in the sector (from $17 per share at highs in Q3 2021 to $6.20 per share today), yet there has been no bad news to warrant this sell off for PDSB. In fact, the news has been distinctly positive; for their lead therapy PDS0101 for HPV16+ cancers, as part of a triple combination regimen, they have shown data far surpassing the standard of care or any other drugs in development, and they just recently reached an efficacy benchmark to expand their checkpoint inhibitor combination study because the efficacy is already better than checkpoint inhibitors alone. For context, checkpoint inhibitors are currently a > $25 Billion revenue category and any drug platform that can synergistically enhance them safely across multiple indications could have megablockbuster revenues.

PDS biotech also has a number of positive value inflection opportunities beyond their most advanced cancer asset; a universal flu vaccine that is ready for clinical development, a covid vaccine that could be in a Phase 1 trial in Brazil any day, and two further oncology applications of Versamune^®  for larger market indications beyond HPV16+ cancers (PDS0102 and PDS0103) that are due to enter the clinic in the second half of 2022.

Background

At a price per share of $6.20, PDSB has a market cap of ~$175 million. They have cash on hand of $70 million as of Sep 30, 2021, and no debt.  Patent life for their lead assets goes beyond 2034. The company has been good at doing most of their studies with external collaborators, so as not to incur a high burn rate (burn rate of $7 million as of Q3 2021).  They have full ownership or negligible cost licenses to all their assets.

An overview of their therapeutic pipeline and the current trials in progress follows.

Source: PDSB Corporate Presentation

VERSATILE-002 (Keytruda® combo) is the only study solely funded by PDSB, although they receive Keytruda® drug product from Merck for free. All three of the PDS0101 trials shown above should have data reported in the next 6 months, which should be value inflection points (much of this most likely at the ASCO conference in June). PDSB also has two infectious disease programs for a covid vaccine and universal flu vaccine (not shown above).

Versamune® Platform Primer

PDS0101 is a lipid nanoparticle formulation loaded with a HPV16+ cancer antigen, which in essence acts like a cancer vaccine. PDS0102 and PDS0103 are similar lipid nanoparticle formulations loaded with other cancer antigens for TARP and MUC1 respectively. All three products have been shown to induce a potent CD8+ killer t-cell response and the generation of memory t-cells to allow for lasting immunological effects in preclinical studies, and PDS0101 has so far shown a growing body of clinical evidence supporting robust clinical benefits in humans.

The PDS biotech CEO Frank Bedu-Addo often uses warlike analogies for the body’s fight against cancer, to describe how PDS0101 works. An effective t-cell based immunotherapy for cancer must 1) decamouflage the tumor by stripping natural immune defenses, 2) create very potent, tumor-specific killer t-cells, and 3) recruit a large army of these t-cells to overwhelm the tumor’s defenses and result in deep responses.  If any of those aspects are missing, the immunotherapy will not able to have a significant impact on the tumor.  Many immunotherapies in development are able to recruit a large number of t-cells, but are not targeted enough, or vise versa. Checkpoint inhibitors are focused mainly on decamouflaging the tumor, so that the immune system can see it and attack it. What is exciting about PDS0101 is its ability to both generate potent tumor-specific t-cells, and recruit a large army of them. Thus, in combination with checkpoint inhibitors, PDS0101 may have a significant opportunity to generate deep, durable responses to therapy where others have failed.

By necessity, this description is an oversimplification given the complexities of the immune system and immunotherapy. A more detailed overview of the science can be found at this investor R&D day presentation from June 2021.  https://www.youtube.com/watch?v=UboRPIqpT-s

Clinical Data to Date

PDS0101’s most advanced trial is a Phase 2 study in HPV16+ cancers where it is being studied with two other agents, both owned by Merck KGaA (known as EMD Serono in North America). The first agent, Bintrafusp Alfa, is a bi-functional fusion protein (Anti-PDl1 and TGFBeta) that has shown 30% response rates in checkpoint inhibitor naïve HPV patients, and low grade toxicity (typical checkpoint inhibitor adverse events plus some mucosal bleeding and hyperkeratotic lesions). The second agent, NHS IL-12, is an immunocytokine, with some stable disease but no responses in these patients. NHS IL-12 induces flu-like symptoms in about 50% of patients and can elevate liver enzymes. In a small monotherapy study, PDS0101 has shown some disease stabilization and excellent tolerability, with only injection site reactions. Preclinical data showed that the combination of these three agents showed dramatic increases in tumor-specific killer t-cells.

