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Novavax: Vaccine Value

06/11/2014 8:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

One of our recommended stocks just announced a $100 million secondary offering of common stock; we believe this has created a buying opportunity, reports John McCamant, editor of The Medical Technology Stock Letter.

After speaking with management at Novavax (NVAX), the use of proceeds is to fund a standalone elderly trial that will accelerate the path to approval for the disruptive/novel combination flu/RSV vaccine.

On May 12, the company announced longer-term follow up from last year's elderly RSV study that provided vaccination protection over four to six months. As a result, the company now has a potential “seasonal” vaccine strategy. Prior to this, there was no standalone elderly path to approval.

The new path provides the earliest license/commercialization potential for the “respiratory vaccine”—the combination of the flu/RSV program into a single vaccine that, in our view, will be highly differentiated and lead the company into the combined $5 billion market for flu and RSV vaccines.

The Novavax F Protein RSV vaccine just completed its fourth clinical trial since last year and the company is about to meet with the FDA to begin the first RSV trial in pregnant women.

With the biotech sector beginning to rebound from the sharp pullback, NVAX included, a dilutive offering seemed a bit surprising—as the company has approximately $130 million in cash and government funding (and no debt).

However, in light of the new data from May 12—there is a strong likelihood of accelerated development of the crown jewels. The company will, after the deal, be able to fund all major markets—maternal immunization, pediatrics, and now, the elderly.

In addition, incorporating major distribution, marking-to-market, and investment research from two of the larger, well-respected banks, in our view, will also add to long-term appeal of the stock.

With the shares down about 7% based upon the financing, we believe an attractive opportunity exists to initiate or add to positions in NVAX.

There is mounting evidence of the “respiratory vaccine” as a major biotech commercial success, driven by sound science, a growing clinical database, and a focused management team. NVAX is a buy under $6 with a target price of $13.

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