Long Ideas | Healthcare

Generex Biotechnology's COVID-19 Vaccine Could Outperform CompetitionSep. 8, 2020 11:31 AM ET8 comments | 9 Likesby: Ari Zoldan

Summary

Generex Biotechnology's COVID-19 vaccine is potentially superior to leading competition.

Vaccines against the whole SARS-CoV-2 spike protein may have critical safety issues, including those from key competition.

Multiple business development deals in Generex's pipeline.

New management team transforming the company since 2017.

GNBT shares could be significantly undervalued.

Below I will briefly touch on leading COVID-19 vaccine competitors, before diving intocommon issues each of these leading vaccine products have.

Fortunately, a COVID-19 vaccine from NuGenerex Immuno-Oncology, AKA NGIO, asubsidiary of thinly-traded Generex Biotechnology (OTCQB:GNBT), will likely avoid thecritical issues leading COVID-19 vaccines in development are burdened with. Generex isgaining recognition in the vaccine industry with its proprietary vaccine platform, "Ii-Key."Generex also appears significantly undervalued based on its new management pairedwith a recent COVID-19 partnership targeting Malaysia and another agreement for China.

In the recent coronavirus pandemic, many companies jumped into the race to developdiagnostics, vaccines, antivirals, and other therapeutics to combat the threats of sickness-lung injury, kidney and liver injury, and death, among others. The government has spenttrillions of dollars on economic stimulus to offset the battered economy. A small fraction ofthat funding (tens-of-billions) has gone to coronavirus countermeasures through NationalInstitute of Health (NIH) research, as well as allocations to Operation Warp Speed (OWS)and the Biomedical Advanced Research and Development Authority (BARDA).

Vaccine Frontrunners

The US government chose three primary vaccine candidates to fund for Phase 3 trialsunder Operation Warp Speed: Moderna's (MRNA) mRNA-1273, an mRNA vaccineencoding the SARS-CoV-2 spike protein, the University of Oxford and AstraZeneca's(AZN) AZD1222, an adenovirus vector encoding SARS-CoV-2 spike protein, and Pfizer's(PFE) and BioNTech's (BNTX) BNT162, which encodes a prefusion stabilized membrane-anchored SARS-CoV-2 full-length spike protein. A sponsor would need to provide datafrom placebo-controlled trials indicating their vaccine is at least 50% effective inpreventing infection against COVID-19 in order to be authorized for use, according torecent FDA guidance.

Other companies' vaccine candidates such as Novavax's (NVAX) NVX-CoV2373 havebeen awarded billion or multi-million dollar contracts. With the U.S. government inkingbillions in contracts for vaccine candidates, doubt has naturally been cast on candidates

that haven't been funded by the U.S. government. However, investors and physiciansshould understand that this doesn't mean that the vaccines the government has chosen tosubsidize are the best vaccine candidates.

The Potential Danger of Leading COVID-19 Vaccines

The common theme with the aforementioned vaccines is that they all immunize againstthe whole SARS-CoV-2 spike protein. This is inherently a competitive disadvantagecompared to precision vaccines for a virus where the majority of antibodies generatedfrom the COVID-19 spike protein are non-neutralizing. Plus, the RNA and DNA vaccinesare based on gene therapy, which has ever been proven or approved as a viable vaccinetechnology.

Source: NewScientist

The COVID-19 virus uses its spike protein to attach to and then enter cells, such asendothelial cells (blood vessel lining), and other tissues expressed in the heart, lung,kidney, and intestine. Thus, many vaccines are targeting the spike protein on the virus, asit is physically on the edge of the virus and therefore is identifiable by the adaptiveimmune system, where antibodies created by B cells can attach to the virus and signal Tcells to destroy the virus.

Source: Couture, A. et al. (2019). HLA-Class II Artificial Antigen Presenting Cells in CD4 TCell-Based Immunotherapy. Frontiers in Immunology, 10.

