Description

Introduction

CureVac is a grossly overpriced (at $22 billion) mRNA company whose major drug candidate is a COVID-19 vaccine with an inferior profile to already authorized agents.  Both the efficacy and the safety profile appear worse than the already authorized PFE/BNTX and MRNA vaccines.  The key data readout is their P2b/3 study of >40,000 patients being run in EU/LATAM which has been pushed out repeatedly, but is currently estimated to read out in the 2Q 2021.  Meanwhile with each passing day their market becomes smaller and smaller as existing players ramp up supply.  Once the market realizes that the profile is inferior and thus sales post the pandemic are limited, we believe the stock should correct ~50%.  

Efficacy profile is marginal

Efficacy of CVAC is highly likely to be worse than PFE or MRNA vaccines.  Efficacy in the Wuhan strain (original) virus might be 80%, but top-line efficacy in all strains could be substantially worse.  

There is substantial risk to the data readout given the antibody data which appears approximately 4x lower than the authorized mRNA vaccines.  CVAC’s neutralizing antibodies from their P1 study have been underwhelming, especially in comparison to the authorized mRNA vaccines (PFE/BNTX and MRNA).  

Below you will see a chart of their neutralizing antibody levels vs. HCS (Human Convalescent Serum).  The relevant dose is that 12ug dose, which is what is being studied in the HERALD study.  You can see that the neutralizing antibody levels are comparable to HCS (both at 113).  So the ratio of antibodies for the vaccine vs. HCS is 1:1. 

In comparison, PFE/BNTX had 4:1 ratio (312 vs. 94).  

MRNA as well had a 4:1 ratio for their antibodies vs. HCS.  

The other way to look at it is to try to compare all the neutralizing antibody titers directly against each other (vs. the different HCS that they each compared against).  ISI did a good job of trying to get everyone onto one page. The result is clear… the neutralizing titers are significantly worse for CVAC compared with PFE and MRNA.  This strongly suggests that they will be nowhere near the 90-95% efficacy we see with the other mRNA vaccines.  

In the meanwhile, there is also a P2a study that they have continuously pushed out timelines for release of data for.  This study is randomized for 90% vaccine and 10% placebo, but they are seeing such high infection rates that they have delayed the data readout and submitted an amendment in order to better characterize the variants of the infections.  

From their 4Q20 call:

Though we do not want to read too much into the P2a since there are multiple doses being studied, overall it seems the infection rate is high suggesting the efficacy may be marginal or weak.  This study was meant to collect data on patients >60 years old where vaccine response may be weaker than for younger patients.

All this being said, we don’t know the actual levels of neutralizing antibodies that correlate with different levels of efficacy.  The argument is that levels of antibodies comparable to HCS may be enough to have good efficacy.  Also, PFE and MRNA vaccines had low levels of antibodies after the first dose, and yet they still showed strong efficacy signals.  Furthermore, T cell responses will also be important for efficacy, thus the antibody levels may not tell the whole story.  

Poor Efficacy Means 2Q21 Timelines at Risk

If the study cannot read out at this first interim (~56 infections) then it could mean that timelines for approval get pushed out given event rates, and would strongly indicate an inferior efficacy profile.  

There are two interim analysis in the P2b/3 HERALD study .  The first interim requires at least 85.7% efficacy at 56 events.  They did over-enroll the study by about 10% (with >40,000 patients vs. 36,500 originally) which might mean there is some ability to stop the study at a lower efficacy rate.  

Enrollment started on December 14th, 2020.  They announced completion of enrollment on April 15th on their 4Q earnings call, so < 4 months to enroll, we know that they had not completed enrollment by the time of the Leerink conference in February.  If we use the timeline below we could expect events to be in the next 1-2 months.  

Theoretically if they don’t hit on the first interim we can assume that they will be <85% efficacy most likely.  So if that gets announced then the stock should be down.  In fact there may be real concern as to how long it will actually take to get the number of events that they need.  In addition to the worse profile, the delay in trial readout if they are not able to stop the trial at the 1st interim means that the market opportunity is smaller as they await the 2nd interim.

Side effect profile is terrible and limited their ability to dose up for better efficacy

Below you will see the adverse events profile from the P1 data.  The 12ug dose that is being studied is circled.  You can see that 100% of patients had side effects and ~90% of patients had moderate to severe side effects after both the 1st and 2nd dose.  

Below is a breakout of the types of AEs after the first and second dose.  

In comparison you can see that the moderate/severe fever for PFE or MRNA was substantially less.

Source: ISI CVAC Initiation

CVAC has a very narrow therapeutic window for their vaccine… in order to have any hope of having enough efficacy to comparable with other vaccines, they had to increase the dose, but that meant that the side effects are way worse.  

Benefits of CVnCoV

So if efficacy is not as good, and the side effects are worse, what are the benefits of CVAC vaccine?  The main one that they emphasize is that it doesn’t need to be stored in a special cold chain like the other authorized mRNA vaccines.  This would be especially important for the developing world, though unclear what sort of pricing they would get there.  

Valuation

We believe that there is 50% downside for CVAC if the profile is viewed as non-competitive to the existing agents.  There may be some sales in 2021 and 2022 during the “pandemic” phase (though risk on pricing), but hard to see the tail of billions of sales that sell-side is modeling to justify upside.  

Consensus has $3B in revenue for CVAC this year, growing to $5.2B next year driven by the COVID-19 vaccine.  Please note that the 2022 may include some contribution from the 2nd generation vaccine with GSK where the economics are split 50/50.  

One of their main selling points is the temperature handling of their product is better than for the currently authorized mRNA vaccines, but this has not been a huge impediment for the existing vaccines and the gap is narrowing as PFE and MRNA improve on the stability.  And will they be able to hold $12/dose pricing if existing players are able to supply the developed world?  PFE and MRNA are both projecting 3B doses each for 2022.  

With 300M capacity for this year, and 500 million doses for 2022 (assuming 50% of the 1 billion doses are from the 2nd generation partnership with GSK) at $12/dose we can $9.6B in revenue.  Assuming 60% operating margin and 25% tax rate, would be $4.32 in net income.  

For the 500M doses from the 2nd generation would be at 50% economics, assuming they can hold their $12 pricing/dose and 30% operating margin and the 25% tax rate would be $1.35B in net income.  

Based on the above analysis, its clear to justify the current stock price, let alone upside, you have to believe that this platform or the COVID-19 vaccine has a long tail, and indeed the sell side has done that.  

Source: Guggenheim CVAC Initiation

Sell side is all assuming “endemic” sales in the billions or another outbreak.  There is a lot of room to fall if this is not competitive with the other options on the market.  

In fact we see parallels to the HCV market once we are past the pandemic phase and no longer supply constrained.  GILD generated outsized sales early on given their superior profile, ABBV came in with a worse product at a lower price, and GILD effectively ended up lowering their price and keeping the majority of the market share.  Insurers saved a lot of money, but the market was effectively destroyed for GILD and ABBV.

Source: Bernstein

Given the number of players ramping up to meet the peak pandemic demand for vaccines, there will be no incentive for any one player to hold the line on pricing, and once one gives on pricing PFE or MRNA will likely be forced to match.  The best in class profile still wins in terms of market share but at a much lower price.  Someone like CVAC is going to have a hard time taking share post-pandemic even if they lower price unless they have a best in class profile.  

Appendix

They have signed a deal with the EU for up to 405M doses (225M commitment and an option for 180M doses).  

Based on an inadvertent tweet we know that the price agreed upon was 10 euros.

Catalyst

• HERALD P2b/3 trial readout (or delay)
• P2a trial read out 
• Competitor trial readouts (ie NVAX)