The past six months have been challenging for Novavax (NASDAQ:NVAX) investors due to ResVax missing its primary endpoint and the company executing a reverse stock split “r/s”. Recently, the company has made some progress on several fronts that might position the company for an eventful 2020. Unfortunately, the stock has only shown transient responses to these positive updates and quickly sold-off. However, the charts are starting to lift off the bottom and I am debating on adding to my speculative position.

Figure 1: NVAX Hourly (Source Trendspider)

As I mentioned in a previous NVAX article, I wanted to wait to see seller exhaustion before committing to a larger position and I believe that may have occurred.

I intend to review the recent events and why they are critical to the short-term and long-term outlook for the company. In addition, I explain why I think NVAX is a buy. Finally, I reveal my strategy to manage my NVAX position over the coming quarters.

Catalent Deal

At the end of July, Novavax announced the closing of a deal with Catalent Inc. (CTLT) and their Paragon Gene Therapy segment. Catalent agreed to purchase manufacturing equipment and associated material for around $18M in cash. In addition, Paragon took over 2 leases to Novavax facilities and is now taking on 104 Novavax employees.

As a result, Novavax was able to raise some capital while reducing the cash burn rate. What is more, Novavax will be able to perform the development and manufacturing needed to support the BLA and post-licensure activities for NanoFlu and ResVax.

NanoFlu

Recently, Novavax and the FDA were able to agree on the design of NanoFlu’s Phase III non-inferiority immunogenicity clinical trial that will be used to support a BLA. The trial will compare hemagglutinate antibody inhibition (“HAI”) responses of NanoFlu matched against Fluzone-quadrivalent. Thus far, NanoFlu has been matched up against Sanofi’s (SNY) Fluzone Trivalent High-Dose, so I am very interested to see how these two quads match-up in this Phase III study.

Novavax expects to start the clinical trial towards the end of Q3 with the top-line data in Q1 of 2020. If the results are positive, the company will look to file the BLA once the company has finalized the manufacturing requirements. If all goes well, Novavax could file for approval at the end of 2020 or early 2021.

ResVax

Earlier this year, Novavax’s ResVax Phase III trial established that the company’s vaccines have some clinical impact against the worst forms of RSV. Unfortunately, ResVax failed to hit its primary endpoint, which decimated the share price and cast doubt over the future of the program. Since then, the FDA suggested that Novavax perform a new Phase III trial to confirm ResVax’s efficacy against RSV disease in infants born to vaccinated mothers.

On August 12th, Novavax publicized the presentation of new ResVax data from the Prepare trial. The analysis comprised of one-year of data that revealed a 59.6% decrease in SAEs that stretched over the first year of life. Comparable efficacy of roughly 50% endured over a year (Figure 2).

Figure 2: ResVax Efficacy Duration (Source NVAX)

ResVax has impressive efficacy numbers in several endpoints that held-up for at least one year (Figure 3).

Figure 3: ResVax Efficacy (Source NVAX)

ResVax did miss its primary endpoint in the Prepare trial; however, it did show the ability to reduce the most severe complications of an RSV infection.

What is more, Novavax is in “ongoing discussions with potential partners for further development” in the U.S. and other high-income regions. Novavax believes that with a strong partner, ResVax could be the “first licensed RSV vaccine in the world.”

Financials

Novavax finished Q2 with $78.2M in cash, cash equivalents and restricted cash. Net cash used in the first half was $80.6M, which is a bit concerning considering the company only has ~$78M in the bank. However, the company expects the cash burn to “decrease significantly in the second half of 2019” due to the Catalent deal. The company expects the current cash position to last them “comfortably through data.”

Although I expect another offering at some point in the next year, I wouldn’t mind being diluted if NanoFlu was able to outperform Fluzone in a large Phase III study. The company is expecting to report NanoFlu results in Q1, so, perhaps that will be an opportune time to raise some extra funds.

IS NVAX a Buy?

Although I am a relatively new NVAX investor, I am aware of the agony longstanding investors have endured. The share price has fallen precipitously and the finish line for pipeline programs is still out of reach. However, I believe the current Novavax is worth an investment for a couple of reasons. The first being the late-stage pipeline (Figure 4).

https://static.seekingalpha.com/uploads/2019/4/12/48523746-15550797135364435.jpg

Figure 4: Novavax Pipeline (Source NVAX)

I have already reviewed the leading programs; however, it is important to point out that Novavax will now have two Phase III products going into 2020. If both of these are approved, Novavax should see an abrupt increase in their revenues. Indeed, Street analysts are anticipating Novavax to start recording impressive revenue in the next couple of years. Looking at figure 5, we can see that analysts are anticipating Novavax to go from ~$2M in revenue in 2020 to ~$117M in 2021.

Figure 5: Novavax Annual Revenue Estimates (Source Seeking Alpha)

The estimated 2021 revenue would be a forward price-to-sales of 1.22, which means that the annual revenue will be fairly equal to the current market cap of ~$142M. What is more, the forward price-to-sales is expected to only improve over the next decade, with the company breaking the billion-dollar mark in 2025 or 2026.

Admittedly, these are estimates and regulatory actions could completely change those estimates in a second. Still, investors should be familiar with the current market value and what could be. Again, the company has those two Phase III programs that are moving closer to approval, so I do expect that abrupt increase in revenue. Therefore, I will have the majority of my position established before the market wakes up to the timing of these programs. Considering this, I see NVAX as a speculative buy at these current trading levels.

Conclusion

Novavax has been able to close the Catalent deal, which will have a substantial positive impact on the company’s finances. On top of that, Novavax recently reached an agreement with the FDA on the NanoFlu’s Phase III trial. If the data is positive, the company believes it will be sufficient for an accelerated approval pathway. Novavax expects to provide updates on NanoFlu’s Phase III data in Q1 of 2020. And to close, the company is making progress with partnering and regulatory labors in regards to their RSV program.

Deals, pipeline progress, and enticing market cap make NVAX worthy of a speculative buy. If all goes well, the company could have two products hitting the market in 2021 or 2022, which could generate explosive revenue growth in the subsequent years.

What’s My Plan?

I have waited for the R/S capitulation and clarity on the plans for ResVax before adding to my speculative position. Now, I will continue to scale up over the coming quarters as the company continues to check off milestones and moves closer to filing their BLAs. I am concerned about the overall cash position and the potential for a secondary, therefore, I will continue to keep NVAX on a short leash until the cash runway is clearly defined. If Novavax can get both NanoFlu and ResVax through the FDA, I will hold onto my NVAX for at least 5 years. On the other hand, if Novavax fails to get both products approved, I will liquidate my position upon press release.

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.

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2019-09-04