The immune system recognizes foreign proteins when antigen presenting cells (APCs)take in pathogens such as viruses or bacteria, break those pathogens up into bits, calledantigens, and then those antigens are attached to major histocompatibility complexes,which travel to the outer membrane of the cell so that other white blood cells, such as Tcells and B cells, can recognize those antigens. This process is shown in the graphicabove.

Source: Arizona State University

When B cells encounter these non-self antigens and are also primed by helper T cells,they multiply many times over and turn into plasma cells that make vast amounts ofantibodies designed to target that specific antigen/epitope. These antibodies swarm thepathogen, both making the pathogen unable to infect other cells and helping macrophagesto phagocytose them. Below is a depiction of the adaptive immune system response toCOVID-19 (which doesn't show macrophage phagocytosis).

Source: Gutierrez, L. (2020). Deciphering the TCR Repertoire to Solve the COVID-19Mystery. Trends in Pharmacological Sciences, 41(8), 518-530.

One reason COVID-19 may result in such serious inflammation is that most epitopes ofthe antigens generated from viral clearance result in antibodies that are non-neutralizing.A non-neutralizing antibody may bind the SARS-CoV-2 spike protein, but rather than killthe virus or prevent its binding to its cellular receptor, the non-neutralizing antibodiessimply stick to the virus without affecting its infectivity. Perhaps the scariest aspect of thiscoronavirus is the ability of the virus to hitchhike on these non-neutralizing antibodieswhen they are taken up by neutrophils (immune cells that sweep the bloodstream forimmune complexes), and in Trojan horse fashion, infect the neutrophil to commandeer thecellular machinery to produce more virus. This neutrophil infection leads to the runawayimmune response that causes the cytokine storm and the terrible blood clotting anddestruction of the vascular system seen with severe COVID-19 disease.

In fact, a recent study found that, in just 3 COVID-19 patient serum donors, ~1100antibodies were screened for neutralizing activity against the spike protein (and thereceptor binding domain (RBD) on that spike protein). While over 90% of these antibodieselicited an immune response (measured by IgG), only ~2% of these antibodies wereneutralizing against the spike protein, and only about 0.3% of them were neutralizingagainst the spike protein RBD. Additionally, the majority of antibodies did not even bind tothe spike protein.

Source: Rogers, Thomas F. et al. Isolation of potent SARS-CoV-2 neutralizing antibodiesand protection from disease in a small animal model. Science, Vol. 369, Issue 6506, pp.956-963.

Thus, many antibodies produced do not neutralize the coronavirus, and by the sheernumber of antibodies created, there is an increased chance that some antibodies mayaccidentally bind to "off-targets" and generate an unwanted immune response againstcertain "self" tissues. This could lead to "cytokine storm" (hyperinflammation), tissuedamage, acute respiratory distress syndrome (ARDS), and death.

This non-specific immune response could result in considerable long-term health issuesfor those infected or vaccinated years later, such as lung damage, the onset ofautoimmune diseases, chronic inflammatory diseases, as well as coagulopathy andsubsequent heart attack and stroke. In fact, in the previous SARS outbreak, vaccineresearch published peer-reviewed papers reporting that severe lung damage wasobserved in rhesus macaques infected with the SARS-CoV-1 virus (viral challenge) afterthey were vaccinated with an inactivated SARS-CoV-1 vaccine. Further, when antibodiestaken from patients who recovered from SARS-CoV-1 infections were administered to themacaques, as in convalescent plasma treatment, they were overcome by the cytokinestorm phenomenon resulting in the severe honeycomb lung damage seen in COVID-19patients. This clearly demonstrates the potential problems of off-site immune reactionsthat can be triggered by not only the virus, but also by vaccines that mimic whole viralproteins, as well as the immune reactions that can occur upon viral challenge even afterbeing vaccinated against the entire spike protein.

