AI Immunology Partnerships And Pipeline Progress Will Drive Long Term Value

Catalysts

About Evaxion

Evaxion is a biotech company that uses its AI-Immunology platform 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 first ever in licensing of an AI discovered vaccine candidate by a major pharma company through MSD's option exercise on EVX B3 gives external validation to Evaxion's platform and provides upfront cash, which can support future revenue visibility and reduce funding pressure on earnings.
• The extended evaluation period and ongoing confirmatory work by MSD on EVX B2 keeps a second partnered asset in play, and a positive outcome could add further milestone potential, creating another possible revenue stream alongside the AI platform.
• Two year Phase II data for EVX 01 in advanced melanoma, including a 75% objective response rate and durable immune responses in all treated patients, positions the program as a candidate for out licensing discussions that, if successful, could influence future revenue, milestone income and royalty potential.
• The new automated vaccine design module, which shortens design timelines and reduces manual work, points to a structural shift toward faster and cheaper vaccine development, which could support higher operating efficiency and improved net margins over time.
• The addition of EVX 04, an off the shelf cancer vaccine targeting endogenous retroviral antigens in acute myeloid leukemia, broadens the oncology pipeline and taps into wider adoption of immunotherapies, increasing the number of shots on goal that could eventually affect top line revenue and earnings.
• A cash runway into the second half of 2027, supported by about US$31.8m of capital market and partnership related activity year to date and a US$7.5m option fee from MSD, gives Evaxion time to progress programs and business development efforts without near term refinancing pressure, which can stabilize operating expenses and support earnings visibility.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Evaxion compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Evaxion's revenue will grow by 93.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -129.6% today to 34.0% in 3 years time.
• The bullish analysts expect earnings to reach $18.4 million (and earnings per share of $0.06) by about July 2029, up from -$9.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-22.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.9x on those 2029 earnings, up from -2.7x today. This future PE is lower than the current PE for the US Biotechs industry at 17.8x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Evaxion is still dependent on external partners to move key assets forward, and management highlights that market uncertainty is affecting the deal climate, so slower or weaker out licensing agreements for EVX 01, EVX B2 and future programs could limit the build out of recurring revenue and delay a path to sustained earnings.
• The business model leans heavily on AI-Immunology and the new automated vaccine design module to shorten timelines and lower costs. However, if pharma partners or regulators are slow to adopt AI designed vaccines as a standard approach, monetization of target discovery and design services could fall short of expectations and weigh on both revenue and net margins.
• Several pipeline programs, including EVX 01, EVX 03 and EVX 04, are still in early or mid stage development. Any clinical setbacks, weaker than hoped immune responses in larger randomized studies or challenges in manufacturing personalized and off the shelf cancer vaccines at scale could reduce the long term commercial opportunity and limit earnings potential.
• The company has relied on capital market transactions, warrant exercises and debt to equity conversion alongside the MSD upfront option fee to reach a cash runway into the second half of 2027. Prolonged reliance on external financing or further equity issuance in a weak funding market could dilute shareholders and pressure per share earnings even if absolute earnings improve.
• Long term value creation is tied to milestone and royalty streams from the MSD EVX B3 deal and potential EVX B2 out licensing. These future payments are contingent on successful development and commercialization by partners, so project discontinuations, reprioritizations or weaker than expected vaccine uptake could limit future revenue and keep net margins under pressure.

Valuation

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

• The assumed bullish price target for Evaxion is $16.0, which represents up to two standard deviations above the consensus price target of $11.25. This valuation is based on what can be assumed as the expectations of Evaxion's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $16.0, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $54.2 million, earnings will come to $18.4 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 7.0%.
• Given the current share price of $3.2, the analyst price target of $16.0 is 80.0% 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.