It's not often that you can invest in a small emerging biotech and not feel like you are venturing out onto a small thin ledge a hundred stories above the earth. The risk is tremendous, but and it's a big but, if everything goes right, so are the rewards. Novavax (NASDAQ:NVAX) is the first biotech investment I have discovered in 20 years to effectively contradict this long held investment reality. There are four streams of information supporting this conclusion: 1) Novel funding secured for all major development programs; 2) Novavax's Respiratory Syncytial Virus (RSV) vaccine is a successful breakthrough product in a market that the pharmaceutical industry has been trying to crack for 55 years; 3) Positive results in both Seasonal and Pandemic Influenza programs; 4) Novavax is poised to become the primary emerging-disease, bio-shield, for the entire world as evidenced by their rapid response to the Middle East Respiratory Syndrome (MERS). This article closely examines the multiple unique elements, highlighting Novavax's clinical development approach, scientific advancements and novel funding resources, all of which "de-risks" the entire development platform. All of these various elements combine to produce a synergistic program assuring future success.
1) Novel Funding i.e., Free Money - It does not get any more novel than that!
In 1999 I was a member of a deal-team that produced a co-development agreement between Trimeris Pharmaceuticals and F. Hoffmann-La Roche AG. The drug was an antiviral with the brand name of Fuzeon. There was nothing unusual about the terms of this deal, then or now. Roche agreed to pay 50% of all development expenses in the United States and all development cost in foreign markets outside of the US that Roche chose to enter. In return, Trimeris would receive 50% of all income derived from US sales and greatly reduced royalty payments from all foreign sales.
Novavax's Influenza manufacturing and clinical development programs are fully funded by the US government through the Biomedical Advanced Research and Development Authority (BARDA). The government's rationale for investing $179 million in Novavax's flu program was to enable Health and Human Services (HHS) to obtain the future capability of expeditiously implementing a very rapid-response to any emerging influenza pandemic. Novavax currently offers the most effective vaccine product, produced in the shortest amount of time, to accomplish this stated goal. This is obviously a very strong vote of confidence from the federal government, who, after all, will eventually be in control of the company's regulatory approval. If this sounds naively optimistic, keep in mind that FDA is an agency within the Department of Health and Human Services.
More importantly for Novavax and unlike the Trimeris/Roche example cited above, there are no royalties or income sharing provisions encumbering this funding. This provides a very unusual, free clinical development program for Novavax's seasonal influenza pipeline.
This is so unusual for a development stage biotech that I am going to repeat it. The government is not a profit participant when the FDA approves future influenza programs, either seasonal or pandemic, for marketing. The magnitude of this last statement is hard to appreciate until you put it into the following context. What would Novavax's share price do tomorrow if they were to announce a co-development deal with Roche or Novartis? It would obviously go up dramatically even though the reality of the situation would be that they just cut in half all future income. Novavax has achieved the best of both worlds, obtained full funding for its influenza program with no income sharing.
Novavax's other major clinical development project is Respiratory Syncytial Virus (RSV). There is a very similar funding story emerging on this front as well. The non-profit, Program for Appropriate Technology in Health (PATH), has to date, contributed $2 million to the RSV program and can elect to contribute 50% of Novavax's future external RSV clinical development cost. Novavax has made a commitment to make the product affordable and available in low-resource countries while retaining all rights to global commercialization. Novavax/Path Press Release Again, there are no provisions within the PATH funding agreement regarding any future profit sharing even though the potential exists for a development like deal funding level.
2) Respiratory Syncytial Virus (RSV): A Huge Untapped Market.
RSV has been an untapped multi-billion dollar, target of opportunity for the pharmaceutical industry for 55 years. The RSV virus was discovered in 1956 and attempts at producing a vaccine have been continuous since 1960. With decades of research and many failed attempts, there is still no RSV specific vaccines or effective targeted antiviral agents in the form of small molecules or drugs in the market.
