Novavax: Don't Fall For Coronavirus Hype

Summary

• Novavax jumped to recent highs near $10 on hype surrounding a vaccine for the Wuhan coronavirus, inflicting China.
• The company moved to quickly raise another $100 million for over 50% share dilution.
• With a promising NanoFlu Phase 3 trial expecting results in late Q1, Novavax shouldn't be so aggressive to raise cash at these levels.
• This idea was discussed in more depth with members of my private investing community, DIY Value Investing. Get started today »

Small biotech Novavax (NASDAQ:NVAX) was recently bouncing off all-time lows until the coronavirus hit China. The company specializes in developing vaccines that prevent serious and infectious diseases, especially respiratory infections. The stock has surged this week, but the major hiccup in the investment thesis is the inability to actually obtain FDA approvals while chasing all of the latest viruses to the detriment of shareholders.

Image Source: Novavax website

The Next Ebola

Over a week ago, Novavax traded below $4 while the all-time highs are around $300 due to the reverse-stock split. The stock recently jumped to nearly $10 on the news flow of the Wuhan coronavirus hitting mainland China following positive news on the NanoFlu vaccine obtaining fast track designation from the FDA.

Gregory Glenn from Novavax went on CNBC and claimed the company could develop a vaccine for the coronavirus within two to three months. Yet, the company made similar claims on the Ebola and other virus outbreaks over the years. The key part of the interview missed by the market was the note stating a license could take years.

The Ebola program is only in Phase 1 clinical trials today when the outbreak took place back in 2014. According to the CDC the Ebola outbreak started in 2014 and lasted until early 2016.

Over the course of 18 months, a total of 28,616 cases of the Ebola virus and 11,310 deaths were reported in the West Africa countries of Guinea, Liberia, and Sierra Leone. The CDC reported an additional 36 cases and 15 deaths that occurred when the outbreak spread outside of West Africa, yet Novavax is still in early clinical testing stages for the vaccine.

Source: Novavax J.P. Morgan Healthcare presentation

In addition, Novavax ended the previous quarter with the NanoFlu Phase 3 clinical trial initiated while the ResVax program is on hold. The company was on the verge of obtaining approval for an RSV vaccine to only have a Phase 3 trial fail. A subsequent trial on infants via maternal immunization failed to produce the results necessary for a vaccine approval leading to both the U.S. FDA and European Medicines Agency recommending an additional Phase 3 clinical trial to confirm the efficacy of ResVax.

Anybody paying attention will notice that Novavax is constantly chasing the next virus while deliberating on their most promising vaccine candidate in ResVax. The company has limited funds, yet the President of R&D is on CNBC talking about working on a new vaccine.

Noteworthy, CFO John Trizzino spoke at the J.P. Morgan Healthcare conference and never discussed a coronavirus vaccine just days before the stock soared based on market hype of the small biotech hitting a jackpot with a new vaccine.

Issuing Shares Is A Hobby

The small biotech has long promoted these new virus candidates without any actual approved vaccines. What the company does is continue to throw cash and research and development expenses at these vaccines while raising money for every new virus threat to hit the globe.

The latest news is the $100 million equity offering via B. Riley FBR. The stock only has a market value of $186 million now so this offering has the potential to be extremely dilutive.

Novavax had previously filed a mixed shelf prospectus with the same firm for an offering of up to $250 million. One needs to consider Novavax just completed another conference where the influenza market potential for NanoFlu was listed at $2 billion and ResVax offers a global market opportunity of $1.5 billion for an additional Phase 3 trial to prove some of the efficacy positives from the last trial. Small biotechs with legitimate vaccines in the $1+ billion range in Phase 3 trials don't trade at market values of $186 million and the related company doesn't rush out to raise cash at such a low valuation.

For the year to date period, Novavax burned $112.9 million sending the cash balance down to $75.9 million at the end of September. The biotech has seen the diluted share count soar over the decade from just ~5 million shares when 2010 started to over 24 million shares now.

Data by YCharts

The full $100 million equity offering would push the share count upwards to 40 million shares.

Takeaway

The key investor takeaway is that Novavax seems eager to again rotate into another vaccine development while never getting any vaccine approved by the FDA. In addition, the company was quick to jump at raising another $100 million while the stock is still far below the pre-split levels above $40.

Investors should steer clear of this biotech on the coronavirus hype.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.