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Thursday, October 22, 2020

Novavax, Inc. (NASDAQ:NVAX) Navigating Choppy Waters

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Novavax, Inc. (NASDAQ:NVAX) has had a decent run the past week due to the revealing that US prosecutors were set to file charges in December following a two-year antitrust investigation. The investigation was due to the collusion between executives and firms on raising drugs prices. This investigation has put a lot of downward pressure on drug companies – making a lot of these companies appear very cheap. NVAX stock was one of those that shot up from this news in the past week.

Biotech is a tough sector. Most companies in the biotech industry will never make money – will become NOL shells and some PE fund or other investor/company who wants to offset taxable income will take the shell over. More or less, the industry is tough – with a lot of losers and few winners.

Novavax, Inc. (NASDAQ:NVAX) is in a volatile sector. But a tough sector doesn’t mean money can’t be made from an investor/trader. In fact, the increased volatility in biotech’s can work in an investor/traders favor – allowing him/her to take advantage of the wild emotions of the biotech market. NVAX stock is one of these volatile companies and should not be excluded from a potential alpha generating list of biotech’s

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For those who don’t know, Novavax is a clinical-stage vaccine company with a goal of delivering products to prevent infectious diseases. The products the company sells target a variety of infectious diseases with vaccine candidates in clinical development for respiratory syncytial virus, seasonal influenza, pandemic influenza, and Ebola virus.

Back in September, NVAX stock dropped like a bomb – falling from ~$9/share to under $2/share. The reason for the dramatic fall was due to the company’s lead vaccine candidate having very disappointing trail results. Moreover, the company’s Resolve trails failed to meet the pre-specified efficacy metrics. The results were a public disaster, sending the stock plummeting into the dirt.

The company’s lead vaccine candidate failed so bad that the company is now forced to focus on its less advanced pipeline. This isn’t too good for long-term shareholders. The company has a weak balance sheet. They do have enough cash to last them for around two years or so, however, given the need to focus on its less advanced pipeline – its highly potential that the cash burn-rate will pick up as more cash is devoted to further development. Finally, if the company sells parts of its pipeline in an asset sale, all proceeds will likely to go the debt holders – leaving the equity owners in the dust.

Management blames the failed results mainly due to a bad RSV season – the lowest ever on record:

“The clear difference between 201 and 301 is the attack rate. The RSV attack rate in our study represents the lowest attack rate ever reported – by a lot. We had a bad RSV season – at least from a vaccine development point of view. Was it bad luck? Yes. Was it predictable? No.”

Management then goes to state the following, backing their story up:

“We have a preponderance of data that tell a consistent story of the effectiveness of our vaccine. Over many years, we have consistently shown in well accepted animal models that our vaccine stimulates a robust immune response in every way that we could measure. Over the same many years, we have consistently shown in well accepted animal models that our vaccine protects these animals when vaccinated and then challenged with RSV. And in 9 clinical trials with pediatrics, women of child-bearing age, pregnant women, healthy adults and in the older adult population, we have consistently shown robust immune system responses by every measurement that we have. And finally, in 2 trials in the older adult population … we have shown that our vaccine provides protection from acute respiratory disease.”

Management paints a positive long-term picture, however, the results have spoken for themselves – sending the stock spiraling downward. Since the vaccine results, there hasn’t been any notable news on the Novavax frontline. So why the recent rally?

Well for one, the conclusion of the two-year antitrust investigation is coming to a close, which has led to a rally in a broad range of specialty pharma companies – Novavax included. Secondly, the up and coming election is providing a significant amount of emotions and volatility to the market. Moreover, there is speculation that if Trump wins, biotech/pharma will do well in the short-run from a more favorable business environment. Thus, tomorrow morning could give companies like Novavax a decent bounce from favorable election results.

The bottom-line is that Novavax is a speculative stock to say the least. Recent trail results have been a disaster and the company pretty much needs to start over. With that being said, there is still money to be made from an uncertain market in uncertain times. For continuing coverage on shares of $NVAX stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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