It is estimated that there are 64 million cases of RSV disease worldwide each year, resulting in 160,000 deaths. All cause mortality rates, i.e., secondary afflictions stemming from the primary RSV infection, approaches 600,000 deaths a year. An example would be a bacterial infection resulting in pneumonia, which was secondary to the primary RSV infection. In the U.S., RSV causes as many as 172,000 annual hospitalizations among children younger than 5 years of age, with the vast majority of these occurring in infants less than six months of age. By 18 months of age, 87% of all children have developed RSV specific antibodies and by 3 years of age, virtually all children have been exposed. Compared with influenza, RSV causes 19 times more deaths in children younger than 1 year. RSV is also the second leading cause of viral death in elderly individuals. Sources: Advances in the Treatment of RSV, PATH
The global market for an effective RSV vaccine targeting pregnant mothers, infants/children, immune compromised and elderly, is estimated to be between $9 and $10 billion.
PATH produced the competitive landscape slide shown below. It identifies the majority of the current 55 RSV development projects. This very large number of development projects underscores both the unmet human need as well as the richness of the opportunity. PATH receives Bill and Melinda Gates foundation donations and together, those foundations have positioned an RSV vaccine as one of its highest priorities, determining that this specific disease intervention could make a dramatic difference in preventing morbidity and mortality in the world. Both of these foundations have all-star, world class, scientific review committees. Investments in Novavax by these foundations through PATH represents a strong vote of confidence that Novavax symbolizes both the most cost effective and promising therapeutic pathway for them to foster. This slide also underscores that Novavax clearly leads the race to regulatory approval in all development categories with the exception of the live attenuated strategies being utilized by Medimmune. Live attenuated RSV vaccines have historically been prohibitively problematic upon a live infection challenge after the vaccine administration. Results of Medimmune's (MEDI-559) Phase II RSV vaccine trial can be found here. Two bullet points should underscore the inferiority of MEDI-559. Adverse events occurred in 67% MEDI-559 of vaccine recipients. The most common adverse event was upper respiratory tract infections occurring in 35% of recipients. A higher incidence of medically attended lower respiratory illness within 28 days after dosing occurred in the MEDI-559 arm.
Novavax's RSV Fait Accompli
Much like seasonal influenza, the attachment protein of RSV undergoes a tremendous amount of year-to-year change, making a vaccine utilizing this highly variable target, all but impossible.
The fusion protein on the other hand, changes much less and there is a site on the fusion protein, Site II, that changes very little or not at all. That site is utilized as an affinity target by a monoclonal antibody (MAB) employed in the prophylactic prevention of RSV, primarily in premature infants. MedImmune manufactures this product for its parent company, AstraZeneca. Palivizumab is marketed under the brand name Synagis™. Synagis humanized mAbs are the only FDA-approved prophylactic RSV intervention available in the US. The high cost of the drug, averaging $1500 per injection and requiring at a minimum, 3 injections during the RSV season, prevent its widespread use and adoption in other clinical situations and eliminates any possibility of its use in third world countries.
Bioequivalence is a term utilized in drug development that indicates the biological response of one compound is identical to another, even though the manufacturing process or raw materials utilized in their production may be slightly or even significantly different.
Medimmune's, Synagis humanized antibodies, are produced in a bioreactor and administered as an injection (C in graphic above). This antibody is produced to target the Fusion II site of RSV. Injecting this same exact antibody target, in its native structural conformation, constitutes the Novavax's RSV vaccine (A in graphic above). Your immune system then produces protective antibodies against these antigens. Since these antibodies are produced utilizing the same antigenic target, and both bind that target, the end result is a bioequivalent product. Novavax has accomplished the binding affinity for both and found that they do indeed bind this same target, the fusion II site of RSV. Basically the Novavax RSV vaccine turns everyone vaccinated into a Synagis® manufacturing plant. Different manufacturing processes, same end results. A = C = Bioequivalence. This bioequivalence provides investors with a very accurate yardstick to gauge the likelihood of regulatory approval.
No regulatory submissions from Novavax will include any terms referring to bioequivalence. I have little doubt that the scientist at Novavax cringed as they read this description. I ascribed this term only to underscore the likelihood of Novavax's success in its RSV research, as the affinity target of the resulting antibodies are identical. The most important point of this comparison is the large database of clinical data it provides, allowing us to compare these two drug programs, and the very similar antibodies that result from them, to determine the likelihood of Novavax's success in its RSV vaccine program. The diagram below shows how compelling and dramatic that comparison actually is.
