Revisiting Novavax, a lesson in persistence

Revisiting Novavax, a lesson in persistence

’Tis a lesson you should heed:

Try, try, try again.

If at first you don’t succeed,

Try, try, try again

William Edward Hickson

Summary

• US Phase 3 Data is likely to replicate UK Phase 3 Data which produced a share price appreciation of 100%+. We expect a similar run up given the stock experienced a 20% move over announcement of data coming soon
• $NVAX has benefitted from Covid-19 tailwinds in reducing commercialisation barriers and presents as a real competitor to the flu market as a whole through its potential NanoFlu/NVX-CoV2373 vaccine
• Novavax is an extremely volatile biotech stock that experienced a large drawdown based on delays but still presents a compelling diversified opportunity across Covid-19, (H1N*) Flu, Malaria, MERS and SARS

Who are they?

Novavax is a biotechnology company specialising in the production of vaccines with over a decade of experience in the field. $NVAX became a market darling having run up 1000%+ in 2020 due to its successful readouts in Covid-19 with an additional focus on RSV, Ebola, MERS and SARS. Unfortunately the stock has had several delays which have resulted in a decline from previous highs of ~$330/share to current levels of $171/share. Based on a future catalyst we revisit the biotech to determine any further movements in the stock.

Market Dynamics

Novavax is involved in several markets including covid, flu (NanoFlu) and malaria worth a collective ~$100bn by 2027. Considering the vast TAM and expected recurring revenues in some key vaccine markets, Novavax’s current $14bn market cap has room to appreciate based on the addressable populations with NVX-CoV2373 driving revenue as best-in-class across the current covid vaccine market.

Covid-19

Covid reached a value of 47 billion in 2019 growing to 86.4 billion by 2027 at a CAGR of 7%. This comes as no surprise given Pfizer/BioNTech initially forecasted to be $15bn during 2021 which was revised to $26bn based on current contracts. Listed below are the current vaccines approved and are in clinical development. Note that despite Novavax seemingly underperforming other vaccines (overall), it has greater/similar efficacy when compared against the Wuhan (first) variant.

Side effect profiles

Side effect profiles have led to some major backlash with vaccines despite severe adverse effects affecting a small cohort, including myocarditis (252 events over 5 million doses; Pfizer) and 58 deaths over 1.2 million doses for (AZN). Novavax, unlike the above, demonstrated no major adverse events during their phase 3 trials and given the difference in mechanism of action would expect it to have a lower likelihood of producing the same rare side effect profile as mRNA/adenoviral drugs.

Pipeline

A part of NVAX that hasn’t been considered and is being discounted is the speed at which the therapy was created. This is a boon to the exclusivity of NVX-CoV2373 as the patent has around 16 years of exclusivity remaining also the likelihood of recurrent use given the change in variants of flu vaccines (as we have seen with H1N* strains). Notably recent data has shown Pfizer has up to 50% reduced neutralising antibodies relating to the Indian variant vs the Wuhan strain. This is in line with the South African variant, which NVX-CoV2373 demonstrated greater neutralising antibody levels when compared to its competitors.

NanoFlu has also demonstrated non-inferiority to Sanofi’s Quadrivalent vaccine in trials as well as demonstrating higher GMT (geometric mean titres) & SCR (seroconversion rates) across all four strains and strains not included in the vaccine. This suggests NanoFlu is best-in-class and also protects against antigenic drift, essentially demonstrating their ability to maintain efficacy against new variants. Its non-egg cell culture also provides another benefit to those who suffer from allergic responses to egg cell based vaccines.

We do not place any coverage on ResVax as a clinical candidate following two poor clinical data readouts.

Management and Finance and Risks

Management

The CEO has presented as an issue for many investors with lack of communication and delays in presenting P3 data which resulted in the drop to ~117/share. Based on a review of trial durations and crossover trials, results are likely this June with a lower likelihood of the data coming in early July. The company also made an announcement of “data coming soon” which is unusual for the company who have usually not made announcements like this in the past.

Finance

The company has a strong balance sheet with ~$2.2bn in current assets with around ~$1.2bn current liabilities and so does not present a dilution risk. Additionally, the company has additional revenues incoming with an expected range of around ~$800m total sales in 2021 and $5bn dollars in unperformed obligations as of March 2021.

Risks

Novavax has never completely commercialised a drug and this is the closest they have been to the final stage. However, the company benefits heavily from an extreme environment where demand is at extreme levels evidenced by performance obligations of $5bn as of March 2021. Novavax also has a partnership with Takeda enabling commercialisation in Japan.

Technicals

Reviewing the chart above we can see that since the delay was announced back at the end of April, volume is starting to increase from 17th May and this also mimics the order flow. Note that in the last 5 days, a large order of $4.7mn and $8.5mn was also made on the Friday 2nd & 4th June respectively according to NASDAQ Order Flow data. Also noting the higher lows on several candlesticks there is a steady accumulation in the run up into this data readout.

Verdict:

Phase 3 Data will most likely be positive with the India variant unlikely to be included in great numbers as it only began to spread around the beginning of May. Given the very positive Phase 3 UK results I am extremely bullish on the P3 US trial and expect a stellar readout.

Based on the current environment, the rising number of Covid-19 cases and variants, the need in the short term as well as the long-term remains. Consider that flu vaccinations are necessary each year due to antigenic drift and viral mutations (antigenic shift), see below for a view of how prevalence continues for the flu virus despite available vaccines (FluZone) etc, as a result, multivalent vaccines will always be necessary.

Source: The evolution of influenza viruses; Petrova et al 2018

We are forecasting continuous use of the NVX-CoV2379 alongside the NanoFlu vaccine which are used during flu season to ensure flu’s cases remain controlled. Despite the competition Novavax has a material advantage in entry to market when compared to traditional small vs large player scenarios as Covid-19 headwinds enabled commercial relationships through necessity. This should bode well for them going forward and continuous annual sales of 1bn+. Considering the technicals and charts listed above, we expect a move above $250+/share at a conservative level and potential for an exaggerated move beyond $300+. Inherent risks are continued delays and data not appearing during June as investors lose patience, though I’d continue to expect a run up in the lead up to the readout with potential for drawdown by end of June should no readouts occur.

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