HTBX: Third Quarter Results

By John Vandermosten, CFA

NASDAQ:HTBX

READ THE FULL HTBX RESEARCH REPORT

Heat Biologics, Inc. (NASDAQ:HTBX) reported third quarter 2021 results on November 10, 2021 and filed its Form 10-Q with the SEC.

Highlights for the third quarter ending September 30, 2021 and to date include:

Groundbreaking for San Antonio facility – August 2021

Formation of and new additions to Biothreat Advisory Board including Mark Pryor – August 2021

➢ Skunkworx Bio subsidiary unveiled – August 2021

➢ Business update conference call – September 2021

➢ Paul Tebbey, PhD, MBA appointed SVP Product Development and Portfolio Strategy – October 2021

In the financial realm, Heat generated $0.5 million in grant revenue, for qualified expenditures under the CPRIT grant, versus $0.8 million in the same quarter last year, and posted a loss of ($7.4) million, or ($0.30) per basic and diluted share, compared to ($8.8) million or ($0.43) per basic and diluted share. As of September 30, Heat has a grant receivable balance of $0.9 million.

For the third quarter ending September 30, 2021 versus the same ending September 30, 2020:

➢ Revenues were $0.5 million, down 37.5% from $0.8 million, reflecting the expected timing of completion of deliveries under the current phase of the contracts;

➢ Research & development expenses totaled $4.4 million, up 37.5% from $3.2 million, driven by increases in the HS-110 (Phase II trial), HS-130 (Phase I trial), PTX-35 (Phase I trial) and the COVID programs (agreement and mfg. costs), partially offset by declines in uncategorized programs;

➢ General & administrative expenses were $3.4 million, decreasing 48.5% from $6.6 million, due to a decrease in stock-based compensation expense of $3.9 million, the granting and vesting of stock options to CEO that did not recur in 2021;

➢ Net loss was ($7.4) million, or ($0.30) per basic and diluted share, compared to ($8.8) million or ($0.43) per basic and diluted share.

At the end of the quarter, Heat held cash, equivalents and short-term investments totaling $109 million, compared to $111 million at the beginning of the year. Cash burn was ($28.1) million year-to-date, compared to ($15.9) million in the prior year period.

Paul Tebbey, PhD, MBA Appointed SVP, Product Development and Portfolio Strategy

On October 6, 2021, Heat announced that it had appointed Paul Tebbey, PhD, MBA as Senior Vice President of Product Development and Portfolio Strategy. Dr. Tebbey is a pharmaceutical development strategy leader with over 25 years of healthcare and management experience across the biotechnology and pharmaceutical sectors at companies such as Abbvie, Baxter, Centocor/Johnson & Johnson and Wyeth/Pfizer. Dr. Tebbey’s research, development and commercial launch experiences include novel monoclonal antibodies (STELARA® first-in-IL-12/23 class, REMICADE® & HUMIRA® anti-TNF mAbs), complex vaccines (PREVNAR® novel conjugated vaccine, influenza and respiratory syncytial virus), biosimilars as well as targeted oncolytic small molecules (VENCLEXTA®). Dr. Tebbey’s publications include over 40 peer-reviewed articles that span immunology, immune-mediated and infectious diseases, clinical trial design as well as pharmaceutical strategy planning and brand success.

Tebbey received his PhD in microbiology and immunology from East Carolina University, his MBA in marketing from Rochester Institute of Technology, and his BSc in applied biologic sciences from the University of the West of England.

Business Update Conference Call

Heat hosted a business update conference call in September 2021 to discuss the status of active programs, objectives of new subsidiaries, and longer term opportunities for the company. The company announced two new subsidiaries, Skunkworx Bio and Scorpion Biological Services. The goal of these entities is to expand Heat’s expertise into the areas of biodefense and to offer process development, cGMP manufacturing, analytical test methods development and cGMP testing services for internal Heat projects and third party work.

New Subsidiaries: SkunkWorx, Biodefense and Scorpion

In August, Heat CEO Jeff Wolf announced two new wholly-owned drug discovery and development subsidiaries: Skunkworx Bio and Scorpion Biological Services Skunkworx features diverse and proprietary libraries of small biologics (“Pocket Biologics”), namely antibody fragments and proteins that have the potential to bind to critical domains of druggable targets and become potential product candidates.

Skunkworx

Skunkworx is structured to rapidly and precisely discover and develop new innovative therapeutics. Its biologics library targeting is guided by computational methods and bioinformatics, enhancing efficiency. The subsidiary has already identified modulators for a number of targets and is evaluating them in preclinical in vivo studies to begin by 1Q:22. Skunkworx will develop therapies in both oncology and non-oncology indications as well as in biodefense. Programs started at Skunkworx can be developed at Heat and manufactured by Heat’s other newly announced wholly-owned subsidiary Scorpion Biological Services.

