Novavax: Mounting Delays Raise Concerns

Summary

• The Novavax story is troublesome.
• RSV F for maternal vaccination was derisked late last year?
• Novavax cash prospects separate bulls from bears.
• Novavax's future catalysts are dubious.

Fool me once, shame on you. Fool me twice, shame on me. Fool me thrice... well, how many disappointments does Novavax have in store? Novavax (NASDAQ:NVAX) has disappointed many investors in over its nearly 30 years. My initial Novavax posting, "Novavax: The Little Engine That Couldn't", documents Novavax's disappointments. This current article is my memo to self, "Novavax is a heartbreaker". Yet I confess I am long the stock. I have no excuse. Somehow or another it keeps pulling me in.

The Novavax story is troublesome

Novavax is a boom or bust stock. It missed its first scheduled NanoFlu data release late last year; it then promised to catch the story up with a full data package in February 2018. I watched in vain every day in February, hoping for some positive momentum upon release of the data.

Then, at the last possible moment, after close of market on February 28, 2018, Novavax issued its NanoFlu press release. Instead of the expected full data package, it issued a press release with the following italicized lead:

• Phase 2 trial of NanoFlu vaccine expected to begin in third quarter of 2018
• Given strength of trial data, Novavax has submitted detailed results for publication in peer-reviewed medical journal
• Company management to discuss more complete trial results after publication

For a brief moment, the release was well received. In the pre-and post-market sessions on the 28th of February and March 1st, Novavax shares shot up to almost $3.00. As the day progressed, the stock settled back dramatically. It closed at $2.27, only a few cents from where it opened on February 27, 2018.

Novavax's submittal of its NanoFlu phase 1/2 trial results to a peer reviewed medical journal creates delay and a big guessing game. How long will it take for the article to be published? Where will it be published? Such questions can consume the narrative. All the while, the full data package we were told to expect in February will remain unseen by investors.

RSV F for maternal vaccination was derisked late last year?

According to Novavax, its other big clinical stage pipeline candidate, RSV F vaccine for infants via maternal immunization, was "derisked" late last year. This RSV F vaccine is undergoing a large scale, rigorous phase 3 trial which Novavax dubbed Prepare. It is a randomized blinded, placebo-controlled trial expecting to enroll 8,618 third trimester pregnant women. The Bill and Melinda Gates Foundation is helping to underwrite the ample costs of the trial.

clinical trials.gov describes how the trial enrollment may be smaller:

...based on the operation of the group-sequential design, the incidence rate of the primary clinical endpoint events, and the efficacy of the intervention. Women in the third trimester of a singleton uncomplicated pregnancy and 18 to 40 years of age (inclusive) will be enrolled and randomized in a 1:1 ratio into one of two treatment groups, active or placebo, over approximately the three months prior to peak RSV season. After the first global season of enrollment, the randomization scheme will be changes to a 2:1 (active/placebo) ratio to enable more efficient accrual of the safety database.

All maternal subjects will receive a single intramuscular (IM) injection on Day 0 with the assigned test article, the RSV F vaccine or placebo. Study participation for maternal subjects will span approximately nine (9) months from the first dose, ending six (6) months post-delivery. Study follow-up for infant subjects who are consented will span approximately one (1) year post-delivery.

Novavax enthusiasts have been burned before on this RSV F vaccination. A trial of the vaccination in older adults failed spectacularly in September of 2016, causing the stock to crater.

Novavax never gave up on the RSV F vaccine. Its trial of the vaccine for infants via maternal vaccination has been ongoing since 2015. At the JPMorgan healthcare conference early this year, Novavax issued a slide claiming that its infants via maternal vaccination RSV F trial was "derisked".

The de-risking which Novavax claimed for its RSV F vaccination involved a minimum of information and a maximum of positive innuendo. An examination of slides 9 and 10 from the 2018 JPMorgan healthcare conference tells just how elastic the concept of de-risking can be.

Slide 10 is very comforting; it provides:

However, when we go to slide 9, which supplies the basis for the characterization that the vaccine is derisked, we come face to face with disturbing questions. Slide 9 describes the so-called "informational analysis" as follows:

Can this be true? When does a yes/no answer constitute analysis, particularly when we do not know the exact question? I can't convince myself that this information truly enhances the likelihood of a successful outcome for this trial.

Rather, I am more convinced by the position advanced by Seeking Alpha contributor Stone Fox Capital in "Novavax: Is This Time Different?", in which he recounts how this trial is now extended so that actual interim data must await 2018-19. I will not consider this vaccine as truly derisked until actual data is released rather than some individual Data Safety Monitoring Board statistician's (who may or may not have been acting in an official capacity at the time) answer to a binary question.