The slide above summarizes the survival data from this triple combo study to date, showing improved survival in metastatic HPV16+ patients, well above other historical studies.  The majority of the 37 study patients are checkpoint inhibitor refractory patients, which have a typical survival of 3-4 months, whereas the overall survival in the study patients is already beyond 12 months (not final results).

This next chart shows a particularly important finding from this study; seven patients were enrolled that were not HPV16+, and none of these patients generated responses to therapy. Since PDS0101 is the targeted element of the triple combination, and will only work for HPV16+ patients, this may give a clue to what kind of outcomes these very advanced patients would have if the other two therapies were given without PDS0101. This demonstrates that PDS0101 is likely the most important element of the triple combo, and should be valued accordingly, especially since checkpoint inhibitors are so prolific.

In terms of safety, the triple combination looks to be tolerable relative to many cancer therapies, but it could be better. There were a number of grade 3 treatment emergent adverse events (40%) including transient liver enzyme elevations and a grade 4 neutropenia, for example. Based on clinical studies done on the individual components, these are likely attributable to the non-PDS components—in monotherapy these side effects were seen with the other agents, whereas PDS0101 has a very clean safety profile on a standalone basis.

While these side effects will certainly be acceptable as a commercial product if the efficacy results hold (survival is the ultimate criteria, especially for this very high unmet need population), combinations with a single checkpoint may be a more attractive alternative for PDSB because the tolerability profile may be better than the triple combination. Also, since Keytruda (leading checkpoint inhibitor) is already approved in some HPV16+ patient populations, adding PDS0101 could be a more straightforward development path.

Which brings us to the second most advanced study, called VERSATILE-002, which is a phase 2 study of the combination of Keytruda and PDS0101.  We have not seen any detailed data from this study, but there have been three important developments that portend potential positive outcomes.

1.      The initial gating safety criteria was met for the study to continue in September 2021.

2.      Recently in February, PDSB announced they met the initial efficacy criteria threshold of 4/17 responses that is required to expand study enrollment in the checkpoint inhibitor naïve population.

3.      A new study was just opened at the Mayo clinic in oropharyngeal HPV+ non-metastatic cancer. This is likely because investigators are seeing promising results in other studies and want to broaden the population that can benefit. Indeed, two of the investigators at Mayo, Drs. Chintakuntlawar and Katharine Price are affiliated with VERSATILE-002 and will be presenting some safety data from VERSATILE-002 in late February.

Point 2 above is particularly significant, because it means so far the results are trending better than checkpoint inhibitor alone (which typically show ~15-20% response rates), and there could be more patients that generate responses as the trial goes on. While the press release for this development reads like an innocuous procedural milestone, this has profound implications, given that it is another important validation that PDS0101 is contributing to efficacy beyond the triple combination study.  VERSATILE-002 evaluates “best overall response”, so patients who have any response in the first 6 months of therapy that is subsequently confirmed by another scan will be included as responders. It is possible some of these patients haven’t even had a second scan, or could generate responses later as tumor reductions deepen, a pattern more typical with immunotherapy than with chemotherapy, and thus the response rate could ultimately be much higher than the efficacy threshold suggests.

The efficacy signal also lends credence to the Versamune^® platform overall, and thus the probability of success of PDS0102 and PDS0103, both of which are very large indications. One would think the platform value would increase substantially on this news, especially considering the significant amount of preclinical and now clinical data supporting Versamune^®, but the market has not attributed any real platform value to the company.

Market Opportunity

PDS0101

There are ~40,000 patients diagnosed with HPV16 positive cancers every year (about 80% of head and neck, penile, vaginal and cervical cancers), and existing immunotherapies typically cost $150k per patient. Currently, about 80% of patients who are using checkpoint inhibitors in this indication do not respond to therapy, so there remains a significant unmet need. With 10,000 patients treated with PDS0101 at this price, it would be a $1.5 billion peak sales opportunity, but it is possible this would be split amongst the triple combination drugs, assuming only the triple combination comes to market. If so, given PDS0101’s high relative contribution, $750 million peak sales attribution to PDSB is a reasonable estimate. It is also possible that a cleaner PDS0101 / checkpoint doublet makes it to market in addition, or lieu of, the triple combo, improving the peak sales potential for PDSB.

