Any would-be acquirer of NVAX would model NVAX’s future earnings over a decade based on 100 assumptions. After inputting numbers for market size, market share, pricing, COGS, SG&A, R&D and other expenses, the model would calculate pre-tax numbers and then apply taxes. The after-tax profits, along with an estimated value of the Company after the annuity period, would then be discounted back to the present at a given IRR to determine the Company’s NPV. Given where we are now, the bulk of the earnings estimates would need to be calculated under post-pandemic assumptions.
Suppose we were to simplify this process…but just to make a point, we used estimates that were so low no one could suggest they were unreasonable. I offer this simple illustration to provide perspective and to make a simple point. Here are the assumptions: (1) The Covid vaccine market size for developed countries in a post-pandemic environment is 500M annual doses (~1B people at a 50% annual vaccination rate.) We learned from a previous conference call that this was actually Sanofi’s estimate. (2) NVAX will be granted full authorization to offer its Covid vaccines for all demographics as a booster dose around the world. (3) NVAX will manufacture and sell 100M doses per year to this market. This will represent the ONLY doses manufactured by NVAX Company-Owned facilities. Months ago, Trizzino informed us that in a post-pandemic environment, Medicare would reimburse Covid vaccinations at a rate of $60/dose. I would suggest a full 25% reduction to this price to allow for distribution and other costs. This takes us to $45/dose. The cost is the high end of the $3-$5 range we were provided by the NVAX CFO a few months ago. So, we have $4.5B in annual product revenue, $.5B in COGS, and $4B in gross margin at this point. (4) NVAX will realize $.5B in net license fees from the Serum Institute. (This is based on selling 200M doses to India’s 1.4B people annually at $9/dose.) Given a $4 COGS/dose, this provides $1B in margin, of which half, $.5B, goes to NVAX. So NVAX’s total revenues are just $5B/year ($4.5B for product revenues, and $.5B for net licensing fees.) NVAX’s Gross Margin is $4.5B/year. (5) NVAX spends $1.5B/year for all SG&A and R&D. For those of you who think that this is not enough money…I will suggest that this is a ton of money for such a small-scale operation. Moreover, new owners will assure that proper budgetary disciplines will be exercised. (6) On $3B pre-tax income, NVAX pays 30% in taxes ($900M), and realizes $2.1B in annual profits. (7) A terminal value in Year 11 is estimated at $25B.
If we discount to the present a $2.1B annuity for 10 years, and a terminal payment of $25B in year 11, and use a full 10% discount rate, we get a NPV of $21.666B. On 95M fully diluted shares, this works out to $228/share.
Let’s understand a few things. First, the NPV amount is just a mathematical calculation. It is insensitive to the industry. The same number would be calculated for food distributors, bicycle manufacturers, etc. Second, we arrive at our $21.666B valuation ($228/share) by only being a $5B company…by only selling 100M doses/year of Company manufactured product and earning nominal license fees based on agreements already established, based on technology already transferred, and based on manufacturing capabilities already realized. I personally was surprised that the valuation was so high based on the modest assumptions made. Finally, one would have to conclude that the illustration I have provided here is woefully inadequate. It excludes more than it includes.
My numbers do not include licensing fees that would be realized through SK Bio and Takeda. They do not include potential sales to countries in South America, Mexico, the Mid-East, and Southeast Asia. They do not include the monetization of Matrix-M and the impact it could have to other vaccines, worldwide.
Three years ago, Erck told us that NVAX aggregated data showing that its RSV vaccine prevented pneumonia FROM ALL CAUSES in babies for an entire year. The efficacy exceeded 50%. Importantly, as I recall, the lower-bound confidence interval number exceeded 30%.Erck told us that this represented the most important clinical data the Company ever created. Three years later…and not one single thing has been done to monetize this extraordinary clinical achievement. So, no…my numbers don’t include the potential monetization of this either.
And finally we have the Covid/Flu combo product. My numbers don’t include this either. We all realize that even if the dose quantities do not change, and this product goes on to supplant a good percentage of the Covid doses, NVAX will realize higher revenues and margins that will beneficially impact the NPV and share price. NVAX will also realize higher licensing fees on the more expensive product.
We cannot undue what has been done, and we cannot recover lost opportunities. The purpose of my post is simple. It is to suggest that even if we set a very low bar, we still get a very respectful valuation for the Company in a potential acquisition…Realizing of course that there is no way of knowing if this will ever come to pass. The fact that the NVAX Board is asking us to remove the super-majority clause in the Company’s By-Laws and Certificate of Incorporation tells me that they are seriously considering a potential sale. GLTA. EN