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Expert Financial Analysis and Reporting

Agenus and Glaxo: Sizing Up the Potential for the RTS,S Malaria Vaccine (AGEN, $2.94)

Putting Malaria Vaccine Results in Perspective for Agenus
Glaxo (GSK) has just released interim (18 month) results on its phase III trial conducted in sub-Saharan Africa for its malaria vaccine, RTS,S; this follows previous interim reports at 6 and 12 months. The results are not as good as the results normally seen with childhood vaccines in which disease prevention is generally 90% or more.

In the six to ten weeks group (infants), the study concluded that there were 444 clinical cases of malaria prevented for every 1000 infants vaccinated. The reduction in severe malaria cases was 15% and the reduction in hospitalizations was 17%. The outcomes were somewhat better in children who were 5 to 17 months old. It was somewhat disappointing that results waned with time as results at 6 months were better than those at 12 months which were better than those at 18 months.

These results while modest in comparison to other childhood vaccines, but they have to be put in context. In sub-Saharan Africa, deaths (mostly young children) from malaria are estimated at 650,000 each year. Even the numerically modest results will greatly reduce morbidity and mortality in children. It has the potential to prevent millions of cases of malaria, significantly reduce hospitalizations and save many lives.

Glaxo has announced that it will seek approval to market RTS,S in Africa. There was some uncertainty as to whether GSK would judge the results as sufficiently encouraging to file for approval so that this decision was a positive and a mild surprise. Glaxo has committed to sell the vaccine at cost plus 5% and to apply the 5% markup to research on other tropical diseases. Glaxo will receive no profits from commercialization of this vaccine.

The critical aspect for RTS,S commercialization is whether the European Medicines Agency (EMA) will approve the product based on this data and if the World Health Organization then recommends that it be included in the standard package of childhood vaccines. This is by no means a slam dunk, but if it does occur, there should be a rapid uptake. Glaxo will not have to convince physicians and patients of its effectiveness and will not have to haggle with insurers over price. It will be rapidly incorporated in existing childhood vaccination programs. I expect that the Bill and Melinda Gates Foundation and other charities will pick up the cost of vaccination if the product is approved and that funding from the financially strapped African nations will not be required. Uptake should be quite rapid.

My best judgment is that RTS,S will gain approval and marketing will begin in late 2015 or 2016. Based on estimates whose underlying assumptions are explained later in this report, I estimate RTS,S sales of $139 million in 2016, $233 million in 2017 and $435 million in 2024. I have seen estimates from Street analysts that are twice as high as mine. Agenus provides its QS-21 adjuvant for this vaccine and will receive a royalty of 1.6% on sales. Its royalties in accordance with my sales assumptions would be $4 million in 2016, $4 million in 2017 and $7 million in 2024. Estimating sales of RTS,S involves making some assumptions based on limited facts and I would caution readers to look at these estimates as indicative of magnitude and trend and with due skepticism.

If my assumptions are correct, the net present value of the royalty stream is about $30 million assuming a 10% discount rate and that the product remains the dominant malarial vaccine through 2024. This is a positive development in the investment case for Agenus (AGEN), but obviously it is not a home run. However, it does bring focus to the potential value of QS-21 which is currently included as an adjuvant in 21 other clinical trials of vaccines. Most of these are in vaccine programs of Glaxo, the world’s largest vaccine manufacturer.

I continue to recommend Agenus on the basis of QS-21 and the Prophage program in newly diagnosed and recurrent glioblastoma. I am also awaiting phase II results for HerpV in genital herpes later this year. If the results are encouraging, it would add another leg to the Agenus investment story. Please see my detailed report of July 17, 2013 for a more detailed description of my reasoning.

My view that Prophage has a reasonable chance for success has been strongly attacked. However, I am encouraged that the National Cancer Institute, not Agenus, is funding a phase II trial in recurrent glioblastoma that potentially could be the basis for registration. I believe that this is the largest brain cancer trial ever funded by NCI and could cost on the order of $20 to $25 million. I presume that NCI saw something interesting in the product and previous data that encouraged them to make such a huge commitment.

