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HTBX: Plenty of Catalysts in 2019

12/03/2018
By John Vandermosten, CFA

NASDAQ:HTBX

READ THE FULL HTBX RESEARCH REPORT

Third Quarter 2018 Results

Heat Biologics, Inc. (NASDAQ:HTBX) reported third quarter 2018 results in an August 14th release and concurrently submitted the companion 10-Q to the SEC. Heat attended several scientific and investment conferences including the European Congress of Immunology, International Cancer Immunotherapy Conference, Rodman & Renshaw and others during the most recent period, highlighting its scientific and operational progress. The company also provided an update on PTX-35, detailing the compound’s advance toward the clinic. With cash from the CPRIT grant and the recent capital raise, Heat is in position to continue developing its lead pipeline candidates HS-110 and PTX-35 without financing distractions over the next year.

In the third quarter, Heat reported total revenues of $1.8 million compared to $471 thousand in 3Q:17. This amount represented CPRIT grant money which is directed towards the PTX-35 T-cell activation platform. Research and development costs totaled $4.4 million, rising 141% as the PTX-35 program continues to accelerate and expenditures are allocated towards HS-110. Contributors to spending growth were attributable to continued pre-clinical development of PTX-35, patient testing of other biologics against TNFRSF25 and increased patient enrollment for the Phase II HS-110 program. General and administrative expenses rose 33% to $1.6 million stemming from increases in professional services/consulting fees associated with the 2018 Annual Shareholder Meeting as well as an increase in investor relations and new business development fees.

Cash and equivalents as of September 30, 2018 were $21.0 million, compared to $9.8 million at the end of 2017. Heat continues with no debt on the books. Cash burn was ($4.0) million in 3Q:18 and ($16.3) million for the first nine months of the year compared to ($4.0) million in 3Q:17 and ($9.5) million for the first nine months of 2017. Recognition of deferred revenue and purchase of property and lab equipment were the largest factors explaining the difference between earnings and cash burn. Following the end of the quarter, Heat conducted a capital raise which should add $12.6 million in additional funds if overallotments are exercised.

Pelican PTX-35 Update

Since our previous report, Heat has made progress on its PTX-35 T-cell co-stimulator. In an October press release, the company highlighted its progress on the program citing several accomplishments. These include:

‣ Completion of cell line development and creation of master cell bank for cGMP manufacturing
‣ Established chemistry, manufacturing & controls (CMC) path for the production of clinical material and toxicology studies
‣ Efficient binding of PTX-35 to TNFRSF25 receptor observed
‣ Increased expansion of T-cells in-vivo
‣ Primate IND-enabling dose range finding study that finds no toxicity signals
‣ Ongoing discussions with FDA regarding IND
‣ Targeted 1Q:19 IND submission

Pelican is working with Selexis for cell line expression for the CMC development of PTX-35. Selexis will also help develop PTX-15 and the TNFRSF25 agonist program. We anticipate that Pelican will maintain its timeline and submit its IND in the first quarter.

November Capital Raise

Heat announced a public offering in late November to raise $12 million and the issuance of 8 million shares at $1.50 per share with Alliance Global Partners (AGP) managing the deal. AGP was granted an overallotment option of 1.2 million shares which it exercised. Warrants are attached to the newly issued shares at a rate of 0.5 to 1, have an exercise price of $1.65 and expire after five years. Heat issued 9.2 million shares, 4.6 million warrants and raised gross proceeds of $13.8 million and net proceeds of $12.6 million after deducting transaction costs.

Corporate Milestones

Heat is conducting Phase II trials for HS-110 and preparing HS-130 (ComPACT) and PTX-35 for IND submission. Below we list key milestones on the horizon for Heat Biologics. Over the next several quarters we anticipate the following events.

‣ Closing of $20.7 million public offering – 2Q:18
‣ Receive $6.9 million in CPRIT grant funds – 3Q:18
‣ HS-110 (NSCLC) interim data readout - 4Q:18
‣ Closing of $12 million public offering – 4Q:18
‣ HS-130 (ComPACT) IND filing – 4Q:18
‣ HS-130 (ComPACT) first patient enrollment – 1Q:19
‣ IND for PTX-35 – 1Q:19
‣ Receipt of $6.9 MM in CPRIT grant funds (PTX-35) – 1Q:19
‣ Enroll first patient in PTX-35 Phase I trial – 1Q:19
‣ Complete HS-110 Phase II NSCLC enrollment – 2Q:19
‣ Interim ComPACT data readout – 2Q:19
‣ HS-110 Phase II final readout – 2Q:19
‣ HS-110 End of Phase II Meeting – Mid-2019
‣ HS-110 NSCLC Phase III ready – 3Q:19
‣ Interim PTX-35 data readout – 3Q:19
‣ Discussion with potential partners – 2018 / 2019
‣ Develop Phase III / commercial manufacturing capacity for HS-110 – 2018 / 2019

Summary

Heat Biologics had a relatively quiet quarter as it prepared the ComPACT and PTX-35 candidates for IND submission to the FDA; however, we anticipate the pace to accelerate as we move into 2019. Pelican highlighted its progress with IND-enabling activities and is on track to submit its PTX-35 IND in 1Q:19. The company has a favorable cash position, having raised over $30 million this year and receiving CPRIT funds for advancement of PTX-35, which we anticipate will avoid distractions from capital raising activities until 2020.

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