Novavax, Inc. (NASDAQ: NVAX) has been an interesting stock to follow as of late. After trading in the low-to-mid $2 range early on in the year, the stock tanked in late February due to a clinical trial not meeting its primary endpoint.
Nonetheless, many still see a ton of value in the stock, and after digging in personally, I happen to side with the bulls. Let’s dive in:
The Failed Clinical Trial
Before we go any further into Novavax, I think that it’s important to address the elefant in the room, the failed clinical trial. The trial, known as PrepareTM, assessed ResVax for the prevention of RSV disease in infants via maternal immunization.
As mentioned above, on February 28, 2019, it was announced that the trial failed to meet its primary endpoint. The primary endpoint was the prevention of medically significant RSV lower respiratory tract infection, also known as LRTI. While this endpoint was not met, there were some positive bits of data that came about as a result of the trial. These include:
- ResVax led to a 39% reduction in medically significant RSV LRTI;
- 44% reduction in RSV LRTI hospitalizations; and
- 48% reduction in RSV LRTI with severe hypoxemia.
Moreover, a pre-specified exploratory analysis of these same efficacy endpoints, including additional data ascertained from hospital records resulted in the following:
- A 41% reduction in medically significant RSV LRTI;
- 42% reduction in RSV LRTI hospitalizations; and
- 60% reduction in RSV LRTI with severe hypoemia.
So, while the trial did fail to meet its primary endpoint, strong efficacy data has been established. As a result, the company intends on meeting with regulatory authorities in both the United States and Europe to discuss a path toward licensing. In fact, in a statement, Dr. Keith Klugman, Director of the Bill & Melinda Gates Foundation’s Pneumonia Program, had the following to offer:
Pneumonia stubbornly remains the leading killer of children under the age of five worldwide. The new maternal vaccine from Novavax shows promise in the fight against RSV, the most common cause of viral pneumonia in young children.
We are very encouraged that the Novavax maternal RSV vaccine reduced severe RSV hypoxemia by 60% in the first months of life and believe this vaccine has great potential for reducing RSV-associated deaths in young babies.
The above statement was followed up by Stanley C. Erck, President and CEO at NVAX. Here’s what he had to offer:
Importantly, while this study did not meet the pre-specified success criterion for the primary clinical endpoint of this trial, the data indicate that ResVax protects infants from some of the most serious consequences of RSV, including RSV LRTI hospitalizations and RSV LRTI with severe hypoxemia.
The potential to prevent these most serious outcomes during infants’ most vulnerable months of life could have a profound impact upon the global burden of RSV disease. Our next steps include meeting with U.S. and European regulators to review these data and to discuss the path forward for licensure. We wish to acknowledge and thank the investigators, the Novavax team and the many mothers and their families around the world that participated in this historic trial, bringing the world one step closer to an RSV vaccine.
So, while the outcome of the clinical trial definitely wasn’t what investors wanted to see, the ResVax asset isn’t dead. Ultimately, the strong data surrounding the severity of RSV occurances in immunized infants could lead to a path toward approval.
The NVAX Pipeline Is A Strong One
(Image Source: https://novavax.com/page/11/clinical-stage-pipeline)
As you can see from the image above, Novavax has quite a few pipeline assets that are worth talking about. First up, we have the RSV vaccine, ResVax. This asset is an important one because at the moment, there are no approved vaccines for the ailment.
The closest comparable treatment is known as Synagis, which is indicated for the prevention of serious lower respiratory tract disease caused by RSV in children at high risk of RSV disease. However, this vaccine is not approved for use in other populations.
While the Phase 3 trial of the vaccine in infants via maternal immunization failed to meet its primary endpoint, the asset is also being studied in a Phase 2 clinical trial in older adults and a Phase 1 clinical trial in pediatric patients ages 6 months to five years.
Considering the relatively strong efficacy data seen in the Phase 3 PrepareTM trial, there’s a good chance that the two trials mentioned above, will yield positive efficacy data as well. Should this be the case, the company may soon tap into a global market that has an estimated annual cost burden in excess of $88 billion.
Although the ResVax candidate is an interesting one, it’s my opinion that the company’s NanoFlu asset adds the most value to the stock. As time passes, currently approved seasonal influenza vaccines are losing efficacy.
On January 3, 2019, NVAX announced top-line results from the Phase 2 clinical trial of NanoFlu in older adults. During the study, the company assessed the vaccine in 1,375 healthy adults ages 65 and older.
The results of the trial showed that NanoFlu was generally safe and well-tolerated. Moreover, the company’s proprietary Matrix-M adjuvant resulted in a significant enhancement of immune response when compared to the adjuvent formulation.
The trial showed that the vaccine led to a 45% increase against vaccine homologous virus, A/Singapore, a 22% increase against a historic drifed virus, A/Switzerland, and a 42% increase against a forward drifted virus, A/Wisconsin. Moreover, the company was able to identify the NanoFlu formulation that it will use for the Phase 3 clinical trial.
In a statement, Dr. Gregory Glenn, President of R&D at NVAX, had the following to offer:
The superior immunogenicity against wild-type H3N2 viruses holds promise that NanoFlu will more effectively address the mismatch between circulating viruses and the strains included in most commercial vaccines due to genetic drift and vaccine virus egg adaptation.
Older adults experienced the brunt of the serious health consequences of this mismatch, with H3N2 driving the majority of influenza hospitalizations and death during 2017-2018, the worst flu season in four decades. Over the past several years, influenza vaccine effectiveness has been suboptimal in this population, and there is broad agreement that better vaccines are needed. These confirmatory data from the second clinical trial of NanoFlu further justify continued rapid development of an improved vaccine.