Potentially Superior Vaccine from Generex BiotechnologySubsidiary NuGenerex Immuno-Oncology

Generex Biotechnology and its subsidiary NuGenerex Immuno-Oncology (to be NGIO)have a solution to this dire vaccine problem, using an approach that has been validatedtime and time again over the years. Generex, through its subsidiary NGIO, hassuccessfully developed pandemic/epidemic vaccines (avian flu, swine flu, SARS-Cov-1)over the years, but the pandemics were always "over" by the time Generex could get thevaccine to market under normal FDA vaccine development protocols. Generex & NGIOwere also pre-revenue R&D companies with limited resources to expedite development,but that has changed.

Today, the response to COVID-19 by various government agencies has accelerated theR&D approval process, and COVID-19 is not a pandemic that is going away anytimesoon. Scientists expect new virus strains that are likely to follow and the solutions beingdeveloped by NGIO will allow it to respond to these new strains rapidly. More importantly,CEO Joe Moscato has reformed the company with revenue generating subsidiaries toprovide cash flow for the company's promising products and formed new strategicalliances creating new funding capabilities to support its R&D development program.

Ii-Key Technology Platform

The proprietary vaccine platform NGIO owns is called "Ii-Key", and it is what allowsGenerex, through NGIO, to develop such potent vaccines against specificantigens/epitopes. Generex and NGIO not vaccinating against the whole SARS-CoV-2spike protein-just the relevant epitopes on the spike protein involved with receptor bindingand infection, likely making the vaccine much safer and more potent.

Source: Generex August 3 Corporate Presentation

Shown in the graphic above, Ii-Key is "a four amino acid peptide that is synthetically linkedto specific target antigen epitopes." The Ii-Key "hijacks" existing MHC Class II complexesby dislodging existing antigens attached to the MHC complex and then allows the antigenlinked to the Ii-Key peptide to take the old antigen's place. This allows a rapid and potentimmune response (up to 250x potency compared with native antigens in-vitro) andensures an improved long-term T cell and B cell memory response. Also, this method ofvaccination reduces or prevents immune activation against off-targets by avoiding thepromotion of non-neutralizing antibodies.

There are other competitive advantages Ii-Key vaccines have over whole spike proteinCOVID-19 vaccines. According to Generex, Ii-Key can be used to preferentially stimulateTh1 cells (stimulatory helper T cells, as opposed to T regulatory cells, which suppress theimmune response), and dosing can be more consistent compared with other vaccines dueto differential expression (antigen presentation) of the vaccine. These and otheradvantages are shown below:

Source: Generex August 3 Corporate Presentation

There have also been reports stating that antibody production against COVID-19 onlylasts for a few months, implying memory response against SARS-CoV-2 is poor. This mayturn out to be the case with whole spike protein vaccines, too. Generex's COVID-19vaccine is based on computer predicted epitopes to modulate the immune system:epitopes for MHC class I (activate CD8+ "killer" T cells), epitopes for MHC Class II(activate CD4+ "helper" T cell response), and B cell epitopes (ensure B cell antibodyresponse). This range of epitope selection ensures a robust, specific, and completeimmune response as well as memory immunity, as helper T cell activation is necessary forlong-term B cell memory.

Source: Basicmedical Key, Humoral Immune Responses: Activation of B Lymphocytesand Production of Antibodies

Other advantages for Generex's vaccine include the difficulty and practicality ofdistribution and administration of the heralded RNA and related vaccines fromcompetitors. These vaccines, in general, must be kept frozen at ultra low temperaturesduring shipping and storage and can only remain in a normal refrigerator for days to abouta week. This is a substantial practical problem that may hinder commercial uptake.

It appears that Generex's vaccine approach, while compelling for any virus, is especiallyrobust for COVID-19, where the majority of antigens/antibodies examined from wholespike proteins present significant safety concerns. Although the U.S. government has notyet funded Generex's Ii-Key SARS-CoV-2 vaccine, Generex, through its subsidiary NGIO,is moving forward with other entities to advance its SARS-CoV-2 vaccine in the meantime.

