AI-Driven Vaccine Partnerships And Dark Genome Targets Will Shape Long-Term Opportunity

Catalysts

About Evaxion

Evaxion develops AI driven immunology platforms to design personalized and off the shelf vaccines for cancer and infectious diseases.

What are the underlying business or industry changes driving this perspective?

• The landmark out licensing of EVX B3 to MSD, the first AI discovered vaccine candidate licensed by a major pharma, positions Evaxion as a preferred partner as large pharmaceutical companies increasingly seek external AI capabilities. This can support milestone and royalty based revenue growth.
• Advancing EVX 01 with compelling two year melanoma data and an active out licensing strategy aligns with growing adoption of personalized immunotherapies, creating potential for an upfront and milestone rich deal that could materially lift revenue and future earnings.
• The new automated vaccine design module cuts development time and cost from target discovery to product candidate, improving operating efficiency and supporting better net margins as more programs are progressed with a relatively stable cost base.
• Expansion into dark genome derived ERV targets with EVX 04 addresses difficult to treat cancers such as AML at a time when demand for novel oncology mechanisms is increasing. This can broaden the addressable market and support longer term revenue and profit growth.
• The strengthened balance sheet, including MSD cash inflows, EIB debt to equity conversion and an extended cash runway into the second half of 2027, reduces financing risk and allows the company to negotiate partnerships from a stronger position. This supports value accretive deal structures and improved long term earnings potential.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Evaxion's revenue will grow by 51.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -70.8% today to 25.4% in 3 years time.
• Analysts expect earnings to reach $6.7 million (and earnings per share of $0.03) by about December 2028, up from $-5.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $67.7 million in earnings, and the most bearish expecting $-15.5 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, up from -9.6x today. This future PE is lower than the current PE for the US Biotechs industry at 19.0x.
• Analysts expect the number of shares outstanding to grow by 1.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.7%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The biotech funding and deal making environment remains weak or deteriorates further, which could slow or prevent the closing of additional out licensing or target discovery partnerships that are central to Evaxion's strategy and expected revenue growth over the long term, directly pressuring future revenue and earnings.
• Despite promising early and two year EVX-01 melanoma data, larger randomized studies or expansion into new cancer indications may fail to replicate efficacy or durability. This is a common long term risk in oncology drug development and could reduce the probability of a major partnering deal and significantly limit future revenue and margins.
• The market for AI driven drug discovery and vaccine design is becoming increasingly crowded. If larger competitors or alternative technologies outpace Evaxion's AI Immunology and automated vaccine design module, the company may struggle to command attractive economics in collaborations, weighing on long term revenue potential and net margins.
• Key pipeline assets such as EVX-04 for AML and the broader dark genome ERV strategy are still at a preclinical or early stage. Any toxicology, manufacturability or regulatory setbacks could delay or prevent clinical entry and commercialization, undermining the multi year growth story for revenue and earnings.
• The current cash runway to the second half of 2027 is heavily reliant on milestone timing, warrant exercises and capital market access. If additional milestones slip or equity markets remain difficult, Evaxion may need to raise dilutive capital on unfavorable terms, which would depress earnings per share and could cap share price appreciation.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $14.19 for Evaxion based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $19.75, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $26.5 million, earnings will come to $6.7 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $6.21, the analyst price target of $14.19 is 56.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.