Results of Phase III Trial of RTS,S
New phase III interim data on Glaxo’s RTS,S malaria vaccine was presented at the Multilateral Initiative on Malaria Pan African Conference in Durban, South Africa. The presentation was titled, “Efficacy of RTS,S/AS01 vaccine candidate against malaria in African infants and children 18 months post-primary vaccination series: a Phase 3 randomized, double-blind controlled trial”. At this point in time, I can only report results as they were stated in the Glaxo (GSK) press release. Detail was lacking and the presentation was confusing in parts.

The phase III trial was analyzed for two different age groups; children aged 5 to 17 months and infants aged six to ten weeks. Children in each group were given either RTS,S or a control vaccine. Results from this trial were previously reported after one year of follow-up. This paper presented 18 months follow-up data from the same trial.

The paper stated that at 18 months there were 46% fewer cases of clinical malaria in the 5 to 17 month age group. It went on to conclude that for every 1000 children vaccinated over an 18 month period, an average of 941 cases of clinical malaria were prevented. (The study somehow took into account that some children contact more than one case of malaria in that time frame.) The study estimated that 21 cases of severe malaria were prevented for every 1000 children vaccinated over this 18 month period and malaria caused hospitalizations were reduced by 42%.

In the six to ten weeks group (infants), there were 444 clinical cases of malaria prevented for every 1000 infants vaccinated. The reduction in severe malaria cases was 15% and the reduction in hospitalizations was 17%. The reduction in severe malaria cases and malaria hospitalizations was statistically significant in the 5 month to 17 month age group but was not statistically significant in the six to ten weeks age group.

Vaccine efficacy appears to decline over time. The results at one year showed that reduction in clinical malaria in the 5 to 17 month age group was 56% and at 18 months it was 46%. Similarly, the reduction in severe malaria was 47% at one year and 36% at 18 months. In the six to ten weeks group, the reduction in clinical malaria was 31% at one year and 27% at 18 months. The reduction in severe malaria was 36% at one year and 17% at 18 months.

RTS, S continued to display an acceptable safety and tolerability profile during the 18 month follow-up. No new safety signals were observed during this longer follow-up period. The incidence of severe adverse events overall was similar in participants in each group.

Data Yet To Be Reported
There will be another follow-up on data at 30 months which will include the effects of a booster shot given at 18 months. This data should be available by the end of 2014. Glaxo’s CEO, Andrew Witty, told BBC that “Over the next couple of years, we will get a very clear view of what is really happening with protection. Is it waning or is it just that people are acquiring natural immunity? Do we need a booster dose or not? All of that will become clear in the next two years or so.”

How Good Were These Results?
These results were quite modest when viewed against the 90% or greater reduction in disease that is generally achieved with childhood vaccines. Also, the waning of effectiveness with time is a concern. On the other hand, malaria has been intransigent to vaccines and this is the first vaccine ever to show meaningful efficacy against this disease. Looked at in this way, the results are more impressive.

Glaxo says it will move ahead to develop the vaccine commercially so this signals that they think the results are clinically meaningful. Based on these data, GSK now intends to submit in 2014 a regulatory application to the European Medicines Agency (EMA) under a process aimed at facilitating new drugs for poorer countries. If the EMA licenses the vaccine, the next step would be a recommendation that RTS,S be incorporated in childhood vaccination programs and this could be as early as 2015. Bear in mind that Glaxo has committed to sell RTS,S at cost plus 5% and that this markup over cost will be directed at tropical disease research. Glaxo will receive no profits from commercialization of this vaccine.

GSK is developing RTS,S in partnership with the non-profit PATH Malaria Vaccine Initiative (MVI), which receives grants from the Bill & Melinda Gates Foundation. David Kaslow, vice president of product development at PATH, believes that RTS,S would serve as a useful additional tool alongside other malaria control measures such as mosquito nets, insecticides and anti-malaria drugs. He said that "Given the huge disease burden of malaria among African children, we cannot ignore what these latest results tell us about the potential for RTS,S to have a measurable and significant impact on the health of millions of young children in Africa." He went on to say that "This trial continues to show that a malaria vaccine could potentially bring an important additional benefit beyond that provided by the tools already in use."

