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dcsilver (< 20)

NVAX has the best kind of partner



September 07, 2011 – Comments (0) | RELATED TICKERS: NVAX , EXEL , CRIS

Interesting article about NVAX -  

Novavax, Inc. (NASDAQ: NVAX) hasn't been easy to own in 2011. From highs in the $2.70 area early in the year to a low of $1.13 by August, even the recent rebound to $1.75 hasn't been all that comforting. Is NVAX beyond help or hope though? Before making on off-the-cuff decision about this small cap stock, let's at least take a complete and unbiased look.

The company describes itself as a "clinical-stage biopharmaceutical company creating novel vaccines to address a broad range of infectious diseases worldwide, including H1N1, using advanced proprietary virus-like particle (VLP) technology." In English, Novavax is working on treatments for the flu (H1N1 as well as H5N1) strains, respiratory syncytial virus, and varicella zoster virus (which causes shingles) by creating a 'near copy' of a virus that induces a body's immune system to fight a virus that it may not be able to fight otherwise.

It's actually a clever idea. Most traditional vaccines aren't strain-specific, and while they work for the basic and easier-to-treat illnesses, they aren't always adequate as treatments for some illnesses. Novavax, Inc. has resolved that shortcoming using its virus-like particles (VLP) - which don't replicate - to trigger a very specific immune response.

Great idea, but where does that leave NVAX investors in the meantime? The clinical trial for RSV entered phase I testing in January, catching up with the pandemic influenza (H1N1 and H5N1) study. The seasonal flu trials (most other 'traditional flu strains) are currently in phase II testing.

To be clear, the Novavax VLP platform works, and has shown efficacy in pre-clinical and early-clinical testing. That's not the question. The question is (for investors) does the math make sense, especially between now and the end of any of the trials.

As of the last look, NVAX boasts a market cap of $202.6 million, and is sitting on a little more than $31 million in cash. On the flipside, it's got a burn rate of about $9 million per quarter, meaning it's got enough to get through three more quarters before something's got to give - it will be impossible for even the phase II seasonal flu study to get through phase III, won approval, and begin driving revenue. In fact, the company may not even have phase III started by the time the money is gone.

So is a dilution brewing for current Novavax shareholders? Not so fast. The company could take on a partner of some sort... and not just any partner, given its track record of partners.

In March of this year, the Department of Health and Human Services contracted Novavax, Inc. to the tune of $97 million to deign and produce a next-generation flu vaccine (which is was already working on). No equity changed hands - just cash... about $32 million per year, to develop the vaccine.

It's not clear if the contract itself is going to bear fruit or not, but even if the contract itself isn't profitable for Novavax, it will at least carry the trials further down the road. In fact, the three-year contract may indeed get both the pandemic and seasonal influenza trials completed and to a revenue-bearing status.

Bottom line? Government agencies don't generally throw money around at bad bets. Were it a stand-alone company, NVAX may be something to take a "wait and see" approach with. When you factor in the backing and interest from the Federal government in addition to the universal demand for its R&D projects, this biotech outfit is actually investment-worthy. Long-termers just need to hunker down for the inevitable volatility.

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