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ImmunityBio (IBRX) update: Major disconnect between value & price

Updated: Nov 19


Company: ImmunityBio Inc.

Ticker: NASDAQ:IBRX

Market cap: $3.06bn (10/31/2021)



A lot has happened since my last article about ImmunityBio was released on April 12th 2021. The company has made great progress since then, but after the biotech sector went into a correction in May, ImmunityBio fell even further than its peers and has not recovered since then. The weak price performance gave me the chance to average down on my cost basis from $31.32 PPS to $13.44 PPS. From 4/12 to 10/29 the share price fell by 51.3%. ($16.09 to $7.84).


Source: Google Finance


When looking just at the price of a stock it is easy to mistake price for value. The intrinsic value of ImmunityBio increased steadily, while the market price declined. In situations like this it is important to take advantage of the market underpricing the stock you want to buy.


Source: All About Market


Please find below a short update on the most relevant developments at ImmunityBio and why my conviction in this company & stock is even higher than before. I plan to write a deeper dive follow up article once there are details about FDA timelines, biologics licence application (BLA) is filed or other significant developments have happened.


What happened since my last article


The main reason for the share price going south seems to be the open market sale agreement offering, which has lead to a constant overhang in shares being available to trade. In IBRX' latest 10-Q details on the ATM and the amount that has already been raised is discussed.


"On April 30, 2021, we entered into an Open Market Sale Agreement with respect to an ATM offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $500.0 million through our sales agent. During the three months ended June 30, 2021, we received net proceeds totaling $94.9 million from the issuance of 6,420,441 shares under the ATM, which we expect to use for general corporate purposes, including to progress our clinical development programs, fund other research and development activities, for capital expenditures and to fund working capital. We may also use a portion of the net proceeds to license intellectual property or to make acquisitions or investments. As of June 30, 2021, we had $402.0 million available for future stock issuances under the ATM. We are not obligated to sell any shares and may at any time suspend solicitation and offers under the Sale Agreement." IBRX 10-Q, Q2 2021


On seekingAlpha the author biologics gave a very good explanation on how institutional buyers go about getting the price that they want and this price will be most likely be lower than yours and mine. An update on the current status of the ATM can be expected in the Q3 10-Q, which will be available in November. The ATM is run by Jefferies Financial Group Inc. On the one hand, Jefferies is currently not covering IBRX as part of their equity research. On the other hand, they are selling IBRX shares to their institutional clients through the ATM and IBRX will present at their conference on Nov 16-18th. This leads me to the assumption that once Jefferies clients are done with loading up on IBRX shares, the chances are very high that Jefferies initiates coverage of IBRX at or after their conference. In turn this will potentially lead to a rapid increase in the share price.


The new NantWorks venture - NantAfrica


ImmunityBio's Covid19 vaccine candidate was selected for inclusion on the Operation Warp Speed subsidy list, but never received any government funding or political support. Quite the opposite, for political reasons other candidates were preferred and ImmunityBio never had a fair chance to showcase the superiority of their approach to fight the pandemic. This experience led Dr. Patrick Soon-Shiong to focus on other parts of the world, where they were welcome and dire need for vaccines is present. Thus a new NantWorks venture - NantAfrica was created and officially launched on 9/24. NantAfrica is "an ambitious initiative to build capacity for advanced health care in Africa. This initiative will entail partnership with the Council for Scientific and Industrial Research (CSIR) and the South African Medical Research Council (SAMRC). NantWorks LLC has signed a collaboration agreement with the CSIR and the SAMRC that will initiate the transfer of biologic manufacturing technology for COVID-19 and cancer vaccines and next-generation cell-based immunotherapies. This will enable the rapid clinical development of next generation vaccines for infectious diseases and cancer at centers of excellence across the country". Moreover, it seems that Dr. Patrick Soon-Shiong has won powerful allies in South Africa, as president Ramaphosa welcomed the significant investment and commitment. Patience is a virtue and finally ImmunityBio is receiving the support needed to rapidly progress the vaccines effort, with the goal of achieving emergency use authorization asap.


Universal durable covid vaccine


"to prepare ourselves not just for this pandemic, but the next pandemic

and going from lambda to delta now, to mu and beyond" Dr. Patrick Soon-Shiong




Source: YouTube


ImmunityBio together with NantAfrica is on a quest to develop a universal durable Covid-19 vaccine. Universal in the sense that the vaccine cross reacts with the wild type s, lambda, delta, brazilian variant, mu and even to the next Covid. Durable in the sense that you would have t cells in memory and b cells that would recognize an attack. The Sisonke boost trial is in phase 2 now and will provide data on T-cell-based Covid-19 vaccine candidate as a universal boost with four potential routes of administration (subcutaneous shot, sublingual droplet, oral capsule, and intranasal spray).