Bill Gates has given billions for vaccine development in the developing world. In regard to RTS,S and these trial results, he said. “It is very promising, the very fact that this vaccine works. It gives data about how to build better vaccines. It gives us a tool to combine with the bed nets, the mosquito spraying, the mosquito killing and all of these interventions that will help us bring the number of deaths down quite a bit.”

Will RTS,S Be Commercialized?
I think that there are several strong arguments to suggest that RTS,S will be introduced into the vaccination programs of African countries. GSK obviously feels that it warrants approval as is shown by its announcement that it will file for approval. Even though the protection rate is not as high as is normally seen with childhood vaccines, the data suggests that there will be millions of children who will benefit and that hospitalizations for malaria and deaths will be significantly decreased. Although it has not been confirmed, I think that the Gates Foundation along with other charitable organizations may pick up a good part of the costs of vaccination, which at steady state could be on the order of $400 million per year according to my estimates.

Building a Sales Model for RTS,S
The malaria vaccine, if approved by EMA and recommended for inclusion by WHO, will be incorporated into childhood vaccination programs. I am assuming that the vaccine will be applied in the six to ten week age group at steady state. However, in the first two years, there would be a catch-up for those who had not been vaccinated. I have not included any estimates for booster shots although I suspect that they will be used. The primary issue with uptake will be the availability of heath care infrastructure that can administer the vaccine. I have limited confidence in my projections, but one has to start somewhere. I expect to refine and improve these projections in the future.

Here are my assumptions:

  1. The vaccine is introduced in early 2016.
  2. There are 180 million births per year in sub-Saharan Africa, but I am estimating that the health care infrastructure as it now stands can vaccinate about 48 million children in the richer and more developed countries.
  3. There will also be a catch up for children in the five month to 17 months cohort in the first and second year of about the same number, but sales in this cohort disappear by the third year of marketing.
  4. The price per dose is $2.50 per vaccination and I assume that this does not increase over time. This is representative of the prices paid for other vaccines.
  5. There are four doses per child.
  6. Based on experience seen with other childhood vaccines, nearly 75% of children could be vaccinated by the third year and this rate would then hold steady.
  7. My model may be conservative as the number of babies that can be vaccinated could expand beyond 48 million. It is also conservative in not estimating any booster doses.

The results of all of these assumptions are shown in the following table.

Table 1: Assumptions Underlying Sales Projections for RTS,S and Resultant Royalties Paid to Agenus
2015 2016 2017 2018 2019 2024
RTS,S in Malaria
New Births in Africa Target Countries (millions) 50 52 53 55 56 58
 Annual Increase 3% 3% 3% 3% 3% 3%
Penetration by Malaria Vaccine 0% 15% 40% 65% 75% 75%
New Births Vaccinated (millions) 0 8 21 36 42 43
Catch up cohort 40 41 42 44 45 46
 Annual Increase 3% 3% 3% 3% 3% 3%
Penetration by Malaria Vaccine 0% 15% 5% 0% 0% 0%
Catch up cohort vaccinated (millions) 0 6 2 0 0 0
Total African Children vaccinated (millions) 0 14 23 36 42 43
Price per dose $2.50 $2.50 $2.50 $2.50 $2.50 $2.50
Number of doses 4 4 4 4 4 4
 Annual price increase 0% 0% 0% 0%
RTS.S Sales $0 $139 $233 $355 $422 $435
Agenus Royalty rate 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%
Agenus Royalty ($millions) $0 $2 $4 $6 $7 $7
Source: SmithOnStocks Estimates 1.1 1.21 1.331 1.464 1.611 1.772

Background on RTS,S Malaria Vaccine

Malaria is endemic in over 100 countries where nearly one-half of the world’s population lives; sub-Saharan Africa is particularly affected. The disease is transmitted by female members of the Anopheles mosquito family which carry Plasmodium falciparum parasite responsible for malaria. Infections result from these mosquitos feeding on human blood and transmitting the parasite. The initial symptoms include fever, headache, malaise, fatigue, nausea, muscular pain and diarrhea. Infection can rapidly progress and lead to more severe symptoms, including delirium and convulsions sometimes followed by coma and death. Along with tuberculosis and HIV, malaria is a priority disease for the World Health Organization.