Business Development

Generex has been on a tear within the last few years, acquiring majority-owned stakes ina variety of companies, its subsidiaries, and spinning off NuGenerex Immuno-Oncology, inwhich it will retain a majority stake (~90%). Generex's subsidiaries now include OlaregenTherapeutix and Regentys which are regenerative medicine companies, NuGenerexHealth which is a physician network GPO/MSO evolving to an HMO, Pantheon Medicaland NuGenerex Surgical Holdings (MediSource) which are surgical product businesses,NuGenerex Distribution Solutions, NGDx which is Generex's diagnostic business, and theplanned acquisition of ALTuCELL and their cell encapsulation technology for cellulartherapy (diabetes/regenerative medicine). The idea is to build a GPO/MSO/HMOphysician network for cost advantages and cross-selling.

COVID-19 Related Business Development

All those developments notwithstanding, Generex has had recent business developmentdeals in the works overseas for COVID-19. First, Generex signed a memorandum ofunderstanding (MOU) with Bintai Kinden to develop and commercialize Generex's Ii-KeyCOVID-19 vaccine in Malaysia. The deal includes $2.5 million upfront to Generex, Bintaipaying for all clinical, manufacturing, and regulatory costs, a $17.5 million license fee onapproval, and a royalty of $3-4.50 per dose, with potential revenues of up to $150 million.

Generex also has a letter of intent (LOI) signed with potential partners in China for alicensing deal to develop and commercialize Generex's COVID-19 vaccine for China. Thisincludes a $5 million upfront payment to Generex, all costs covered on clinicaldevelopment, manufacturing, and regulatory submission, a $20 million regulatory successfee, and a royalty of 20% on sales, with a minimum of $2/dose sold equating to aminimum of $400 million in royalties if the vaccine is successful in clinical trials, andapproved by the Chinese FDA.

In addition, Generex claims it has notification that the Canadian government wants tomove forward on its Ii-Key COVID-19 vaccine. While these discussions are in the earlystages, Generex is confident of a successful partnered outcome, since they believe theyhave one of the better vaccine solutions for this pandemic.

It will certainly be interesting to see if Generex can ink even more vaccine deals in thecoming months.

Ii-Key Prior Studies

Ii-Key vaccines have already shown promise in diseases such as preventing breastcancer recurrence and vaccinating against avian flu due to its specificity, potency, andinduction of a memory B cell response. NuGenerex is working with Merck and NSABP totest Ii-Key HER2 vaccines with Keytruda in a phase 2 study for the treatment of triplenegative breast cancer (TNBC). Prior studies indicated that AE37, the Ii-Key HER2vaccine, might help prevent cancer recurrence in patients whose HER2 expression levelswere low enough to not otherwise elicit an immune response. The sensitizing of HER2 tothe person's immune system in these cases may be a game-changer in eradicating lowHER2 expressing cancers for good. The subgroup analyses (with quite drastic differencesvs. placebo) are shown below:

Source: Generex Corporate Presentation, August 3rd

Ii-Key vaccines have been safely tested in human clinical trials in breast and prostatecancer and in infectious diseases vaccine studies for avian flu. The study of Ii-Key vaccineplatform technology (targeted against HER2) in breast cancer patients with HER2underexpression, including TNBC, shows that Ii-Key technology can generate long-termmemory against a target. No other leading platform technologies being used for COVID-19vaccines, such as mRNA or DNA, have long-term data on the order of 100 months in ahuman study, as shown in Generex's breast cancer vaccine data, to back up claims of"long-term memory" of that magnitude.

Approximate Valuation of Generex's COVID-19 Vaccine in Malaysiaand China

Assuming Generex's Ii-Key vaccine for COVID-19 is safer and more effective than bigpharma rivals Moderna, AstraZeneca, and Pfizer, the vaccine could be worth billions.However, realization of this value will first require building a salesforce and marketingengine or a partnership with another big pharma company. Regardless, Generex's rapidlydeveloped (5 months development to in-human testing) and precision vaccines may finallybring it value under the relatively new leadership of Joe Moscato.