The seasonal influenza vaccine is yet another massive one. In fact, current estimates suggest that the annual market in the U.S., Japan, France, Germany, Italy, Spain and the UK for influenza vaccines will reach $5.3 billion by the 2021-2022 season. NVAX is also in early clinical trials for a potential vaccine for the Eboal virus. Ebola is a severe, often fatal illness with a fatalaty rate ranging from 50% to 90%. Unfortunately, there are no licensed treatments that are proven to neutralized the virus, nor any approved vaccines. In mid-2015, the company announced data from a Phase 1 trial of its Ebola GP Vaccine in ascending doses in 230 healthy adults. The data from this trial showed that the vaccine is highly immunogenic and well tolerated. Finally, with ongoing work in the RSV F and influenza spaces, the company is currently in the R&D stage surrounding a vaccine that combines the two. Novavax believes that there is a long-term opportunity to develop a combination respiratory vaccine. Moreover, early preclinical data suggests that the combination vaccine is feasible.
On March 18, 2019, Novavax released its financial results for the fourth quarter and full 2018 year. During the quarter, the company produced a net loss of $49.3 million, working out to $0.13 per share. In the same quarter one year ago, the company generated a loss of $50.8 million, or $0.16 per share.
For the full year, the company announced a net loss of $184.7 million, or $0.50 per share. That figure also fell significantly from a net loss of $183.8 million, or $0.63 per share in the prior year.
Fourth quarter revenues came in at $6.1 million. This figure was significantly lower than the $10.4 million in revenue generated in the fourth quarter of 2017. The company said that the decrease in revenue was driven by the completion of enrollment of participants in the Prepare trial in the second quarter of 2018.
Perhaps most importantly, NVAX ended the quarter with $103.9 million in cash, cash equivalents, marketable securities and restricted cash. In the fourth quarter, net cash used for operating activities came in at $45.3 million.
Multiple Catalysts Ahead
Moving forward, Novavax investors have quite a bit to look forward to. Here are the most important catalysts to watch for ahead.
- First and foremost, with the strong data out of NanoFlu in Phase 2, we can expect to see updates surrounding regulatory discussions on the path to a pivotal Phase 3 clinical trial. Of course, the announcement of a coming Phase 3 trial for NanoFlu could prove to be a strong catalyst ahead as well. In fact, the company expects to reach an agreement with the FDA in the second quarter of 2019 with regard to a proposed Phase 3 trial of NanoFlu.
- Moreover, the company has also stated that following the Phase 3 ResVax trial’s failure to meet its primary endpoint, yet display of efficacy in other areas, it will be speaking with regulatory authorities in the United States and Europe with regard to moving forward toward market approval. Any updates here could prove to drive the stock upward.
- Finally, the Novavax said that it intends on presenting data from the Phase 3 trial of ResVax at the 37th Annual Meeting of the European Society for Pediatric Infectious Disease (ESPID). This presentation will take place on May 7, 2019.
Risks To Consider
The clinical-stage biotechnology industry can be a risky one to invest in, and for various reasons. When it comes to NVAX, these are the most important risks to consider before making an investment:
- The Need For Capital – At the end of the fourth quarter, NVAX had a total $103.9 million in cash or assets that can be liquidated quickly (quick assets). With a quarterly loss from operating activites well over $40 million per quarter, this isn’t enough to get the company through the next three quarters. With a Phase 3 clinical trial for NanoFlu on the horizons, expenses may increase. Considering this, the company is going to need to raise capital relatively soon. Nonetheless, this is a common occurance in clinical stage biotechnology companies as with no approved products to generate meaningful revenue, these companies are highly dependent on support from the investing community.
- Clinical Failures – Any clinical trial can fail, and it happens more often than you may think. With the ResVax in infants via maternal immunization trial failing, there’s a larger chance that other ResVax trials could end in the same result. Another clinical failure, whether it be in the ResVax asset or the NanoFlu asset, could be painful for shareholders.
While I would not suggest a risk averse investor make a move on NVAX, for the right investor with a healthy appetite for risk, an investment in the stock could prove to be incredibly fruitful. At the end of the day, the market reacted to the ResVax failure as if the company were throwing the asset away. That’s not the case. However, this reaction did lead to what I believe to be a gross undervaluation in the stock.
Although the trial did not meet its primary endpoint, key secondary endpoints were met. While the asset will require a change of focus, leaning toward endpoints in which it is effective, all is not lost. RSV is a serious condition and any improvements in the treatment and prevention of the condition could be very valuable. ResVax still has an opportunity to be one of these treatments.
I also stand by my belief that NanoFlu is a highly valuable asset. With positive Phase 2 data released early this year, and ongoing discussions with the FDA, the asset will likely move into Phase 3 trials ahead. We can expect positive catalysts leading up to, during, and after the Phase 3 trial.
Although the risk of a dilutive fund raise taking place is pretty high here, if you invest in the clinical-stage biotech space, you’re prepared for this risk. In the long run, sticking through the ups and downs could prove to be a very lucrative move, should either ResVax or NanoFlu, or both, find their way to regulatory approval in the United States and/or Europe.
So, while the risk is always there, and that’s definitely the case with NVAX, a deep dive leads to a compelling opportunity for the right investor!
What Do You Think?
Where do you think NVAX is headed moving forward? Join the discussion in the comments below!