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HTBX: Three Assets in the Clinic

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By John Vandermosten, CFA

NASDAQ:HTBX

READ THE FULL HTBX RESEARCH REPORT

Third Quarter 2020 Results

Heat Biologics, Inc. (NASDAQ:HTBX) reported third quarter 2020 results in a November 9th release concurrent with the submission of the 10-Q to the SEC. Heat now has three clinical assets under investigation as well as a preclini­cal program underway for a coronavirus vaccine. During the third quarter and to date, Heat has achieved several milestones related to the COVID program, announcing proof of concept data in preclinical models, demonstrating robust T cell mediated immune response against SARS-CoV-2 and publication of positive COVID vaccine results. A pair of new patents were obtained for gp96 and $77.0 million in new capital was raised which should provide sufficient runway to continue operations well into 2023.

The company is in the process of preparing a data package to share with the FDA in an End-of-Phase II meeting for HS-110 that we expect will be scheduled soon. Phase I trials for PTX-35 and HS-130 for solid tumors are now active and we expect them to wrap up in the first quarter of 2021.

Revenues for the third quarter were $0.8 million, representing the recognition of grant income from CPRIT support­ing the PTX-35 T cell activation platform. Research and development expenditures totaled $3.2 million, up 1% compared with the prior year third quarter amounts. Expenditures on the COVID program, Zika program, labora­tory supplies and stock compensation were mostly offset by declines in the HS-110 program and lower spending on manufactur­ing drug product for the PTX-35 program. General and administrative expenses rose sharply by 230% on stock compen­sation related to achieving a milestone. Other expenses totaled $0.2 million related to interest earned from cash and equivalents and foreign currency adjustments. Net loss for 3Q:20 was ($8.9) million or ($0.06) per share com­pared with ($6.2) million or ($0.18) per share in 3Q:19.

Cash and equivalents as of September 30, 2020 were $117.3 million, compared to $14.8 million at the end of 2019. Heat continues with no debt on the books. Cash burn was ($5.6) million in the third quarter compared with ($4.3) million in 3Q:19. Net cash provided by financing activities totaled $76.0 million, representing proceeds from the issuance of common stock and warrant exercise. Following the end of the reporting period, Heat raised an additional $1.0 million in capital from its at-the-market (ATM) facility.

Corporate Milestones

‣ Below we list key milestones for Heat Biologics.

‣ HS-110 interim data readout – November 2019

‣ HS-110 Phase II interim readout – 4Q:19

‣ First patient dosed in HS-130 Phase I – December 2019

‣ ASCO poster presentation – May 29, 2020

‣ PTX-35 IND clearance and first patient dosing – 2Q:20

‣ Various coronavirus vaccine milestones – 2021

◦ Manufacturing

◦ Investigational New Drug (IND) Application

◦ Phase I launch

‣ Discussion with potential partners – ongoing

‣ Complete HS-130 Phase I trial – 1Q:21

‣ Complete PTX-35 Phase I trial – 1Q:21

‣ End of Phase II meeting for HS-110 – 1H:21

Coronavirus

Heat’s wholly-owned subsidiary, Zolovax, has been focused on developing medicines and vaccines for infectious diseases using the glycoprotein platform, gp96, for many years. Previous research has been conducted for simian immuno­deficiency virus, malaria and Zika. In March 2020, Heat entered into a research agreement with the University of Miami (UM) to sponsor new research and development of a SARS-CoV-2 (COVID-19) vaccine and diagnostic test.

The vaccine incorporates multiple SARS-CoV-2 antigens using the gp96 platform. The approach is expected to in­duce long-term immunity and provide protection against future infections. As no viral vector is used, Heat’s corona­virus vaccine avoids anti-vector immunity and viral activation while activating T and B cells with high immunogenici­ty. The activation of T and B cells drives induction of mucosal immunity and long-term memory response. In early March, the company filed multiple provisional patent applications for its technology that treat and prevent infection from the SARS-CoV-2 virus. Heat’s approach may also be appropriate in combination with other vaccines that acti­vate the humoral immune system on account of its complementary stimulation of the adaptive immune system.

