Company overview and opportunity
Novavax, Inc. (NVAX) is a clinical-stage biopharmaceutical company that uses recombinant nanoparticle technology to develop vaccines for a wide variety of infectious diseases. The company presently has six vaccine candidates undergoing clinical trials, with a seventh (rabies) being readied for a Phase-1 study later this year. Of the six vaccine candidates in active clinical trials, the most advanced are the Respiratory Syncytial Virus (RSV) and Seasonal Quadrivalent Influenza vaccines, both of which are in advanced Phase 2 trials. Getting down to brass tacks, the RSV vaccine is believed by analysts to be the most important short-term value driver for the company, with Lazard Capital recently placing an eye-popping $11 target on shares of NVAX based on this candidate alone.
To provide some context, RSV is a common virus that infects the lungs and breathing passages. Although healthy adults generally recover within a week's time, the infection can be deadly in infants and elderly patients with compromised immune systems. An effective prophylactic medication (Palivizumab) is presently available for preterm babies born prior to 35 weeks, but there isn't an FDA approved vaccine for any other demographic. Because of the global nature of RSV and the enormity of this unmet medical need, an effective vaccine that treats a wide variety of potential patients could be valued well into the billions.
Analysts are optimistic about Novavax's RSV vaccine candidate for two reasons. Firstly, the potential market for a successful RSV vaccine is easily worth 3-4X times Novavax's current market cap of $490M. Secondly, Novavax has repeatedly announced top-line results from its host of Phase 2 clinical trials aimed at creating a broad-based RSV vaccine.
Fundamental and Technical Perspective
As of June 30th, 2013, the company had $40.6 M in cash and cash equivalents, $30M of which was raised through the sale of common stock between 2011-2013. Yesterday, the company announced that it had raised an additional $82.6 M via a public offering (net proceeds) of > 27 M shares at $3.14, giving the company approximately $120 M in cash and cash equivalents. Because of increased expenses related to the company's advancing clinical trials, Novavax's cash burn rate has increased to approximately $3M a month this year, up $1.4 M compared to the same period in 2012.
Revenue generated from the BARDA contract and the PATH clinical development program came in at $7.4M for the first six months of 2013, which is a 37% decrease in revenue from these agreements year-over-year. To provide some context, the HHS BARDA contract was awarded in 2011 for the development of Novavax's seasonal and pandemic (H5N1) influenza vaccines. At the company's recent investor and analyst update, Novavax announced that the company will move forward with the clinical programs funded through BARDA, which is a major achievement both financially and scientifically for Novavax. Specifically, the continuation of this agreement will provide much needed revenue, and it signals that the company is steadily progressing towards a pivotal Phase III study for its nanoparticle vaccine platform. Overall, the company is now on financially stable footing and should have no reason to raise additional capital through dilutive measures within the next three years.
Shares of NVAX are now up approximately 70% year to date, despite more than 10% of the float still being short. The Relative Strength Index (RSI) stands at 56 at the time of writing this article, suggesting the shares are neither overbought nor oversold. Even so, NVAX is trading 13% higher than its 50 day SMA, and almost 42% higher than its 200 day SMA. From a purely technical perspective, NVAX would appear to be ready for a consolidation phase to form a new base near all-time highs for the stock. As such, I believe now is a good time to begin building a long term position in NVAX.
Companies developing the next generation of vaccines, like Inovio Pharmaceuticals (INO) and Novavax, have unquestionably caught the eye of investors in recent years. While these cutting-edge vaccine makers are certainly not the first companies to try to tackle global pandemics with novel technological approaches, they may be among the first in actually succeeding. Simply put, the technology behind non-protein based vaccines appears to have finally caught up with the hype of the past decade, evinced by the plethora of top-line results emanating from synthetic vaccine makers of late. Within this exciting subsector, I believe Novavax is an intriguing speculative play that could easily double in PPS over the next few months if the company continues to report positive clinical data. Backing this claim, the company currently has enough cash where dilution shouldn't be a major risk factor in the short-term, insiders have bought over 300k shares on the open market in the past 12 months, and the company's market cap is markedly lower than what a successful RSV vaccine would be worth (i.e., billions). In sum, Novavax looks to be a rising star in this up and coming sector, and offers investors an excellent risk-to-reward ratio going forward.