GRTS - Gritstone bio: Renewed Excitement For Its COVID-19 Vaccine

2023-10-14 02:21:03 ET

Summary

• GRTS's COVID-19 vaccine may produce more durable immunity than current mRNA vaccines, according to data from phase 1 studies.
• GRTS has secured a $433 million contract with BARDA to conduct a phase 2b study comparing its COVID-19 vaccine with an approved vaccine.
• GRTS is reporting data from the phase 2/3 GRANITE study of its cancer vaccine in Q1'24.

Gritstone bio ( GRTS ) uses its vaccine technology to promote an immune response against a patients cancer or to prevent or treat infectious disease. In late September, 2023, GRTS announced a contract with BARDA to further develop its COVID-19 vaccine. The stock is up over 100% since, although an October 11 press release and presentation of data has led the stock to pull back slightly. This article takes a look at where GRTS stands now.

Figure 1: Year-to-date trading for GRTS.

The COVID vaccine

The phase 1 program

GRTS COVID-19 vaccine can use two components, a chimpanzee adenovirus ((ChAd)) and self-amplifying mRNA (samRNA). Pfizer ( PFE ) and BioNTech ( BNTX ) as well as Moderna ( MRNA ) both used mRNA in their COVID-19 vaccines, but it isn't self amplifying. AstraZeneca's ( AZN ) COVID-19 vaccine (ChAdOx1) uses a ChAd.

From data already collected by GRTS in two phase 1 studies of its COVID-19 vaccine, it appears GRTS's vaccine may produce an even more durable immunity than the MRNA or PFE/BNTX COVID-19 vaccines. This could be because of the samRNA technology, or because GRTS's vaccine immunizes not only against the spike protein but against other components of SARS-CoV-2, or some combination thereof.

Either way, it does seem like GRTS may have something more effective than our current COVID-19 vaccine offerings, in my opinion. The ultimate confirmation of that however, would come from a head-to-head study versus an existing COVID-19 vaccine.

The phase 2b trial

On September 27, GRTS announced that it had been awarded a Biomedical Advanced Research and Development Authority (BARDA) contract. That contract, valued at up to $433M, will see GRTS run a 10,000 participant, randomized, double-blind phase 2b study comparing its COVID-19 vaccine with an approved vaccine. GRTS is planning to initiate the phase 2b study in Q1'24.

IDWeek Presentations

In the meantime, data from GRTS phase 1 CORAL program is being presented at IDWeek 2023 (October 11 - October 15). Whereas GRTS's previous phase 1 studies (CORAL-BOOST and CORAL-CEPI), on which the company has already presented some data, used only the samRNA component, CORAL-NIH uses both the samRNA and the ChAd components.

On October 11, GRTS put out a press release with links to the poster presentations made at IDWeek, including a poster presentation on the CORAL-NIH study. Notably, GRTS says that the vaccine was well tolerated with no safety signals and produced results consistent with the other phase 1 studies of their COVID-19 vaccine. I didn't really find the data to be particularly high impact, the samRNA vaccine (without the ChAd component) already worked well anyway, and GRTS has hardly hyped the value of the ChAd/samRNA strategy in COVID. Perhaps that is why the phase 2 study appears to only be using the samRNA component. All this could be why the stock fell over 10% on October 11, a bit of a sell-the-news reaction.

IDWeek also came with two posters presented by GRTS on CORAL-CEPI and CORAL-BOOST. Although GRTS has already presented data from these studies, the posters provide updated data, noting the durability of antibody titers and neutralizing antibody titers against the spike protein out to 12 months (CORAL-BOOST poster , Figure 4; CORAL-CEPI poster , Figure 4). Previous data shared by GRTS included antibody titer data up to 180 or in some cases 209 days. In my opinion, this new 12 month data only strengthens the idea that GRTS's COVID-19 vaccine might provide long-term efficacy against COVID. I would argue however, that the existing data was already enough to provide rationale for a head-to-head study against an existing vaccine.

Financial Overview

As of June 30, 2023, GRTS had cash, cash equivalents, marketable securities of $114.6M . G&A expenses were $6.7M in Q2'23 and R&D expenses were $31M in Q2'23. The company brought in grant revenues of $1.6M in Q2'23, with total revenues of $2M. Net loss was $35.3M in Q2'23 and net cash used in operating activities was $71.1M in the first six months of 2023. At this rate, GRTS would be out of cash in under 12 months but the phase 2b study GRTS is engaging in soon in COVID will be funded entirely by the BARDA grant. Nonetheless, GRTS's October corporate presentation estimates cash runway into Q4'24, based on its cash at the end of Q2'23 and anticipated reimbursement of costs under the BARDA contract.

As of August 7, 2023, there were 93,075,427 shares of GRTS's common stock outstanding, giving it a market cap of $236.4M.

The Cancer Programs

I haven't gone into too much detail on GRTS other major programs in cancer. The most important of these is the phase 2/3 GRANITE study, a trial of a cancer vaccine (also called GRANITE), which has a ChAd component and samRNA component, in microsatellite-stable colorectal cancer (MSS-CRC).

Seeking Alpha's Terry Chrisomalis previously noted that Q4'23 was going to be an inflection point for GRTS, based on an anticipated readout from the company's GRANITE study. The only thing that has changed since that article is the timing of the readout, results are now expected in Q1'24. The phase 1/2 did show a subset of patients (six of 11) with a 30% or greater reduction in circulating tumor DNA (ctDNA), termed molecular responders, had a median overall survival of beyond 22 months (the median overall survival had not yet been reached). Notably, current standard-of-care trials reported 6-7 month overall survival. I'm expecting positive data from subsequent trials of GRTS's GRANITE vaccine, such as Q1'24 data from the GRANITE phase 2/3 study.

Conclusions and Risks

Additional data from phase 1 work with GRTS's COVID-19 vaccine at IDWeek appears to have generated a sell-the-news reaction, perhaps because the 100%+ rally brought in investors who were hoping for something high impact. Instead, the data is what you'd expect, the COVID-19 vaccine continues to look good at producing antibodies, and for a long time, 12 months now. The brand new data from CORAL-NIH seem to be less relevant however, at least to COVID, since the recently announced phase 2 study is only using the samRNA component of the vaccine, and not the ChAd component.

While there has already been substantial appreciation in the share price, leading it to trade at nearly twice cash, at a time when many clinical stage biotech trade at or below cash, I still rate GRTS a buy. Firstly, there is still potential for the stock to run-up into Q1'24 results from the GRANITE phase 2/3 study and then rally further on potential positive data from that study. An obvious risk to that part of the thesis is that further delays could cause the stock to fall, and anyone that holds through data is exposed to the risk that it underwhelms, which could lead the stock to fall quite a bit. Beyond that risk, competitors in CRC can also make progress. For example, I recently wrote about Agenus ( AGEN ), that recently completed enrollment in its own study of an antibody combination in heavily pre-treated patients with CRC.

Beyond the potential for run-up and positive data from the GRANITE phase 2/3 study, while we don't know how long the COVID-19 vaccine study with take to run, GRTS could be onto a winner with that program. The phase 1 data does make it look like the vaccine could provide superior immunity to an existing COVID-19 vaccine. While any readout could be several quarters away, initiation and enrollment of the study could cause a run-up effect. The risks to any long position there would be updates on enrollment that suggest a prolonged timeline. If GRTS enrolls 5000 patients in a quarter, we'll be waiting six months for them to enroll 10,000 patients, and cash could be running down by then, increasing the odds that GRTS has to dilute investors to raise more.

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