Scorpion

Ground was broken for Scorpion’s new San Antonio Facility announced August 9th. In an effort to augment the company’s internal R&D abilities, Heat is investing in a large molecule bioanalytical research and manufacturing facility under the control of Heat’s wholly owned subsidiary, Scorpion Biological Services. Scorpion will utilize the biomanufacturing/bioanalytic facility for in-house development of immunoassays and biomarkers, while maintaining Good Laboratory Practice (GLP), Good Clinical Practice (GCP), and current Good Manufacturing Practices (cGMP) manufacturing capabilities.

Heat received approval for an estimated $1.0 million in tax abatements from the City of San Antonio and Bexar County. In addition to supporting Heat’s development activities, excess capacity at the facility will be available to support other biopharma companies. Management expects the facility to be self-sustaining through cash flows generated through services rendered to outside companies, all the while supporting Heat’s internal initiatives, including producing product for Heat’s clinical trials. Scorpion is expected to become operational next year and employee headcount is forecasted to reach 50. With cGMP manufacturing in house, Heat will circumvent queues, save costs, improve quality control, and boost flexibility in pursuing programs.

Biodefense/Biosecurity Initiative

Five individuals with extensive government, civilian military and academic experience were recruited to the advisory board to provide guidance on future biodefense initiatives at the newly created Blackhawk Bio subsidiary. The board will guide actions with a versatile and timely approach to address future biological threats.

Pipeline

HS-110

Additional data for HS-110 was presented at the 2021 ASCO Annual Meeting held in June, publicized in a June 4th press release. Highlights from the data were a 24.6 month median overall survival (mOS) in previously treated, checkpoint naïve patients with advanced non-small cell lung cancer (NSCLC). The data compared favorably with historical published data of BMS’ nivolumab trial Checkmate 057 which reported mOS of only 12.2 months, single agent, in a similar treatment setting as Phase II HS-110. With these promising data, management now sets its sights on Phase III for the candidate and is actively evaluating registrational pathways with key opinion leaders and others in thorough preparation for strategy talks at the End-of-Phase-II meeting with the FDA, to ensure a smooth meeting and to garner FDA support. Following the meeting, management will be then equipped with details regarding logistics and costs associated with progressing the candidate. Multiple settings are being considered, including patients that are checkpoint naïve as 1L setting, or patients who progress on 1L checkpoints, a 2L setting. Injection Site Reaction, PDL-1 status and tumor mutation burden status are all being considered as biomarkers and management is in conversation with key opinion leaders and oncologists to continue to refine trial design.

HS-130

Heat concluded enrollment in the Phase I trial for HS-130, and is now in the process of evaluating the next steps forward, including enhancements to the platform based on updated information.

PTX-35

Regarding PTX-35, earlier in 2021, Heat announced promising preclinical data at both the AACR Oncology Meeting and 3rd Annual T-reg Directed Therapy Summit. Given the promising data, Heat is expanding (increasing) patient dosing of PTX-35 in patients with solid tumors and expects to update stakeholders with interim data later in 2021. Management is also exploring applications of PTX-35 outside of oncology and is actively pursuing collaborations in various indications.

COVID-19

The COVID-19 program continues. Despite the approval of multiple vaccines, management believes there is opportunity in the emergence of variants, namely the delta variant, that will require combination approaches, and Heat is leveraging expertise into new research to elicit more robust immune response. Clinical trials are very expensive and Heat expected to pursue COVID-19 with government support and will not pursue trials without government support. Heat remains in talks with public support resources. COVID-19 made apparent the general lack of resources and preparedness to respond to new and emerging biosecurity threats, and in response Heat formed its Blackhawk subsidiary focused on emerging biothreats. Blackhawk was originally conceived as a result of research following the pandemic. Management believes that the platform is highly adaptable and can provide versatile and timely responses to protect the US from known and unknown future biological threats.

Events and Milestones

➢ Continued enrollment in PTX-35 trial – 2021/2022

➢ End of Phase II meeting with the FDA for HS-110 – 2022

➢ Completion of Scorpion facility – 1H:22

Summary

During the third quarter, Heat broke ground on its San Antonio facility, formed and added to its Biothreat Advisory Board, unveiled subsidiaries Skunkworx Bio and Scorpion and appointed Paul Tebbey, PhD, MBA as SVP, Product Development and Portfolio Strategy. Heat’s balance sheets shows ample cash reserves of $109 million supporting initiatives of pipeline development as well as vertical integration through its subsidiaries. Several upcoming milestones related to continuation of the PTX-35 and HS-110 programs are expected in the near future. We anticipate that the next value driver for Heat Biologics will be further clarity on design and structure of the anticipated registrational trial for HS-110 following and end of Phase II meeting with the FDA.

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1. Source: Heat Biologics September 2021 Corporate Presentation

2. Source: Heat Biologics September 2021 Corporate Presentation

3. Source: Heat Biologics September 2021 Corporate Presentation

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