|Novavax Rallies On Vaccine’s Terrific Phase I Data|
|By Brian Wilson, Lead Contributor|
|Wednesday, 16 January 2013 23:50|
Many investors are now claiming that that BioCryst’s vaccine is unofficially dead, although the company seems insistent on keeping the program alive while exploring “alternatives” for its development. More specifically, the company wants to try BCX 5191 at lower doses to see if patient toxicity levels can be “acceptable.” This doesn’t seem feasible at this point, which explains why vaccine investors are flocking towards Novavax’s “virus-like and recombinant nanoparticle-based” platform.
Following presentation of the company’s FDA phase I data on their vaccine for the RSV (respiratory syncytial virus) indication on December 6th, investors have been increasingly excited about this company’s prospects as demonstrated clearly by the crystal clear uptrend in shares of NVAX throughout the last few weeks.
As you can see, the stock has recently recovered the bulk of the damage caused by a $27 million equity offering that was initiated by the company in October 2012. Note that the company’s valuation actually moved up since the announcement of the equity financing, although the stock price does not imply this due to the dilutive effects of any equity financing . Novavax is now worth $271 million, and closed yesterday at $2.00/share.
Looking at the phase I data for Novavax’s vaccine for RSV, one can understand why investors have been bidding NVAX back to its pre-financing levels. The vaccine was well tolerated among patients, with no clear signs of dose-related toxicity or side effects. According to press releases, the immunization “induced significant increases in neutralizing antibody responses.” The implication made is that Novavax’s platform not only has an extremely favorable safety profile with no measurable toxicity in patients or side effects –and it works.
If you look specifically at the results, you can see that concentration of specific antibodies related to RSV jumped significantly by day 60. Anti-F IgG jumped as much as 700-1900%, while antigenic site II binding antibodies jumped 700-2400%.
Although phase I efficacy results are not very trustworthy for full evaluation of a drug, I find it quite surprising that NVAX has not moved higher on the news. While we did see NVAX move up about 26% since December 6th (the press release date of the phase I results for their RSV vaccine), I believe that the news reflects very positive on the entirety of Novavax’s vaccine platform and should allow for additional upside in the stock.
Another factor that I think could bode well for NVAX bulls is the continually high short interest in the stock – even after the phase I results from December. As of December 31st, NASDAQ reported that there were 9.28 million shares sold short, which is about 6.9% of float. This is not particularly large, although I do believe that the existing bearishness on NVAX does offer downside protection - to some extent.
It’s difficult to say where the current NVAX rally could end up, which makes it difficult for investors who are interested in the long side of the stock now. The chart implies that the recent move up was very organized and well-deserved. On the other hand, NVAX might suffer from something that is referred to as “buyer’s exhaustion”, which happens when the market needs another piece of good news to keep a rally going. If this doesn’t happen, stocks tend to dip from reactionary selling.
A good way for investors to hedge against this is to implement a covered call strategy. For instance, investors can buy shares of NVAX at $2 and sell July 20th covered calls against the position for $.45-55 per share. This is the equivalent of buying NVAX at roughly $1.50/share, which is a terrific deal by all means.