Pipeline

Exhibit I – Heat Biologics Product Pipeline (1)

HS-110

The HS-110 Phase II Durga trial provided the latest update to its interim data in mid-November 2019. Cohort A enrolled checkpoint-inhibitor naïve patients and Cohort B enrolled patients previously on checkpoint inhibitor therapy that have progressed. Both groups are treated with a combination of HS-110 and nivolumab. Initial results have been promising. There are two additional cohorts, designated C and D that will examine HS-110 in combination with pembrolizumab, and pembrolizumab and chemotherapy which are intended to evaluate safety with an alternative checkpoint inhibitor. About 20 patients are expected to be enrolled in the C and D cohorts with 122 patients enrolled overall.

Exhibit II – HS-110 Trial Design (2)

PTX-35

In early June, Heat announced that the FDA had cleared its investigational new drug application (IND) for PTX-35 followed shortly after by the initiation of the first clinical site for the trial and the appointment of Anthony Tolcher, MD as lead investigator. By the end of June, the first patient had been treated in the Phase I trial to evaluate PTX-35. Up to 30 patients are expected to be enrolled with advanced solid tumors refractory to standard of care.

As a reminder, PTX-35 is being developed by 85% owned subsidiary, Pelican Therapeutics, and we allocate royalties accordingly. There is also a relatively complex royalty arrangement with Cancer Prevention and Research Institute of Texas (CPRIT) that includes a return of 4x the original grant and a 0.5% royalty in perpetuity. There are a number of milestones owed to Pelican by Heat that we also reflect in our valuation.

HS-130

In late 2019, Heat announced that its IND for HS-130 had been submitted and the program had received clearance from the FDA to begin a Phase I safety trial. In December, the first patient was dosed in the dose escalation trial. The combination study, which will pair HS-130 with HS-110, will enroll patients with advanced solid tumors refractory to standard of care. The candidate is in development to treat solid tumors and will employ ComPACT technology that delivers gp96 heat shock protein along with a T-cell co-stimulatory fusion protein (OX40L). The associated trial expects to enroll up to 30 patients and have primary endpoints of safety and optimal dose determination for its Phase II trial.

The Phase I trial of HS-130 suffered an enrollment pause during the months of April and May this year due to lack of personal protective equipment at a clinical site. When the equipment became available, enrollment resumed and no further delays in development milestones are expected for HS-130.

Patents Issued

Two new patents were recently issued to Heat, both titled “Vector co-expressing vaccine and costimulatory molecules.” The patents, numbered 10,758,611 and 10,780,161, provide details on the compositions and methods for co-expressing a secretable vaccine protein, such as gp96, from a single vector. The patents are a key support to the company’s gp96 plus OX40L T cell co-stimulation platform, with applications in cancer, infectious disease and other areas. Anticipated advantages of the work represented here include enhanced memory T cell response, limited systemic toxicity and cost advantages compared to other systemic therapies.

Sources of Capital

Heat Biologics started 2020 with $15 million in cash on the balance sheet and has raised close to $120 million in additional funds to date. For the nine months ending September 30, Heat received net proceeds of $113.4 million from the sale of 9.4 million shares and an additional $1.0 million following the end of the quarter in return for 831,000 shares. Warrant exercise also generated additional capital. At the end of the third quarter, Heat held $117.3 million in cash and equivalents and short term investments.

Summary

Heat Biologics has made substantial progress this year with the entry of HS-130 and PTX-35 into the clinic as well as continued advancement of the Phase II HS-110 program. Substantial preclinical work has also taken place for a coronavirus vaccine which may enter the clinic next year. Year to date, Heat has been opportunistic in raising capital and has accumulated over $117 million on the balance sheet that should sustain operations for the next several years.

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1. Source: Heat Biologics October 2020 Corporate Presentation.

2. Source: Heat Biologics Corporate Presentation. November 5, 2019.