Novavax cash prospects separate bulls from bears

Both bulls and bears can agree that Novavax burns cash at an exhausting pace. According to page 33 of its Q3, 2017 10-Q, it utilized over $100 million for operating activities during the first 9 months of 2017. Novavax reported cash, cash equivalents and securities of $172 million after Q3, 2017. If we extrapolate that to an annual cash burn of ~$133 million, then Novavax will need to replenish its cash reserves at some point in the next few quarters.

Where bulls and bears part company is on the impact of this grand appetite for cash. Bulls see Novavax's ongoing cash needs as manageable. Reyan is a prolific and engaging contributor to Seeking Alpha postings addressing Novavax. I will quote one of his recent comments below. This comment to Seeking Alpha 2/28/18 Novavax news feed provides an excellent example of a bullish thesis on Novavax's cash needs at the current moment:

One grant from BARDA or second round fund from BMGF will prove the Company doesn't need Dilutions to get new monies in. Remember with the new positive RSV informative review done by DSMB announced last month, the Company won't sit on those news doing nothing. Show their positive results in top medicine journal and to BARDA and FDA, fund will come in.

Now, bears have an entirely different point of view. Bears see Novavax's voracious appetite for cash as a fatal flaw. They see it as creating recurring incursions on their percentage ownership in the company. The more secondaries that Novavax entertains, the larger its share count grows, and as a necessary corollary, their percentage interest shrinks.

Novavax's future catalysts are dubious

What catalysts can Novavax point to in the near term to punch up its share price so that any future share issuances create maximum traction? I had high hope that February's full NanoFlu data package would unleash a share price tsunami. And so it did for a few wonderful hours.

The very same comment stream, which included Reyan's comment excerpted above, has another particularly useful comment from Upside Research. Upside Research's comment reveals an enviable understanding of a bullish thesis for Novavax. In his comment, he sets out the following list of near-term catalysts:

* publication of the data in a respected journal in Q2
* discussion of the results on a conference call, plus discussion of the upcoming phase 2 trial in Q2
* initiation of the phase 3 in Q2
* quite possibly announcement in Q2 or Q3 of the flu vaccine getting accelerated status from the FDA
* decent likelihood of funding for the flu vaccine from BARDA and or from a partnership with a major pharma player
* stock gains in Q4 in the weeks before the RSV phase 3 trial results are released.

Each and every one of these potential catalysts could give Novavax the boost that it so sorely needs. Yet none of the ones that are likely to have such a positive effect are certain, or even particularly likely, to occur before another round of funding becomes necessary. Such funding would place the shares under more pressure. How much pressure one envisions marks the boundary between bulls and bears.

I have gone from being long leaps in Novavax to a measured long position in its shares, some of which are subject to covered calls. Accordingly, I am extremely hopeful that Novavax can indeed right its listing self... hopeful, not confident.

Conclusion

My heart and my portfolio favor the bull ending where Novavax lives happily ever after. My vision is that it might surmount its challenges which seem to conspire to impede FDA approval of landmark vaccinations.

I am nonetheless dejected by today's (3/1/18, as I was writing this article) experience. My head tells me that Novavax's management is quite comfortable with the status quo. From a shareholder perspective, this is worrisome. For us, it seems as if there is always "a hole in the bucket, dear Liza, dear Liza, a hole in the bucket Liza my dear".

Analyst’s Disclosure: I am/we are 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.

I may buy or sell shares in Novavax over the next 72 hours.

Comments

[Gemess]

dead money for stockholders, the only winners here are: BOND NOTES HOLDERS AND MUMMIES STAFF.

[neals58]

Has a better chance now that they have been allowed to publish their efficacy and effectiveness report. The RSV reading will help it even more. There seems to be light at the end of the tunnel except for an upcoming secondary.

[WWG1_WGA_Q]

neals58 just waiting for the peer-review publication & April 4th conference. Maybe the publication comes out before the conference April 4th? Should be interesting to say the least, as to what comes after all is said & done.

[Lejun James Shao]

NVAX is one of the best stocks I ever had. It presents a clear cycle of ups and downs.

Buying at $1.00 and selling at $7-$10 is a good investment strategy. If one invested $10,000 in this stock, buy low and sell high, he may have become a millionaire now.

[User 43362366]

"If one invested $10,000 in this stock, buy low and sell high, he may have become a millionaire now."

If one invested $10,000 in *any* stock, buy low and sell high, he may have become a millionaire now.

gee, no one told me that.

[Alfamagnate]

Better chance of winning the lottery than betting on NVAX to take off.

[Out of Ignorance]

All
Next Wednesday after close of market, Novavax will have another chance to show its prospects. http://bit.ly/2G80a3e
Perhaps, its future course will become more clear.

