Heat Biologics Inc (NASDAQ:HTBX) Is Undervalued

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Heat Biologics Inc (NASDAQ:HTBX) has been a wild ride over the last twelve months. The company ran up ahead of a highly anticipated data release relating to its lead asset – HS-410 – in a bladder cancer indication. At its pre release peak, Heat traded for a little over $3.20 a share. Then the results hit press, and the company collapsed in value. At December start, Heat went for $1.03. It has since declined further, and now trades for just $.77 – a more than 75% decline in a matter of weeks.

We think there’s the potential for a turnaround, or at least some degree of value recuperation, as we head into the start of 2017. Why? Because while the 410 numbers weren’t great, there’s potential in the lower pipeline, and 410 is far from completely out of the picture.

Here’s what we’re thinking.

First up, a look at the bladder cancer situation. Basically, the drug missed its primary endpoints in both a monotherapy and a combination therapy investigation, comparing the drug to placebo. There wasn’t any statistically significantly benefit demonstrated, with the drug not altering the proportion of recurrence-free survival at one year. However, there were some antigen-specific immune responses demonstrated, and this suggests that there may be some longer term anti cancer activity. It’s a long shot, but Heat has extended its investigation follow up to two years, and that long shot may prove well worth taking late 2017, when we find out if the anti cancer activity is there. It’s a cheap trial to carry out, so the extension isn’t really adding too much to the expense side of the equation.

Perhaps more interestingly, at least that is, in the wake of the bladder cancer failure, is the company’s follow up asset – HS110.

This one is currently under investigation as a lung cancer target, in combination with a current SOC immunotherapy asset – Bristol-Myers Squibb Co (NYSE:BMY)’s nivolumab (marketed as Opdivo).

On December 6, Heat put out topline from a phase Ib study comparing the above combination with single therapy nivolumab. The data sort of went under the radar, pretty much unnoticed by markets, and didn’t really have any impact on Heat’s market capitalization. We think markets may have missed a trick. The numbers came out as positive, and demonstrated a clinical benefit for the combination of Heat’s asset and the BMS immunotherapy drug, above and beyond that of nivolumab on its own. It’s a lung cancer investigation, and at top line, overall survival compared favorably with single-agent nivolumab. Additionally, there were no additional toxicities seen in hs-110/nivolumab combination compared to existing data on single agent nivolumab alone (this latter point was the primary point of investigation).

Now, things aren’t ideal. We’d be stretching if we were to try and suggest they were. However, at its current market capitalization of just shy of $20 million, we think there’s considerable potential as a long term value play. There’s $8.5 million cash on hand, and total current assets of $9.1 million. Debt comes in at just under $3 million, so the balance sheet is pretty strong.

If Heat can continue to perform against its endpoints in the lung cancer trial, carrying 110 through to mid stage development, there’s no reason it won’t appreciate in value near term. Longer term, if it maintains the extension study of 410, and can pull some degree of surrogate data from the study, then there’s some added value there as well.

Bottom line, this is one markets have written off, and we think this write-off is very much premature.

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Disclosure: We have no position in HTBX and have not been compensated for this article.

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