Synagis antibody levels in the 25 μg /ml to 30 μg/ml have been determined to be the minimum range of protective levels (MPL) required to prevent infection after a virulent RSV exposure. Complete viral inhibition was noted at serum concentrations ≥40 μg/ml. (Reference)
In a phase II study (M201) in women of childbearing age, utilizing two doses of 60 μg or 90 μg, given once or twice, and with or without an immune boosting additive called an adjuvant, Novavax was able to measure the RSV-FII antibodies (Synagis® like antibodies) elicited by their vaccine product. In this study it achieved 10 times that threshold level of 30 μg/ml. At day 56 the maximum response seen in all groups was 10 times the MPL. The average response of all groups was 7 times the MPL and the minimum levels detected in all groups was 5 times the minimum protective level. With the release of the latest phase II data from study M202, the maximum protective level of antibody production was 13.33 times, achieving 400 μg /ml. More impressive was the fact this new high was achieved utilizing only one administration of 120 μg of vaccine. This is also 10 times the concentration required to achieve complete viral inhibition.
Novavax's RSV vaccine is not just working, it is working exceedingly well. Given the very high titers of antibody produced and the fact that dosing and adjuvant optimization are now determined, the average result of 7 times the minimum protective levels achieved in Phase II studies becomes the lowest threshold benchmark to expect from future clinical trial results. Barring any safety concerns this is a threshold that will easily obtain regulatory approval.
Safety has been the downfall of several RSV therapeutic and vaccine programs and remains the last hurdle I see that could in any way obstruct Novavax from the RSV vaccine market. Since safety is the primary concern of Phase I studies. Here is the summary of the safety data collected in that study.
The primary safety findings were local pain and tenderness at the site of injection, the majority of which were mild in nature with no dose-related increase observed. There were no observed vaccine-related serious adverse events or trends for related systemic side effects.
All studies to date have reaffirmed this initially established safety profile, including the most recent release of data from study M202, which included 720 participants, showing the vaccine candidate to be well tolerated with no vaccine-related serious adverse events, at all doses and formulations.
Having human clinical data that all but guarantees your candidate vaccine is highly effective is unusual with the exception of generics. Generics are of course where the term bioequivalence is most often applied. I am unaware of any other emerging biotech you could invest in where the candidate vaccine, has another drug in the market place, providing a benchmark that all but guarantees that the new clinical candidate will work effectively.
3) Influenza - Seasonal and Pandemic: Different Disease Target - A Very Similar Story
Novavax's flu vaccines are unique and quite possibly much more effective than all previous flu vaccine versions. Novavax's Avian Influenza vaccine is more immunogenic than any similar vaccines described in any published results to date. (Reference)
Hemagglutinin is the protein complex that allows the flu virus to gain entry into cells. The receptor binding domain (RBD) shown at the top of the slide above is a highly variable region that requires a new, specific vaccine to be developed annually, for each season's flu strain. The viral entry or stem of this binding domain is a far more stable region, which changes very little from season to season. Novavax's flu vaccines produce antibodies to both of these sites. But here is the kicker. After the virus replicates within the cell, neuraminidase, shown at the bottom of the same slide, allows the virus's to exit through the cell's outer structural walls. If you can block that action you dramatically limit the flu virus's disease process by trapping the virus within the infected cells. In fact, two drugs have been approved that both have this exact same mechanism of action. They are both administered to combat severe influenza and as front-line interventions to be utilized within a limited window of opportunity, the first 24 to 48 hours, when flu symptoms are first noticed.
Tamiflu® (oseltamivir) produced by the drug company Roche (OTCQX:RHHBY) in Basel, Switzerland as well as Relenza® (zanamivir), marketed by GlaxoSmithKline (NYSE:GSK) in Brentford, UK, are both neuraminidase inhibitors. Novavax's Flu vaccines also produce anti-Neuraminidase antibodies to the same protein target utilized by Tamiflu and Relenza. Again, this provides an existing approved drug, currently being marketed that provides an additional level of confidence that the program will yield success, because it has already proven a safe and successful inhibitory flu target.