According to Evercore ISI, all COVID-19 vaccines could be worth $40 billion in total post-tax profit. If Generex, with its potentially superior technology, can capture a mere 1% ofthe market, it could be worth multiples of its current valuation based on the Ii-Key-SARS-CoV-2 vaccine alone. Generex's recent S1 Form shows ~91 million shares outstanding.Investors, however, may opt to use fully diluted shares outstanding, in which case there isthe potential for the exercising of 30-40 million warrants/options (which would also bringcash to the company).

The following valuation is only a valuation of Generex for its vaccine in China andMalaysia. It does not take into account other substantial markets such as the US orCanada, nor any of Generex's other potential revenue streams, subsidiaries, oroperational costs.

Assumptions:

First sales by 1H 2023

Aforementioned milestone payments

$2 royalty in China, 30% market penetration after 2 years

Chinese population of 1.4 billion, 2 year sales ramp

$3 royalty in Malaysia, peak royalties of ~$50 million

Malaysia population of 31.5 million, 80% market penetration

20% royalty to EpiVax

Booster shot required

15% discount rate

Expedited regulatory process of a few years

Tax not taken into account due to uncalculated total corporate spending and NOLs

60% clinical development and regulatory risk discount factor

Generex ownership of NGIO: 91%

This valuation conservatively estimates the potential market penetration in China and alsoassumes that COVID-19 does not mutate and require new vaccinations year after year,like the annual flu shot. It is also likely that the Ii-Key will be used against the arising swine

flu in China, although that is also not taken into account in this model.

Generex shares, calculated to be worth $5.44 based on the current anticipated licensingagreements overseas only and ignoring all other aspects of Generex's business, appearundervalued. This is based on the potential of the Ii-Key vaccine to produce royalties inMalaysia and China. However, these royalties are completely speculative and revenuescould vary considerably from these forecasts, higher and lower.

Management

New management took over Generex in January 2017. Prior management failed to launcha product in over 20 years. With extensive experience with "big pharma", marketing, drugdevelopment, consulting pharma companies and investment groups, and advising onfinancings, CEO Joe Moscato brings a lot to the table to revitalize the company. Hebrought with him a new CMO/CSO, Dr. Jason Terrell, a new CFO, Mark Corrao, a newEVP of Research and Drug Development, Richard Purcell, as well as a new CIO, AndrewRo. Since 2017, that initial team has been expanded. Generex is truly a different companythan in years past.

Risks

Generex's revenue-generating subsidiaries, not discussed in this article, are currentlyhampered by the COVID-19 pandemic. However, COVID-19 has provided Generex theability to showcase its Ii-Key vaccine, and once the economy opens up more, Generex willbe able to restart operations in these areas (such as with Olaregen's Excellagen sales inVA hospitals, for instance).

Generex has a history of not being able to cross the finish line, leaving itself as aperpetually developmental stage company. Generex's vaccines may fail in clinical trials,partnership or licensing deals may fall through, and competition may prevent Generexfrom taking substantial market share.

There are many other risks to the business but since Generex's many subsidiaries werenot discussed at length, those risks will not be discussed at length. These risks generallyinclude those businesses not turning out to be what they are expected to be, clinically orcommercially.

Most notably, either of the aforementioned deals in Malaysia and China could fall through.

Conclusion

Generex and NGIO appear to have a superior COVID-19 vaccine compared with itscompetition. Success of the vaccine program could bring considerable value to Generexshareholders. With shares currently trading below $0.50, it appears that the broadermarket may have some skepticism that Generex can execute on its plan given its pastfailures to launch. However, in the past few years and since the last viral outbreak, newleadership under CEO Joe Moscato with a track record of success and a focus oncleaning up the company and its reputation gives the company a second chance. If thefirm executes as it should, shares could be significantly undervalued. After all, Generexmay have a much better COVID-19 vaccine and overall vaccine platform than leadingcompetitors.

#Investors. #Take. #Note.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other thanfrom Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.