There are an estimated 216 million cases of malaria each year in sub-Saharan Africa resulting in 650,000 deaths. People living in endemic areas develop a partial immunity so that re-infection results as a discomforting illness that keeps them from going to work or school, but is not usually fatal. Most deaths occur in children who have not yet developed immunity and pregnant women who for not well understood reasons lose their partial immunity during pregnancy. Consequently, most malaria deaths are mostly in children under five years and in pregnant women.

Treating and Preventing Malaria
The strategy for controlling malaria involves both treatment and prevention. This starts with educating communities about preventative measures. The disease can be prevented by controlling the breeding of malaria carrying mosquitoes and using low-cost measures such as insecticide-treated mosquito nets. If children show signs of fever, they should be immediately tested with rapid diagnostic tests and given prophylactic drug treatment if malaria is confirmed.

The most important class of anti-malaria drugs is the artemisinins. They are derived from sweet wormwood, an herb that has long been used in Chinese traditional medicine. The World Health Organization recommends using this drug in combination with older drug classes such as the chloroquines to minimize the emergence of resistance.

For many infectious diseases, vaccines are the cornerstones and most cost-effective tools for public health, but there is no approved preventative vaccine for malaria despite 30 years of intensive research. An effective malaria vaccine would be given to children along with their other childhood vaccines such as smallpox and polio. Unlike vaccines for these, a malaria vaccine would not be the only preventative measure. Malaria vaccines will be used in addition to, and not as a substitute for, other control measures.

The Bill and Melinda Gates Foundation is heavily involved in finding more effective ways to control malaria and has called for the malaria community to shift their goal from sustained control to eradication. It is agreed that eradication is not possible with current tools and that research and development of new drugs, diagnostics, insecticides and a cost-effective, deployable vaccine will be needed to facilitate eradication.

Malaria Vaccines
Despite the long term failure to develop an effective malaria vaccine, there is reason for hope that a vaccine eventually can be developed. Individuals who are exposed to the parasite causing malaria can acquire immunity, although this may not necessarily prevent subsequent infection. Immune individuals often harbor asymptomatic parasites in their blood. When immunoglobulins are taken from these immune adults, purified and given to individuals that have no protective immunity, some protection can be gained. In addition to this, clinical and animal studies have shown that experimental vaccination has some degree of success.

No effective vaccines have been licensed despite nearly 30 years of effort. SPf66 was tested extensively in endemic areas in the 1990s, but clinical trials showed it to be insufficiently effective. Other vaccine candidates, targeting the blood-stage of the parasite's life cycle, have also been insufficient on their own. Several potential vaccines targeting the disease before it enters the blood stream and causes symptoms are being developed, with Glaxo’s RTS,S showing the most promising results so far.

Glaxo’s RTS,S Malaria Vaccine
RTS,S was studied in a large phase III clinical trial. Recent and earlier results suggest it provides additional protection against severe malaria for infants and children in settings where bed nets and other preventive measures are also widely used. The Phase III trial was conducted to the highest international standards exclusively in Africa by resident scientists at 11 sites in seven countries in collaboration with the vaccine’s developer, GlaxoSmithKline. It enrolled 15,460 children.

The vaccine was based on work first done at New York University that discovered antigens unique to Plasmodium falciparum. RTS,S is a genetically engineered product that uses peptide fragments or antigens from the outer surface of the Plasmodium falciparum malaria parasite combined with a portion of the hepatitis B virus and a chemical adjuvant containing Agenus’ QS-21. The goal is to trigger the immune system to defend against Plasmodium falciparum malaria parasite when it first enters the bloodstream and/or when it infects liver cells. The intent is to prevent the parasite from infecting, maturing, and multiplying in the liver, and subsequently re-entering the bloodstream and infecting red blood cells which leads to disease symptoms.

The vaccine was invented more than two decades ago by Glaxo. It is being developed in collaboration with the public-private PATH Malaria Vaccine Initiative. Glaxo has invested over $300 million so far in the project and expects to spend another $200 million. It has been further supported by $200 million from the Bill and Melinda Gates Foundation.

