Why Novavax, Inc. Could Be a Gold Mine for Growth Investors

9/25/17

By Keith Speights, MotleyFool

If you had the misfortune to buy Novavax (NASDAQ:NVAX) stock in July 2015 and held on, around 90% of your investment would have been wiped out. Ouch. Even if you had bought the biotech stock at the beginning of 2017, you would be losing money.

With that context, the following statement might seem crazy: Novavax could be a gold mine for growth investors. But sometimes it's the craziest ideas that prove to be the most successful. Here's why the growth prospects for Novavax just might be much greater than many think.

Businessman holding pen to drawing of dollar symbols on steps

IMAGE SOURCE: GETTY IMAGES.

Respect might be spelled "RSV F"

Aretha Franklin sang about "R-E-S-P-E-C-T," but for Novavax the word might instead be spelled "RSV F." The biotech's lead product is its respiratory syncytial virus fusion (RSV F) vaccine. Novavax has three clinical trials underway for the vaccine.

The company expects to report an interim analysis from the most important of these studies in 2018. This late-stage study is evaluating Novavax's RSV F vaccine in infants through maternal immunization. Results from a phase 2 study using maternal immunization have been positive, with data suggesting that immunizing pregnant women could protect infants RSV for up to 180 days.

There's no question that the market potential is great. Around 1.9 million infants are infected with RSV in the U.S. annually out of roughly 4 million pregnancies. These infections result in an estimated 109,000 emergency room visits, 263,000 outpatient visits, and 31 deaths each year. Should Novavax's late-stage study prove successful, maternal immunization against RSV using its vaccine could become a standard of care for expectant mothers.

Novavax also hopes to eventually reach the senior adult and pediatric populations with its RSV F vaccine. In July, the biotech announced encouraging results from a phase 2 study evaluating safety and immunogenicity of its vaccine with an adjuvant in older adults. Novavax plans to initiate another phase 2 study in older adults, focusing on efficacy, in 2018.

Rapid rise of NanoFlu

Until seven weeks ago, Novavax didn't talk very much about its experimental flu vaccine based on nanoparticle technology. That's because the vaccine was only in pre-clinical testing. The situation has changed in a big way.

In August, Novavax announced that its flu vaccine produced superior hemagglutinin antigen inhibition antibody responses in ferrets compared to Sanofi's (NYSE:SNY) leading flu vaccines Fluzone and Fluzone HD. The preclinical results were so impressive that Novavax is rushing to advance the vaccine, which it now calls NanoFlu.

The biotech planned to initiate a phase 1/2 study this month. Immunogenicity data from that study could be available by the end of the year. If that data is positive, Novavax could realistically be talking with the U.S. Food and Drug Administration (FDA) in early 2018 about moving ahead with a pivotal late-stage clinical study. It's not out of the question that the biotech could file for FDA approval of NanoFlu as early as the second half of 2019.

How big of a deal could NanoFlu be? Last year, Sanofi made around $1.6 billion from flu vaccines, which include Fluzone, Fluzone HD, and Vaxigrip. If Novavax achieves clinical results that are as powerful as what it found in preclinical studies, NanoFlu could be in good position to take a significant share of the flu vaccine market.

Risks and rewards

Novavax stock hasn't soared this year because of one key reason: The risks of failure are significant. Last year, Novavax's late-stage study of its RSV F vaccine in older adults flopped, missing both its primary and secondary endpoints. There's no guarantee that its late-stage study in infants via maternal immunization will fare better.

As for NanoFlu, we're still looking at a product that has just come out of preclinical testing. While the results from the animal studies were definitely encouraging, huge hurdles remain before Novavax will be able to declare success.

It's entirely possible that Novavax fails miserably on both counts. Right now might be as good as it gets for the stock. However, there is no question that Novavax could be a gold mine for growth investors if its late-stage study of the RSV F vaccine is successful or if things go well for NanoFlu. The problem with mining for gold, though, is you have to wait to confirm there's actually gold in the mine.

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