Novavax

01/10/2014 7:00 am EST

Focus: HEALTHCARE

Jay Silverman

Analyst, Medical Technology Stock Letter

Stocks of biotechnology companies that reach major inflection points tend to outperform for several years. And our top speculative idea is a company that made a major leap forward in 2013, suggests Jay Silverman, editor of The Medical Technology Stock Letter.

Novavax (NVAX) is executing its clinical plan with a clearly defined, and risk-adjusted, strategy. The firm is developing proprietary flu and RSV vaccines using their VLP technology.

There is no RSV vaccine and they are far ahead of any competition. NVAX's addressable markets are approximately $4 billion per year.

Over the past 18 months, the company started, and completed, seven trials—for flu, RSV, and pandemic flu vaccines (the latter which no one ascribes much value to). The data was either exceptional and/or breakthrough.

In 2014, there will be multiple trials started, completed, presented, and published—leading to registration trials beginning, either by the end of the year, or 2015.

In particular, two larger studies are underway—a large Phase II RSV study, due in Q2:14, and a combination "respiratory vaccine" trial (combining the flu/RSV in one vaccine), expected to be completed by year-end. We believe this will be a disruptive, proprietary product that will attract the likes of big pharma.

The company is well funded—with roughly $150 million left in government contracts (for seasonal/pandemic flu and some RSV), plus ~$145 million in cash (no debt).

The CEO (Erck), CFO (Phillips), and CMO (Glenn) are a solid management team, well-experienced in their respective roles, and have a sound working chemistry and quiet confidence.

As the company has de-risked the RSV program with three successful trials in 2013, and moved closer to registration trials and eventual commercialization, we are raising our buy limit to $6 (from $3.50), with a target price of $13 (up from $8).

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