GRTS - Gritstone bio: Looking For Validation In 2024

2024-01-03 06:07:32 ET

Summary

• Gritstone bio's strength lies in its best-in-class antigen prediction driven by its proprietary AI platform called EDGE.
• The company employs next-generation vectors, including ChAd and samRNA, to induce strong and durable immune responses.
• Gritstone is collaborating with Gilead for a vaccine-based immunotherapy for HIV, with a deal value reaching up to $785M.

Gritstone bio's (GRTS) strength lies in its best-in-class antigen prediction, driven by a proprietary artificial intelligence ((AI)) platform called EDGE. This platform enables the identification of critical T-cell targets, a key component in the design of novel vaccine formats. Additionally, Gritstone employs next-generation vectors, including ChAd and self-amplifying mRNA (samRNA), to induce strong and durable immune responses suited to various clinical contexts. Notably, Gritstone was the pioneer in introducing samRNA into clinical trials back in 2018.

In my first Gritstone bio article , I discussed my bull thesis which is centered on the company's method and the ticker's discounted valuation.

Background On Gritstone

Gritstone bio is a biotech company with a distinctive focus on advancing immunotherapies. Gritstone's strength lies in its best-in-class antigen prediction, driven by a proprietary artificial intelligence ((AI)) platform called EDGE. This platform enables the identification of critical T-cell targets, a key component in the design of novel vaccine formats. Additionally, Gritstone employs next-gen vectors, including ChAd and samRNA, to trigger robust and durable immune responses appropriate to several clinical circumstances. Notably, Gritstone was the pioneer in introducing samRNA into clinical trials back in 2018.

The company's goal is to unleash the formidable power of the immune system against cancer and infectious diseases. This is accomplished using Gritstone's precision medicine approach with the identification and targeting of tumor-specific neoantigens and strategic integration of AI into its platform . This method creates a synergy that propels its endeavors in predicting and prioritizing neoantigens, thus enabling the development of personalized cancer vaccines and immunotherapies.

Gritstone is also working in collaboration with Gilead (GILD) for a vaccine-based immunotherapy for HIV with a deal value reaching up to $785M, inclusive of royalties. The partnership capitalizes on Gritstone's adenoviral and samRNA vaccine platform technologies, supported by promising preclinical data highlighting robust anti-SIV CD8+ T-cell reactions and persistent T-cell memory. Gilead is actively engaged in a Phase I study and holds responsibility for all research and development aspects. The agreement outlines an upfront payment of $60M, with possible milestones amounting to $725M tied to clinical, regulatory, and commercial achievements. Furthermore, Gilead is obligated to make a $40M milestone payment for Phase II opt-in. The terms of the arrangement also stipulate mid-single-digit to low double-digit tiered royalties on net sales post-commercialization. This collaboration underscores a strategic initiative to advance HIV treatment through innovative vaccine approaches, with substantial financial incentives tied to developmental milestones and commercial success.

Recent Updates

In the company's recent earnings report , Gritstone highlighted their progress in the CORAL program, which combines samRNA with unique B and T cell targets. The recent data highlights Gritstone's samRNA-based approach to yield sustained extraordinary neutralizing antibody responses and T cell activation observed across Phase I studies. Not only did the data show the vaccine's potential for long-lasting defense against COVID-19, but it also suggests it is a frontrunner in the next-gen COVID-19 vaccine race.

Moreover, Gritstone was awarded a BARDA contract in September, which is worth up to $433M. The company announced that they have a Phase IIb comparative study set to begin in 1Q 2024, which will evaluate Gritstone's samRNA candidate against an approved COVID-19 vaccine. This positions Gritstone as a key player in the next-gen COVID-19 vaccine space and validates their samRNA technology to provide superior vaccines to other mRNA technology.

Gritstone's GRANITE and SLATE oncology programs are still making progress. Gritstone's flagship oncology program, GRANITE, a bespoke neoantigen vaccine is progressing through a randomized Phase II/III study in first-line metastatic, microsatellite stable colorectal cancer (MSS-CRC). The Phase II section of the study is expected to yield early efficacy data in 1Q of this year. If the data is positive, GRANITE has the potential to be a breakthrough in treating 'cold' solid tumors resistant to current immunotherapies.

Gritstone's "Off-the-Shelf" or share neoantigen vaccine program is partnered with the National Cancer Institute ((NCI)) to assess an autologous T cell therapy in conjunction with the "off-the-shelf" cancer vaccine for KRAS mutation cancers. The NCI-run Phase I study got the IND back in October of 2023. Gritstone's intention to initiate a randomized Phase II clinical trial in 2024. If successful, Gritstone might have a cancer vaccine tech that will have a broader commercial readiness compared their personalized approach.

