GRTS - Gritstone: Trying To Pick Itself Up From The COVID Ruins

2023-08-01 03:09:04 ET

Summary

• Gritstone bio flew high during the COVID years because of its mRNA COVID vaccine program.
• With COVID down, GRTS stock has also gone down.
• Now it survives on its legacy oncology programs, which have some promise.

Gritstone bio, Inc. ( GRTS ) is today a poor shadow of its former self from last year, when I last covered it in January 2022. The stock is down 68%, and interestingly, the title of my last article is actually "Gritstone: Why the stock fell on positive data?" Thus, the stock has been falling for a long time now.

The principal reason for GRTS falling is that this one time oncology vaccine developer moved to developing COVID vaccines during the heyday of COVID pharmaceuticals development, and went up 10-fold. Now that COVID is not an emergency any longer, all these COVID stocks are correcting themselves. Unfortunately for GRTS, it is correcting itself all the way back to where it had been before COVID. Meaning, it did not use COVID as a launchpad to pull its oncology pipeline ahead.

Here's its current pipeline:

As we can see, the focus has now moved back to cancer, with two programs running phase 2 trials in MSS-CRC and KRAS-driven tumors. The SARS-COV2 thing has gone on the backburner. Gilead used to have a deal in an HIV vaccine; that program, too, does not seem to be moving forward strongly.

In my earlier coverage, I discussed oncology as an aside, because those were the days when "COVID" was a buzzword in the industry. Then sometime in the middle of 2022, the world felt it had had enough, and the news media sector decided not to use the word any longer. As soon as COVID went out of the media, it also went out of our environment, and companies that had depended too much on this disease for succor and sustenance went down.

So last time we saw that the company had begun dosing a cancer vaccine in a phase 2a trial in solid tumors. This was an "off-the-shelf" shared neoantigen immunotherapy in combination with intravenous nivolumab and subcutaneous ipilimumab. The trial is called SLATE and this portion of the trial was expected to enroll up to 60 patients who had a KRAS mutant-driven tumor. These were in NSCLC post-chemoimmunotherapy, first-line MSS-CRC, and third-line MSS-CRC.

Lead program, right now, is an individualized version of the GRANITE vaccine program which is in a phase 2 trial, a program that earlier saw strong OS data in late-line CRC patients. This was where it was last year.

The highlight of last year was that interim data from this trial was published in Nature Medicine. There were strong tumor-specific CD4+ and CD8+ T cell responses, which translated to good OS data in CRC patients, compared to those patients in which such response was not observed. Median OS was 18 months for the first group, and no more than 7.8 months for the second group.

The KRAS program, called SLATE, also showed early promising data with a 39% molecular response rate in evaluable patients with late-line microsatellite-stable colorectal cancer (MSS-CRC) and non-small cell lung cancer (NSCLC) in a phase 1/2 trial. Once again, patients with NSCLC with a molecular response showed a median OS (9.6 months) than those without (4.5 months). This is, of course, to be expected, and shows that the drug works by increasing the molecular response, which then produces the desired OS.

The company's self-amplifying mRNA (samRNA) vaccine platform technology also produced data, got good reviews from analysts (at Piper Sandler), and also won two patents, but the COVID vaccine program, like I noted, has been relegated to secondary status. Even Piper Sandler only praised the early COVID data as proving their infectious disease approach, and not the COVID program itself. The COVID hype is now gone, and a key reason GRTS has gone down is because it tied itself too strongly to COVID. One other reason could be a less disillusioned approach towards the potential of mRNA vaccines for cancer. Last year, Dr. Katalin Kariko, a pioneer mRNA researcher , said, among other things, that "immune cells cannot beat a big, huge tumor." What I understand from that is that mRNA products will not work well in late line settings, where the tumor has progressed too much, or in earlier settings where the tumor may be localized, but is large in size. There is always going to be a place for traditional surgery, radiation, even chemo, and these cancer vaccines will only command a niche market.

Financials

GRTS has a market cap of $169mn and a cash balance of $153mn. Research and development expenses were $30.5 million for the three months ended March 31, 2023 while general and administrative expenses were $6.7 million. At that rate, they have enough cash to last them 4-5 quarters.

60% of the stock is held by large investors. Key holders are Point72, Redmile and Frazier Life Sciences. There is one purchase and one sell from insiders, and a number of option exercises. Insiders are, thus, not very active here.

Risks

GRTS is a small company with a low stock price, low volume, moderately large short interest, early to mid-stage pipeline with programs that don't stand out. I generally do not recommend buying such companies because they come with inherent risks.

Bottomline

However, GRTS is down to a tenth of what it used to be 18 months ago. People that held on to the stock have not really made any profit. However, new investors at these prices may find some attractiveness to the stock, given their decent cash runway (unlike what was there last year before they raised money), and emerging pipeline. I will, however, not be buying such low market cap stocks.

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