Novavax's eventual goal will be a Quadvalent vaccine, combining the seasonal flu vaccine and the RSV vaccine into a one-injection product. A preliminary trial in the elderly has already been conducted administering both as separate injections. The results of this study were positive. Preclinical results indicate that the combination of the two actually increases the effectiveness of both vaccine components.
The worldwide influenza vaccine market is estimated to grow from the current level of $3 billion to more than $100 billion by 2025. Source WHO
4) Protecting/Vaccinating the World Against the Next Global Pandemic Disaster
At this point it is important to remember that the 1918 "Spanish Flu" pandemic was the worst virally caused global disaster the world has ever experienced. Estimates of deaths caused varied between 20 and 100 million, 3-5% of the world's population. Pandemics as recent as the 2003 Asian Flu, (H5N1) and another more recent (2012-14) variant (H9N2) have unsettling parallels to this disaster. The Asian flu virus penetrates much deeper into the lung than does seasonal flu. The body's powerful immune response to this new strain triggers the release of fluids into the lungs causing the victims to suffocate. This reaction to an influenza virus has not been seen since the 1918 Spanish Flu. A rapid response to an emergent, life-threatening strain of flu virus is critically important if we want the capability to stop the spread of another worldwide disaster. As the info-graphic below demonstrates, more virulent, deadly respiratory viral infections are emerging, more often, as a result of a variety of colliding environmental issues. Avain Flu Timeline
Climate change, whatever the underlying cause, makes it more likely that new pandemic strains will emerge, evolve through antigenic shifts into the human disease transmission modes and spread. Secretary of Defense Chuck Hagel, stated in a security forum last year that pandemic disease was one of the growing list of global warming issues that would add to world instability. There is solid scientific evidence that increasing temperatures lead to increased transmission of disease, through direct action on infectious agents. (Potential Impact of Climate Change on Pandemic Influenza Risk) The World Health Organization experts agree, "the next influenza pandemic is inevitable".
The growing world population, its increasing concentration in urban centers are both factors that increase the transmission of existing and new emergent diseases. Global transportation systems from these urban hubs remove all natural physical barriers that previously provided some level of natural geographical protection. Government and Non-Governmental Agencies view these developments as posing a grave global threat and are producing the tools such as GLEAM to monitor, track and predict the spread of epidemic and pandemic outbreaks. GLEAM is the Global Epidemic and Mobility Models that enable the minimization of the impact of potentially devastating epidemics. It is funded by the National Institute of Health and the Defense Threat Reduction Agency.
Novavax is able to very quickly address emergent strains of avian flu (H7N9, H5N1), swine flu (H1N1), and new variants of Spanish Flu (H1N1). These flu variants can have mortality rates exceeding 30%. Currently Novavax has an ongoing clinical trial of H7N9 avian influenza VLP vaccine candidate with Matrix-M adjuvant in 610 subjects. This study will be completed in June of 2015.
Middle East Respiratory Syndrome (MERS) is a Coronavirus that has every US health agency on high alert. Saudi Arabia has urged its citizens to wear masks and gloves when dealing with camels so as to avoid spreading the deadly MERS virus. The MERS virus, likely transmitted from camels, was first reported in Saudi Arabia in 2012 and has to date infected 544 individuals, with 142 of those infections being fatal. Three recent announcements of MERS infections outside of the Middle East have, recently been made, two in the US and one in Hong Kong. Human to human transmission has been demonstrated when close proximity has been maintained. We are about to determine if long airline flights containing MERS infected individuals meet those criteria.
Novavax again has demonstrated its ability to very rapidly respond to novel and previously unseen emerging threats, producing a MERS vaccine that is already being studied. Warnings have been issued to travelers headed to the Mideast to at least stay away from camels. This virus' high mortality rate, nearly 30%, combined with the limited prevention and treatment options make it a high priority to the Centers for Disease Control (CDC), The National Institute for Allergies and Infectious Diseases (NIAID) and the National Institutes of Health (NIH).