As a next step, NantAfrica has submitted the Themba trial, where the DNA and the RNA vaccine are being combined. This includes a collaboration with Amyris, who announced that they have "signed an exclusive license with Nant Africa, LLC relating to the development and use of the RNA COVID vaccine Amyris developed in coordination with the Infectious Disease Research Institute (IDRI). The license includes the funding of human clinical trials, which upon successful completion are expected to be followed by the production and scaling of the vaccine in South Africa with a target of reaching patients by the end of this year."


As a final step, the protein Themba trial with the subunit protein and the adjuvants will be submitted. There will be three platforms: DNA, RNA and protein. The ambitious goal is not only to understand all these and the combination of what they call a hetero-logous vaccine, but to manufacture them all in South Africa.


Source: YouTube


The goal for NantAfrica is to apply all the learnings Dr. Patrick Soon-Shiong made during his career and enable Africa to leapfrog European standards, transforming how we treat both cancer and infectious disease.

Source: YouTube

I highly recommend watching the lecture below. It is hosted by the Dean of the Faculty of Health Sciences of the University of the Witwatersrand (Wits), Professor Shabir Madhi. Dr. Patrick Soon-Shiong is a Wits alumni and goes into detail regarding NantAfrica, the Covid vaccine efforts and the overall IBRX cancer pipeline.


Source: YouTube


NANT Cancer Vaccine


In my first article about ImmunityBio I described their innovative approach to treat cancer. This treatment has an official name now: NANT Cancer Vaccine (NCV). A patent has been granted by the U.S. Patent and Trademark Office for this proprietary NANT Cancer Vaccine (U.S. Patent 11,071,774). This is one of more than 1,100 issued and pending patents worldwide that are part of ImmunityBio’s intellectual property portfolio, with patent life extending to 2035 and beyond.


"This novel investigational treatment for cancer is designed to bolster a patient’s own immune response to cancerous cells, augment that response with additional natural killer and T-cell therapies to overcome the cancer’s resistance, and induce long-term T-cell memory to induce remission across multiple tumor types.Coined the term cancer vaccine"


NCV has been studied in clinical trials across multiple tumor types. Updated data for two trials have been presented recently. First, data from an ongoing bladder cancer trial showing sustained complete response rates in patients with BCG-unresponsive non-muscle invasive carcinoma in situ (CIS) bladder cancer in patients. 72% of patients achieved a complete response at any time, which compares favorably to historical complete response rates of 41% and 18% for FDA-approved therapies (see below). Note the comparison to Keytruda (Pembrolizumab) in terms of complete response rate and the adverse event profile.

Source: ImmunityBio


Keytruda is one of the best selling drugs of all time and is a blockbuster drug for MERCK. Keytruda's 2020 worldwide sales grew 30% to $14.4 billion. However, when checking old PR from Merck releasing their Keytruda trial data, they even had one death because of adverse events. In 2021 across the sector many clinical trials from other companies failed due to lack of safety. ImmunityBio data readout showed 0 adverse events.


Second, on 10/13 an update was shared regarding the completion of enrollment in the phase 2 study of NCV for 3rd line or greater metastatic pancreatic cancer patients. The historical survival rate for 3rd line or greater pancreatic cancer patients is approximately two months. 90% of the study’s third cohort patients have exceeded the historical survival rates. The company expects mature data in Q1 2022 and to meet with the FDA in 2022 to discuss the path for the approval. To underscore how rare these types of clinical trial results are (especially for cancer trials), one can take a look at Rafael Pharma's recent announcement that the AVENGER 500 Phase 3 clinical trial for CPI-613® did not meet its primary endpoint of significant improvement in overall survival in patients with metastatic adenocarcinoma of the pancreas.


That might be one of the reasons why ImmunityBio's IL-15 receptor superagonist complex, N-803 (Anktiva) was chosen by National Cancer Institute to be studied in the Lung-MAP trial. The trial is "one of the National Cancer Institute’s largest lung cancer clinical trials with more than 700 sites and enrollment is anticipated to begin in Q4 2021." The National Cancer Institute (NCI) is the federal government's principal agency for cancer research and training. "ImmunityBio’s study will test its IL-15 receptor superagonist complex N-803 (Anktiva) in combination with Merck’s pembrolizumab (Keytruda) in up to 478 second-line patients with tumors that are not targetable with a drug, which accounts for the majority of NSCLC cases". This study is an additional proof point, validates Dr. Patrick Soon-Shiong's thesis further and offers an additional, direct comparison to Keytruda.


Ongoing hiring spree & an important appointment


Above examples are some of many others that prove the science works, as the data speaks for itself. That alone would be a bullish sing for the long term prospects of ImmunityBio. Moreover, the operations side is ramping up rapidly as well. Firstly, multiple roles are for hire and a lot of those are commercial, operations and manufacturing roles. The latest job postings can be found here. Many of the jobs posted by IBRX suggest that they plan to be in production soon. I found a lot of roles that are part of the operations department, which are relevant for businesses that are in production or close to being in production. Example: ERP systems are not relevant, if you are a pre-revenue biotech company, but essential, once you are a revenue generating business.


