Novavax’s November Jump: The Start Of Something Bigger? – Novavax, Inc. (NASDAQ:NVAX)

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Small companies with low share prices can pinwheel all over the place. That makes them the delight of day-traders – and often the bane of value seekers. Ever since its massive drop in 2016 following the failure of a pivotal Phase 3 RSV vaccine trial, Novavax (NVAX) has been trading perilously close to penny stock territory.

But that low share price has occasionally delivered big swings on a percentage basis. The fact is that, when a stock is beaten down and so low in price, any whiff of news can move the stock significantly. Since Halloween, NVAX has been enjoying an upward ride. Shares have risen nearly 30% in November.

Let’s take a look at why the stock is rising now, and consider the crucial question: Can these latest gains be sustained, or will NVAX wilt again as it has tended to in the recent past?

Haven’t We Heard This Story Before?

NVAX investors and watchers might be forgiven for feeling a bit of déjà vu right about now. Back in July, shares began to rise after NVAX announced it would hold a conference call to provide updates on its RSV vaccine program, specifically the Phase 2 trial for older adults (a follow-up from the failed Phase 3 that had been for the same population) and the ongoing Phase 3 maternal vaccine trial.

Despite the announcement being phrased in innocuous language with no apparent effort to generate hype, the share price still took off, rising from $1.14 at the time of the announcement to a close of $1.51 on the day of the conference call – a more than 30% jump.

Yet the conference call ultimately did not impress, in spite of the fact that it held no surprises and covered the promised ground, exactly as advertised. I wrote back in August about the strange price behavior. Evidently, investors (or more accurately, the short-term speculators) had hoped for some great revelation or big news event. Apparently, the whole upward run was an exercise in self deception – or, like a second marriage, the triumph of hope over experience.

Shares dropped in the immediate aftermath of the conference call, and then trailed downward for quite a while. The day after the call, NVAX shares were back at $1.10; a few days later, they had sunk below $1.

What’s Different This Time?

That takes us to the present, where we are in the midst of the first significant upward run since July. A month ago, NVAX traded at $1.03 a share. Shares closed on Tuesday November 21st at $1.41 – a more than 36% rise.

The principal reason behind the latest surge is the expected announcement of topline data from a Phase 1/2 clinical trial for NanoFlu, NVAX’s novel flu vaccine. The trial was a randomized, observer-blinded active comparator-controlled study of 330 healthy older adults. The aim of the trial is to compare the safety and immunogenicity of two NanoFlu concentrations against Fluzone high dose, the current market leader produced by Sanofi (SNY).

During its Q3 2017 earnings call in early November, NVAX stated its intention to share topline data from the trial before the end of the year. The introduction of a short-term catalyst in December has reignited some interest among investors and traders. The further news that CEO Stanley Erck had bought 100,000 shares on November 8th for a price of $1.13 a share no doubt added to the growing positive picture.

NanoFlu offers a lot to be excited about, and has been a major factor in analyst upgrades over the past few months. The efficacy of NanoFlu in preclinical trials was certainly impressive. As Chief Medical Officer Gregory Glenn discussed on the latest earnings call:

In head-to-head comparison studies against Fluzone high dose…NanoFlu demonstrated significantly higher and broader immune responses against both matched and unmatched influenza strains including a series of drifted strains that have evolved over more than a decade of influenza seasons…

NanoFlu illustrated higher HAI and neutralizing antibody responses exceeding those induced by the high dose vaccine against recent homologous strains. Additionally, NanoFlu induced superior protection in a ferret challenge model against a homologous and a 10-year old drifted influenza strain. These data together suggested that NanoFlu has potential to elicit broader more robust immune responses resulting in greater protection than the market leading licensed influenza vaccine in older adults…

These data suggest that NanoFlu has the potential to address the problem of annual strain mismatch due to its ability to induce highly neutralizing antibodies against a broad range of influenza strains.

Those remarkable preclinical results – which, if borne out in a larger trial, would make NanoFlu the likely future market leader – were not new. But the timetable has now become clearer, as have the prospects for the flu vaccine’s success. One could read into Erck’s buying shares this month as a sign of confidence in the trial – after all, there is little reason to buy in at $1.13 when a poor showing would probably tip the stock back toward (or even below) $1 a share in the short-run. Everything about the way management has discussed the growing NanoFlu story speaks to real confidence rather than hype.

Could the Phase 1/2 trial still underwhelm, or even fail to meet endpoints? Yes, of course. As with any speculative trial we have to assess the past performance and how the company itself is behaving. Currently, signs point in a solidly bullish direction, but investors should leaven their excitement with due consideration for the high-risk, high-reward nature of NanoFlu as a product, and NVAX as a security.

What Should Investors Do?

If the immunogenicity data from the Phase 1/2 trial does deliver as promised (or near enough to it), then NVAX will look to win accelerated approval from the FDA. That would mean NanoFlu could make it to market as early as 2019. That is a short time in drug development terms, but it is still a long way off for NVAX as a company.

Ultimately, the fate of NVAX in 2018 rests on the success of the maternal RSV vaccine trial. The Phase 3 trial will report interim results in H2 2018; after the failure of the older adult population, faith has been shaken in the vaccine as whole. Yet, the maternal trial’s design looks like it will successfully eliminate some of the issues that dragged down the last trial. A successful data reading in 2018 will send NVAX shares rocketing, but another failure would severely damage the share price – and likely result in a painful dilution to keep the company going.

As of September 30th 2017, NVAX had $172.6 million in cash and equivalents, after a net loss of $44.6 million for the third quarter. That leaves close to four quarters’ worth of runway. With maternal RSV results set to be announced early in H2 2018, things will be coming closer to the wire. And the higher the share price climbs, the more NVAX management may be tempted to tap capital markets before those pivotal results are announced. However, if the company is as confident in its maternal RSV vaccine trial as it claims, it will not likely conduct a secondary offering until the data reading, since strong results would shoot the stock up and render any subsequent dilution far less painful to extant shareholders. There would also be opportunities for partnerships as well as grants if the trials are successful, which would offer non-dilutive funding streams.

Investors should look at the current upward run as a sign of positive developments ahead, but be wary of the chance that management gets cold feet and dilutes during H1 2018. Strong NanoFlu data and subsequent pursuit of fast track approval would represent strong catalysts for a beaten down stock. But everything still hinges, in the end, on the pivotal RSV vaccine.

There will likely be accumulation and upward pressure on the share price in the first half of 2018 as investors and traders take positions in anticipation of the maternal trial results. Whether to close all or part of one’s positions – or hold it all – during that likely forthcoming accumulation cycle will depend on one’s individual risk tolerance. It is very much a high-risk, high-reward scenario.

Disclosure: I am/we are long NVAX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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