Novavax represents a critically important layer of protection for the citizens of this country and indeed the world. A very rapid response is of paramount importance with pandemic flu or SARS/MERS viral infections. Novavax has an unmatched track record of going from a clinical isolate to a gene sequence, into the baculoviruses system with the release of the GMP vaccine in less than 90 days. "Our protein nanoparticle vaccine technology is proving to have the potential to respond rapidly to emerging viruses such as MERS-CoV and certain potential pandemic influenza strains, addressing what are clearly urgent public health needs," said Gale Smith, Ph.D., Vice President of Vaccine Development. Traditional production processes by large Pharmaceutical vaccine producers such as Sanofi Aventis (NYSE:SNY), Novartis (NYSE:NVS), GlaxoSmithKline (GSK) and AstraZeneca (NYSE:AZN) is to culture the vaccines in embryonic chicken eggs. This requires at least 140 days and often takes much longer. Novavax produces the equivalent number of vaccine doses, faster and in a more cost effective manor. Novavax has three full-scale vaccine manufacturing plants, so it definitely has the capacity to immediately implement emergency production, yielding over 100 million doses of vaccine in the shortest possible time frame when one or even multiple, pandemic threats emerge.
Novavax's current share price of $4.17 obviously seems low for any emerging biotech with this much going for it. With 200 million shares outstanding the current market cap is just under 1 billion dollars. Given the extremely low risk of its clinical programs, its novel funding strategies, its governmental alliances, Novavax represents a vastly undervalued investment opportunity. This ridiculously low share price is one of the elements that also provide another level of safety. This is the bottom. Novavax currently has $130 million in cash reserves and two clinical development partners, neither of which will share in downstream profits. There are many companies developing novel vaccine products to address RSV and Influenza. In RSV all of its competitors are, at a minimum, a year behind Novavax. Competitor's influenza programs are more spirited, but no other company has the capability to both rapidly develop vaccine products to emerging threats and manufacture the required 50 to 100 million doses, in just a few months. This is certainly one of the reasons that BARDA continues to fund Novavax's pandemic flu vaccine program.
Over the next 18 months, Novavax will deliver a large number of clinical announcements. Major pharmaceuticals have very specific formulas to determine decision points at which they will seriously consider entering into development or acquisition deals. Following the very positive results achieved in the M202 study and for the many reasons discussed in this article, that tipping point is now behind us.
Investments by the Gates Foundation through PATH and the Federal Government through BARDA provide two major votes of confidence, as well as significant financial support. Novavax has sufficient funding to conduct this work without partnering or issuing a secondary offering well into 2016. This enables the company to continue growing shareholder value and at the same time and for the same reasons, dramatically improve Novavax's bargaining position in future (or continuing?) negotiations.
Novavax's scientific and business development teams are obviously looking to position Novavax as a major force in the field of vaccines for the near term and far into the distant future. By generating this many positive confluent components, it becomes obvious that there are a very strong, competent and talented scientific and management teams in guiding Novavax. Great management again adds another level of confidence and thus safety to this investment.
Stock market investments, with the emphasis on safe, that offer the very likely outcome of triple to quadruple returns over the next 3 to 18 months are all but impossible to find in the emerging biotech sector. One or more of the following scenarios will be a strong catalyst to catapult Novavax's share price: 1) Novavax accomplishes a large pharmaceutical development deal for one or more of its vaccine candidates; 2) they become the target of a takeover attempt or 3) HHS contracts Novavax to provide a vaccine antidote to an emerging global pandemic, or 4) they continue on the same positive developmental pathway to regulatory approval and marketing of its advanced technologies in two multibillion dollar markets. 1, 2, 3 or 4 it's as straightforward as A, B, C. Novavax is a rare and seldom seen, low risk, high return, biotech opportunity.
Latest Novavax presentation at the Needam Healthcare Conference, April 9th 2014: http://wsw.com/webcast/needham65/NVAX/
PATH landing page for Respiratory syncytial virus (RSV)
Although published two years ago a Seeking Alpha article by Scrying Biotech is an excellent backgrounder on Novavax.
Another excellent, but more recent article on the companies presentations and financials was published here by Rupinder Singh.
If you want to have a sleepless night or two, you can read the following background articles: Preparing for the Next Pandemic, Bird Flu A Virus of our own Hatching or watch the following presentation New and Emerging Infectious Diseases.
Disclosure: I am long NVAX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.