Secondly, the company hired its first Chief Commercial Officer, Helen Luu. In addition, Sigrid Schreiner joins as Senior Vice President of Global Market Access. Her hire is also relevant as she led the market launch of chemotherapy Abraxane® (find background and relevance to Dr. Patrick Soon-Shiong here).


Finally, on 8/16 ImmunityBio "appointed Patrick Soon-Shiong, M.D., to the newly created role of Global Chief Scientific and Medical Officer. In this additional role, Dr. Soon-Shiong will oversee the company’s global research and development programs and pipeline investments in support of its ambitious growth plans, which include bringing advanced technology to a broad global marketplace". As founder he was the innovator and driver of the company from day one. Why create this role now? This only makes sense, if they expect to be in a new phase of the company life cycle soon. Especially as he receives a salary now, which is only justifiable, if they expect to generate revenue soon.


Reading these developments can only lead to the assumption that ImmunityBio is a company that plans to be in commercial production during the next 3-12 months.


Financial markets awareness

In my point of view one reason the markets are sleeping on IBRX is the nearly non existent analyst coverage. Recently I asked IBRX's IR team, if there are plans to increase analyst coverage. Their reply was:

"We are actively talking with a number of different research analysts who are covering our peers and therapeutic areas and we hope to secure additional coverage in the coming months. If you have access to Joe Catanzaro’s reports at PiperSandler, I highly recommend reading them. He understands our space and science and writes thoughtful reports."

As I wasn't aware that PiperSandler is covering IBRX, I was pleasantly surprised that Joe had just reiterated his price target and buy recommendation. This note was released after the B cohort data of the bladder cancer trial was released on 10/19.

Source: TheFly


The definition of a blockbuster drug is that it generates annual sales of $1 billion or more.


Conclusion


When there is a huge disconnect between the market price and intrinsic value of a company, I like to take a step back and look at the facts to form an opinion.

  • Clarity on ATM status expected in November

  • Covid vaccine trials back on track and have political backing

  • Cancer trial data confirms Dr. Patrick Soon-Shiong's theory

  • NANT cancer vaccine offers a compelling safety profile with 0 adverse events

  • Data presented is far superior than current standard of care

  • NCI trial offers additional validation

  • The company is close to bringing a blockbuster drug to market and generate huge cashflows

  • Analyst coverage likely to increase

  • Jefferies London Healthcare Conference, Nov 16-18th (link to presentation slides: https://ir.immunitybio.com/static-files/259fc633-bfc0-4bda-835a-a230e81da482 )

  • Video of the Jefferies presentation:

  • https://youtu.be/GlU3CApqRD8

  • PiperSandler 33rd Annual Healthcare Conference, Nov 30th - Dec 2nd

  • Covid 19 trial data update

  • BLA approval for bladder cancer treatment as soon as Q1 2022

  • BLA filing for pancreatic cancer treatment as soon as Q1 2022

In addition, the short interest and days to cover are very high. Should some of the short sellers fall victim to the recency bias, they might become complacent and be caught in a major short squeeze. As the free float is tiny, I expect the exaggeration we are currently witnessing to the downside, to happen to the upside soon.

Source: SeekingAlpha


Adding to the points laid out above, it seems like current valuation is not giving any value to the part of the new IBRX, that was the private ImmunityBio entity before. Before the merger happened, NantKwest was publicly listed under NK and ImmunityBio was privately held. Based on the PR announcing the merger completion "former stockholders of ImmunityBio are entitled to receive 0.8190 of a share of NantKwest common stock for each outstanding share of ImmunityBio common stock that they held immediately prior to the merger". The private ImmunityBio was valued at 81.9% of the value of NK on the day the transaction closed (March 9th).


On March 9th the price per share (PPS) was $32.49

  • Private IBRX PPS: $26.61

  • Fully diluted shares: 398 M

  • Market cap combined Co: $12.9 bn

  • Market value of private IBRX: $10.6 bn

  • Market cap today (10/31): $3.06 bn

➡ Buying IBRX for $7.83 PPS offers a compelling risk reward, as the previously private part is included for free.


Based on the content presented in this article, the question is not if, but when ImmunityBio finally receives approval and becomes a cashflow generating company. I added more shares on the dips and will add more over time, whenever I can. I am ending the article with a quote from legendary investor & speculator André Kostolany (loosely translated from German):


"A company and its stock price are like a man and his dog on a walk. The man continues to walk slowly and steadily. The dog runs back and forth. But both are moving in the same direction. The man is the company, the dog is the stockprice."


ImmunityBio is also part of the "Picks and shovels plays" wikifolio, which is traded on the German Stock Exchange.


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Sources:


Disclaimer: This blog post is purely my personal opinion and is not financial advice. Please do your own research before taking investment decisions. I am long IBRX.

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