Typically, biotech companies are valued at about 2x-5x peak sales when they are first launching an approved product. Thus, if PDS0101 is successful in a large pivotal trial and gains regulatory approval, several years from now the market could attribute $1.5 billion to $3.75 billion in value to PDS0101 alone. “Several years” may seem far away but there are many opportunities for value inflection this year including readouts from the triple combo, VERSATILE-002 and MD Anderson trials, as well as potential partnerships around PDS0101 and other pipeline products.

PDS0102

PDS0102 is targeting TARP, which is expressed in about 85% of prostate cancers (~145k patients), and also 50% of breast cancers (~135k patients).  If PDSB can improve therapy in these patients it represents a multi-billion dollar peak sales opportunity. The TARP antigen has already been validated, however PDS0102 uses 2 longer peptides that may provide superior induction of TARP specific t-cells when used as part of the Versamune^® formulation. They will be developing PDS0102 as a monotherapy as well as in combination with other therapies in cancer.

PDS0103

PDS0103 is targeting MUC1 expressing cancers. MUC1 is highly expressed in nasopharygeal, stomach, colon and many other cancers, and represents an even larger total market opportunity than TARP.

PDS0202

PDS0202 is a universal flu vaccine program that has completed preclinical development. It is likely that the company will partner this program out given the scale and cost of studies needed to move it forward. There is a fair amount of competition and despite the positive preclinical data we’ve seen to date, it is hard to handicap this asset’s value versus other programs. Nevertheless, it could act like a call option offering the company non-dilutive funding.

PDS0203

PDS0203 is a covid vaccine program that has been stalled for a while in Brazil, likely because of manufacturing readiness issues. They may begin a phase 1 / 2 study this year. Although the world now has many Covid vaccines on the market or in later stages of development, one interesting feature of PDS0203 is the fact that it doesn't focus as much on the covid spike protein, and thus may offer an alternative that is more mutation-resistant than other first generation vaccines. This program is being paid for by the Brazilian government and a consortium in Brazil. Given the challenges with getting this study up and running, political risks, and the fact that they are so behind schedule, it is not worth attributing value to this program, but in the unlikely event that the program does move forward, and the mutation-resistant thesis proves out, it could prove to be extremely valuable. 

Competition

Competition is probably the greatest risk to PDSB, even though the PDS0101 triple combo has the best clinical data we have seen to date for these patients. Biotech is fairly crowded in oncology and HPV16+ cancers encompasses quite a few cancer types (Head & Neck, Cervical, Vaginal, Oropharygeal, Penile), so there are many companies trying to address the unmet needs among the individual cancer types. I have outlined a few potential competitors that are relevant below, but this is not an exhaustive list, and new data may emerge that brings additional competitors to light. It is important to note that even if competition emerges in one or more of these cancer types, PDS0101 may still have a market in other HPV16+ cancers, or PDS0102 with TARP and PDS0103 with MUC1, which are much larger populations.

ISA Pharma (Private) has a similar vaccine construct targeting HPV16+ cancers, and in one study combined with the checkpoint inhibitor nivolumab showed a 33% response rate. Although hard to prove because there are no comparative studies, preclinical data may indicate that killer t-cell responses may not be as strong with ISA101 versus PDS0101. In the ISA101 / nivolumab study, they allowed 1^st line patients, and it wasn’t studied in checkpoint inhibitor refractory patients, so the PDS0101 triple combination study was done in a much more advanced population, and yet the triple combination with PDS0101 achieved double the response rates of the ISA101-nivolumab combination study.

Hookipa Pharma (HOOK) is also developing therapeutic vaccines for HPV16+.  They have been able to generate a very high killer t-cell response, but their clinical response data has not been as encouraging (10% response rate in 28 patients). It is possible their antigen presentation and immune induction is not as effective as PDS0101, so their t-cells are not targeted enough to the tumor despite their proliferation.  They also have a 40% grade 3 adverse event rate, which could make further combinations to enhance efficacy difficult. The patient population in their study had many lines of therapy, which makes it is hard to make comparisons with PDS0101, so they shouldn’t be counted out of the running yet. They have a larger head and neck cancer readout later this year, as well as a Keytruda combination study that is getting underway.