Another notable development is Gritstone's collaboration with Genevant Sciences, which gives Gritstone the non-exclusive right to use Genevant's principal lipid nanoparticle (LNP) technology for the development and commercialization of Gritstone's samRNA infectious disease vaccines.

Looking To 2024

Like most of the biotech companies in the Compounding Healthcare "Bio Boom" portfolio, Gritstone has the potential to disrupt their industry with a novel technology. The company has the prospects to reveal their ability to reshape both the COVID-19 vaccine and cancer vaccine landscapes in 2024.

The Phase II/III GRANITE-1L study is expected in Q1 of 2024 , which could verify their ability to produce a vaccine with neoantigens, specific to a patient's tumor. Thus, allowing for an individual approach, increasing the efficacy and reducing potential side effects.

Then, we have Gritstone's samRNA COVID-19 vaccine program in a head-to-head battle with an approved vaccine in a BARDA-funded 10,000-subject Phase IIb randomized study. This move positions Gritstone at the forefront of the global effort to combat COVID-19, with potential advantages over existing vaccines.

Investors are keeping a close eye on the initiation of the Phase IIb head-to-head study, slated for Q1 of 2024. Success in this endeavor could solidify Gritstone's position as a key player in the fight against infectious diseases, providing a substantial boost to its market value.

Investors are eagerly awaiting the initial data and study initiations because they might be key drivers for the stock, as positive results could pave the way for expansion into additional disease types, broadening Gritstone's market outlook. In addition, positive results from these studies could de-risk the company's platforms, instilling confidence and potentially attracting further investment in the coming years at a possibly higher valuation for their possibly best-in-class platforms.

Weighing The Risks

Despite Gritstone's upside prospects, investors need to be aware of the volatile biopharma setting, which is inherently fraught with risks from the challenges associated with clinical development. Unforeseen safety concerns, fickle efficacy outcomes, and regulatory hurdles pose hindrances that could impact the headway of the company's candidates through the development pathway. Gritstone's success hinges on its ability to navigate these challenges and successfully advance its candidates through the rigorous stages of clinical development. One setback could have a dramatic impact on the share price.

Another risk to consider is the competitive arena of cancer immunotherapy. Gritstone faces formidable competition from established companies such as Moderna (MRNA), BioNTech SE (BNTX), and others, which are actively engaged in advancing their own innovative approaches to cancer treatment. The success of Gritstone bio will depend on its ability to differentiate its platform technology and therapeutic candidates from those of its competitors. In addition, the company's manufacturing prowess will be put to the test to keep up with these larger companies. Moreover, Gritstone will have to take them on for market positioning, IP, and strategic collaborations, which will play pivotal roles in determining Gritstone's competitive edge in this volatile arena. It is possible that Gritstone is successful in the clinic, but is outclassed by their peers.

Last but not least… Financials. At the end of Q3 , Gritstone bio reported $90.5M in cash, cash equivalents, marketable securities, and restricted cash, which is from $185.2M at the end of 2022. R&D expenses moved up to $32.8M, while G&A expenses rose to $7.4M during Q3. Collaboration, license, and grant revenues for the same period totaled $1.6M. So, the company is burning through a significant amount of cash to keep their pipeline moving. At this point, we don't know how the BARDA contract will offset any of the cash burn, and how their oncology programs will impact their expenses. The company did file for a $250M shelf offering, so we will likely see some dilution at some point in 2024. Considering we should see some data in Q1, I expect to see an offering coming immediately after.

Considering these risks, I am maintaining my GRTS conviction level of 1 out of 5 at this time. However, will revisit this grade once we see the GRANITE data and we have a clear understanding of how the company is going to employ that $250M shelf offering.

My Plan

Even though GRTS has been trading below my Buy Threshold for most of 2023, my GRTS position has been dormant as the ticker experienced relentless selling pressure without a high-conviction reversal setup. Now, I am looking to add to my dormant GRTS position following the BARDA announcement back in September, which generated a nice reversal setup on the Daily Chart at $2.00 per share. Plus, the ticker is now bullish on the Go-No-Go Indicator and is trading above the anchored-VWAP from the recent high.

So, I will be looking to place a buy order in the coming days or weeks on a red day for biotech. Admittedly, I am not looking to make a massive addition at this point due to the unknown response to the upcoming GRANITE data and likely subsequent offerings.

On the other hand, I will be looking to book profit if the share price responds positively to the data and hits my Sell Target 1.

However, if the data is positive and Gritstone decides to pull the trigger on an upsized offering, I will once again look to be a buyer around $1.50 per share.

As with all my "Bio Boom" tickers, I am looking to trade the GRTS throughout its lifetime as a speculative ticker in an effort to develop a "house money" position for a long-term investment.

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