The brand name of RTS,S is Mosquirix. GSK has announced that the eventual price of Mosquirix will cover the cost of manufacturing the vaccine together with a small return of around 5% of cost and that those profits will be reinvested in research and development for second-generation malaria vaccines or vaccines against other neglected tropical diseases.

RTS,S Clinical Results
Clinical Trial Design
The RTS,S study was first ever phase III trial of a malaria vaccine. The trial involved 15,460 children at 11 sites in seven sub-Saharan African countries, with a focus on sites where there is a high incidence of malaria. Interim results on the trial have been reported but the trial is ongoing and blinded and final results won’t be published until late 2014.

Prior Results
There have been two earlier interim reports on this phase III. The follow-up at one year found that the number of episodes of clinical malaria compared to controls at 12 months was reduced by just under one-third in babies first vaccinated at 6 weeks to 10 weeks. Insecticide-treated bed nets were used by 86% of the trial participants, which meant that RTS,S had to show protection beyond existing malaria preventative measures. This 6 week to 10 week age group is the key demographic target of the trial because in poor countries any malaria vaccine would need to be given to children using the infrastructure for providing routine immunizations at this age.

Safety results are encouraging as side effects were primarily local injection site reactions. In comparison, 31% of babies given RTS,S developed a mild or moderate fever as compared to 21% given the current widely used DTP-HepB/Hib vaccine. The rate of severe side effects was slightly lower than in the DTP-HepB/Hib vaccine group

Evaluation of Results
The World Health Organization previously has stated that in order to incorporate a malaria vaccine into standard preventative health care, it should be able to prevent severe cases of malaria in more than 50% of vaccinated children. This is only a benchmark and does not necessarily preclude vaccines with lower efficacy from being licensed.

Follow-up to Phase III Trial
Almost 60% of the cases of severe malaria observed in the current study came from just 2 of the 11 trial sites. This suggests that vaccine efficacy might be lower than the topline figure at these two sites and higher at some other sites. Those differences won't be known until all the data are unblinded at the end of 2014, but a hypothesis is that the vaccine is less effective in areas of intense malaria transmission.

The children vaccinated between 6 weeks and ten weeks have been given a booster shot, and are now being monitored to see if they show reduced incidence of severe malaria as they grow older, in particular in the period before 5 years old when children are most susceptible to the disease. Data collection over that period will also help answer whether RTS,S offers some protection against malaria, or just delays infection.

Follow-up in this Phase III trial will continue to provide more data for analyses to better understand the different findings between the age categories. These data and analyses should also provide insights into the efficacy of RTS,S in different malaria parasite transmission settings. More data on the longer-term efficacy of the vaccine during 30 months of follow-up after the third dose, and the impact of a booster dose are expected to be publicly available at the end of 2014.

The data and analyses will determine the regulatory submission strategy. If the safety and efficacy are judged to be satisfactory, the
World Health Organization (WHO) has indicated that a policy recommendation for RTS,S malaria is possible as early as 2015, paving the way for decisions by African nations regarding large-scale implementation of the vaccine through their national immunization programs.

Other Malaria Vaccines
Researchers are working on next-generation malaria vaccines designed to further improve protection against infection. There also are other malaria vaccine approaches in earlier phases of development that target different stages of the parasite’s lifecycle. Prospects include transmission-blocking vaccines intended to interrupt the transmission of malaria parasites by taking advantage of vulnerabilities that have been identified as the parasites jump from the human host to the mosquito. Other vaccines are being tested that use different antigens. None of these are yet in phase III trials.


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  1. SmithOnStocks Mailbox: Comments on Antares, Agenus, Cytokinetics, Discovery Laboratories and ZS Pharma | Expert Financial Analysis and Reporting | Smith on Stocks

    […] I think that the news on the malaria vaccines was a major catalyst for the stock move. If so, the stock price move seems excessive given the modest economic impact on Agenus. I am projecting that Glaxo’s sales of the malaria vaccine will reach $350 million in 2018 and that Agenus will receive $6 million from Glaxo for the use of Agenus’s QS-21 Stimulon adjuvant which strengthens and broadens immune responses to the vaccine. The reasoning behind my projections are summarized in a report I wrote on October 9, 2013 called Agenus and Glaxo: Sizing Up the Potential for the RTS,S Malaria Vaccine. […]


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