Another company developing therapies for head and neck cancer is Merus Pharma (MRUS). In October of last year they released data from a small number of patients (n=7) that showed tumor reduction in all patients and objective responses in 3 of them.  The patients are “advanced” with a median of 2 lines of treatment but it is not clear if they are at all as severe as the PDS0101 triple combination study.  The Merus therapy is a completely different modality (a bispecific antibody that targets the Wnt pathway receptor Lgr5 and EGFR). It is possible it could be used in combination with PDS0101 if results remain robust and if relatively tolerable.

Other Risks

Besides competitive risks, as with any biotech company, there are the risks of clinical trial failure, safety issues coming up, and dilutive capital raises.

Given the number of patients treated to date, the very benign monotherapy safety profile, and the nature of the lipid nanoparticle formulation, safety risks are quite low for PDS0101. Dilutive capital raises are usually necessary with early stage biotechs, but PDSB has a strong clinical data footing, a low burn rate, and the potential for many non-dilutive partnerships to help them avoid toxic financing. Options include licensing out PDS0202 (the universal flu vaccine), licensing out either PDS0102 or PDS0103, or doing a partnership around PDS0101 in one or more geographies.

So what is the market missing?

-          Biotechs have been hammered by a historic drawdown in the last year, and quite a few “babies have been thrown out with the bathwater”, with many small and mid cap names that have had no negative developments selling off 50-80%. Unlike many of its peers, PDSB has quality data, and a variety of shots on goal, and so is more likely to draw investor and partner interest when the biotech market recovers.

-          After a period of mostly unsuccessful development of cancer vaccines several years ago, investors have discounted the value of cancer vaccine developers relative to sexy new scientific targets (which ironically are higher risk). This period of unsuccessful cancer vaccine development was before checkpoint inhibitors which could be required to decamouflage the tumor, and the immunotherapy vaccine field has evolved considerably since then. In fact, if the early efficacy results hold, these therapeutic vaccines have great promise in extending lives because they could have lower side effects and long durability of responses. So no matter what investors peculiar tastes of the day are, if PDS0101 dramatically extends people’s lives, the company will eventually be valued commensurate to other life-extending therapies.

-          When meeting the efficacy criteria for expansion of the Keytruda trial, the stock didn’t move, and only recently has shown modest appreciation. It may be because any data release is being used as a liquidity event by investors, but this lack of market reaction in a bear market could be a significant opportunity. 4/17 responses (the efficacy threshold) is better than the response rate of Keytruda monotherapy in this population, but more importantly, the response rate is only likely to get better as people are on therapy longer and responses deepen. We also don’t know if all 17 patients were even considered for the efficacy benchmark at that time. This is yet another validation of their science, and has a read through to other programs like PDS0102 and PDS0103. It is possible the expansion efficacy criteria in the refractory population is met soon (another arm of the trial), which might wake the market up and result in a more appropriate value inflection.

Final Thoughts

PDSB is a down and out stock, in an unloved sector, with a shunned technology type, and yet they are showing robust data that could mean they help dramatically extend survival in HPV16+ cancer patients better than any other company. I am betting the market will recognize its error, and the tide will turn in dramatic fashion when more data solidifies PDSB’s position. PDSB’s success in HPV16+ cancers could also open up huge multi-billion dollar indications with PDS0102 and PDS0103, turning PDSB into a biotech powerhouse over the next decade.

Disclaimer: The information contained herein reflects the views of the author as of the date of publication. These views are subject to change without notice at any time subsequent to the date of issue. The author has an economic interest in the price movement of the securities discussed in this presentation, but the author’s economic interest is subject to change without notice. All information provided in this presentation is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any data presented. In addition, there can be no guarantee that any projection, forecast or opinion in this presentation will be realized. All trade names, trademarks, service marks, and logos herein are the property of their respective owners who retain all proprietary rights over their use. This presentation is confidential and may not be reproduced without prior written permission from the author.

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