[WWG1_WGA_Q]

Ready & waiting. I am expecting some + surprises. One can hope.....

[Jim Wilbanks]

You will learn that they have started another p1 on the latest monkey virus and good news, the monkeys lived.

[Jim Wilbanks]

You and Reyan have gotten strangely quiet since the crazy longs on the yahoo board capitulated and took over the asylum. You know its over when you two are the last ones standing.

[Happy2]

I read your article, but sadly, I didn't read through all the comments, so this question may have already been answered...

regarding the financial status, haven't they been cutting pretty dramatically on their day-to-day operations? The numbers you used were for the first 9 months when they were still paying for the lease and I believe for many more employees than they let go towards the end of the year.

Maybe someone knows what all they cut and how much they are saving. Hopefully that will reduce a need for too much more dilution...even if via a shelf offering.

Thanks for your insight into Novavax. I've been involved in the pain of 2 years ago, and the wounds still run very very deep.

[pistolpetetechguy]

Happy-

Unfortunately this company will make you sad. Just look under the hood and you will see a bloated market cap

[Out of Ignorance]

Happy2
Thank you for your interesting question.
I will take a shot at it and others will hopefully add additional input.
During its most recent CC (Q3, 2017), Novavax had the following comment on cost reductions:
"R&D expenses decreased 21% to $41.9 million in the quarter compared to $53 million in the same period in 2016. The decrease is primarily due to reduced activities related to the development of the RSVF vaccine for older adults, other general R&D project related expenses and lower employee related costs. G&A expenses decreased 40% to $8.1 million in the quarter compared to $13.6 million in the same period in 2016. This decrease is due to lower professional fees for pre-commercialization activities and lower employee related costs."
There was no discussion of any broad initiative to cut costs such as occurred back in 2016. Perhaps we will learn more about cash burn and about their medical journal submission whenever Q4's CC takes place.

[rohan_ab]

So from your perspective it is impolitic to hold on to Nvax?

[rohan_ab]

What if they remove Stan and bring in a new head, how would you view the company then?

[rohan_ab]

So if there is a change in management, do you think Nvax could meet investor expectations?

[Jim Wilbanks]

No!

There have been changes in management. Stan was brought in to fix things.
He just made things worse.

It starts at the top. Nothing has ever changed. Get a clue. This goes back decades. It's corrupt to its very soul.

[Jim Wilbanks]

And that's a ridiculous prospect to begin with. They have run out of time.

[WWG1_WGA_Q]

Says you.... lol.

[Jim Wilbanks]

Ok. I don't know how to say this any better. It doesn't matter how great the science might be. If the management isn't trustworthy, run. Your judgement of management is primary. Everything else is secondary. If the management has proven to be dishonest - non performers, while grossly paying themselves first, run. They will exploit this to their advantage, not yours. Stop focusing on the science which you don't understand and which they do their best to confuse you with. So everything else is moot, but to your point, leaps of science don't come from quasi-labs Masguerading as biotechs.

[User 43362366]

"It doesn't matter how great the science might be. If the management isn't trustworthy, run."

yes and no. bad management can destroy good science. good management can't make bad science into good science.

[rohan_ab]

I agree with that.

[Jim Wilbanks]

true and true. that sounds like yes and yes

[rohan_ab]

I see your point but be honest. Is there a slightest chance that Nvax can come through with the science?

[nick name]

Of course there is. Phase 3 trials always have a good chance to succeed. The more failures, the higher the probablitiy for success the next time.

[User 43362366]

"Phase 3 trials always have a good chance to succeed. "

REALLY!!! cite one study of PII/PIII trials that determined that the PIII trial following a PII (part. ones that failed) had a better result (e.g., p-value). I doubt that you can, since it is the received wisdom that PIII is always weaker than the preceding PII. if only because the PIII is larger, at more centers, with a more heterogeneous population. not the cherry picked ringers of a PII.

we all await.

[nick name]

typically the success rates of ongoing phase 3 trials is around 30%. My translation of this is that with a good probability (30%) the science of novavax ongoing p3 works.

[rohan_ab]

JW, Now that you identified all of the issues with Nvax, what is your advice to me?

[Jim Wilbanks]

Run like a banshee screaming in the night, shaking with fear, knowing that you have witnessed pure evil, dirty rat bastards that will gut you for your last penny, while laughing like crazy maniacs with glee, expecting you will sign the proxy giving them the crown jewels. Cursing you all the while. You are just the wallet while they talk about you badly behind their backs. Unrequited love. It's a bitch. But that's biotech

[WWG1_WGA_Q]

And biotechs take time & $$ to accomplish what they are trying to develop. DUH!

