Today we have a thoroughly researched new recommendation of a small-cap biotech stock from The Medical Technology Stock Letter.
“While we are proud of the MTSL Portfolio performance YTD, most our Recommended Stocks currently trade above their respective buy limits. Unlike most Wall Street analysts, we find no need to continue to raise limits/target prices just because a stock has done what we expect it to. ... One company that has not outperformed in 2013 is Novavax, Inc. (NVAX). Its technology and R&D pipeline are not associated with the ‘Hot New Classes,’ and there have been no clinical or corporate catalysts since last Fall. With a flattish stock price in a bull biotech market, Wall Street analysts often focus on winners. Based upon our analysis and upcoming events, we believe NVAX constitutes an ideal ‘Hit ‘Em Where They Ain’t’ candidate.
“NovaVax is widely known as a vaccine company based on its proprietary recombinant virus-like particle (VLP) technology, with two flu vaccines (seasonal and pandemic) under development. At a valuation of $310 million, we believe that NVAX is undervalued based on the flu opportunity alone. However, what makes NVAX an even more compelling investment opportunity is their ‘under the radar’ RSV vaccine program, poised to deliver important Phase II data in late March/early April. (Respiratory syncytial virus, RSV, is a serious respiratory disease and represents a significant unmet medical need in both infant and elderly populations. In the U.S., it is the leading cause of pneumonia in infants under one year old and results in approximately 100,000 hospitalizations per year.) Positive data would serve as a significant catalyst for multiple reasons.
“First, the RSV vaccine market opportunity is sizable, and there are currently none on the market. No competitors are in Phase II development. Positive Phase II RSV data is not currently factored in NVAX consensus valuations. Favorable RSV data would also serve as proof-of-concept that NVAX has a platform for vaccine development that is capable of generating multiple vaccine shots on goal, reducing risk and increasing takeout potential. ...
“A Phase II trial in non-pregnant women was initiated in early October 2012. (Vaccination of women of child-bearing age is the first step in developing a strategy for inoculation of pregnant mothers in hope of passing along antibodies to the newborn.) Following the results of the study, NVAX intends to choose the safest and most effective of the four doses currently being tested to move into a confirmatory Phase II trial. The company plans to enroll 500 patients at the chosen dose and the data could be available as soon as next year as these are relatively short trials — a few weeks to enroll/dose with six months of follow-up.
“Starting the confirmatory Phase II will be an important step for the RSV vaccine’s development, but we may not have to wait for this trial to conclude before NVAX signs a partnership. If the upcoming data is positive, there could easily be enough information to commence partnership discussions. ...
“NVAX has collaborated with PATH, a global nonprofit health organization, to help fund their Phase II RSV vaccine trial — PATH has provided approximately $2 million of non-dilutive initial funding to support the Phase II dose-ranging clinical trial on women of childbearing age. Following this initial study, PATH can elect to continue to partner with NVAX by providing additional financial support (50%) for the external clinical development through commercialization. In return, PATH will have rights to distribute the RSV vaccine in the low-resource countries while NVAX retains all global commercial rights. Hence, PATH’s interest in the NVAX approach has afforded the company excellent non-dilutive financing terms to develop the RSV vaccine. ...
“In our view, NVAX represents a strong example of a stock that is not part of the ‘Hot New Classes’ and one that investors have yet to focus on. As a result, we believe the risk/reward is quite favorable. And while the upcoming Phase II results will not be pivotal data nor be enough to lead to FDA approval, it may be enough to begin to awaken investors to NVAX.
“The company ended 2012 with $50 million in cash, last year’s burn was $18 million, and the company’s two main programs are funded by the government (flu) and a non- profit organization (RSV). ... In the current market bullish market environment, it is challenging to find a biotech stock that does not meaningfully discount clinical and commercial success. In our view, NVAX is one of them. NVAX is a BUY under 3 with a Target Price of 6.”
- John McCamant, The Medical Technology Stock Letter, March 15, 2013