[Jim Wilbanks]

<>

There is none.

[pistolpetetechguy]

I have been long and short this name at various times and currently have no position. I do have a question for the longs embedded in the science. This company has a $700mm+ market cap, so many shares outstanding and a long way to go for commercialization. It seems very risky at current levels. What is the short and sweet argument against the negative financials that will reward longs in the short term and I hope the answer isn’t commercialization on their own. Is the exit strategy imminent buyout or fully funded partnership? Sincere question for someone who recently closed a short and was looking to go long before making the above observations.

[Out of Ignorance]

novavax#1
Thank you for reading and for your optimistic comments.
Tomorrow is another day; it may be the one when Novavax can shake off its doldrums.

[WWG1_WGA_Q]

Thank you O o I... they will imo. Have followed NVAX for yrs, live & learn through the ups & downs, takes time & $$ to accomplish what they are trying to do. 60 yrs BP has been trying to develop an RSV vaccine & NVAX has come the closest, plus NanoFlu looks great, maybe even stunning after we get the rest of the results that were not disclosed, as we await the publication from a science journal in the coming weeks or sooner.

[Reyan]

The Bears in this board have been trying hard to discredit the important positive progresses the Company has made. It's nothing new, just go back to their old posts to review. Some are short investors or day traders which is fine but some IMHO might be just anti vaccine people. Otherwise how could they explain their years long engagement of constant bashing NVAX without ever owning any stock positions in NVAX as they so self claimed? And they often claim they are right all the time no matter in ups or downs. Can't argue or reasoning with people like that.
This article included, tries to create some degree of doubts in Longs so you will second guess yourself. On newcomers it might work a bit. Not on people who have been thru ups and downs with the Company for about 2 years at the least.
Just ask yourself this simple question, comparison with the situations of 9/2016, with December 2017, after the positive news from DMSB informative review of RSV trial and now confirmation of positive efficacy news reported on Nanoflu going into Ph2, Are the situations changed for better for the Company or worse?
Think for yourself. Go NVAX

[Out of Ignorance]

Reyan
I am not a "bear on this board", but I am one who is doing his best to determine whether Novavax makes sense as a biotech investment. In that vein, I I will try to respond to the questions you pose:
"...[in] comparison with the situations of 9/2016, with December 2017, after the positive news from DMSB informative review of RSV trial and now confirmation of positive efficacy news reported on Nanoflu going into Ph2, Are the situations changed for better for the Company or worse?"
I am going to check out the SP on the dates you specify:
September 2016, compared to December 2017, compared to today.
In September 2016, Novavax made its signature drop from ~$8.00 to ~ $2.00. In December 2017 Novavax was still dropping, down to close to $1.00. As for March 2018, it opened the month at $2.71. It closed yesterday at $2.08. http://bit.ly/2D49qSD
The SP is better now than in December 2017, however the trajectory is troublesome.
The "positive" news items you mention are both questionable as I have laid out in the article. While muddyc's comment above explains how the RSV F maternal vaccination de-risking might be interpreted positively, I am not entirely convinced. On Novavax, people do need to think for themselves.
I am currently in it with "risk" money. It may go to $0. If it is able to bring one of its vaccines to FDA approval before diluting me to financial irrelevance, it may be a home run.

[WWG1_WGA_Q]

"Novavax the little engine that will succeed.' Know all there is on Novavax at this point, no need to say any more. Just waiting like all the other longs. GLTAL..

[Out of Ignorance]

superforce_57; billwcoin; rohan-ab
Thank you for reading and for your comments.
I regret that you variously find "gross inaccuracies" and "wild and blatantly false accusations".
The very idea makes me blush at having authored a posting that could attract such condemnations.
Unfortunately they do not advance a dialog nor give any hint of what particular statements offend you.
If you will try to clarify, then that could advance everyone's understanding.
I am going to be in and out of the office over the next few days, however as time permits I will attempt to address such concerns as you may specify.

[rohan_ab]

I do hope he really didn't write it out of ignorance but yes his writing skills I acknowledge.

[Gregg Deering]

Been down so long looks like up to me. As the song says. Ah, $nvax, I have not sold, I always think there is hope. $nvax was one of four stocks I bought years ago as a start up biopharma win/loss experiment. One did well and I sold it, one tanked and evaporated (or became a diet shake or something?), one was NVAX and the other was $GILD and I've built up the position. The experiment was successful, so I don't mind letting NVAX play out. Also positively, I did discover that I don't have the constitution for experiments.

[Out of Ignorance]

muddyc
Thank you for your detailed analysis and evaluation of Novavax's derisking.
You do us all a service by helping to connect the dots and showing that the claim may have more substance than I have been willing to allow.