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Msg  139001 of 183563  at  8/9/2021 11:18:08 AM  by

stakeholder2016


SA: A Great Opportunity to Buy on Market Myopia

https://seekingalpha.com/article/4447147-novavax-great-opportunity-capitalize-post-q2-earnings-weakness

Novavax Stock: A Great Opportunity To Buy On Post-Earnings Weakness

Aug. 09, 2021 11:00 AM ETNovavax, Inc. (NVAX)BNTXMRNAPFE

Summary

  • Novavax reported a delay in filing for its EUA with the US FDA, leading to a post-earnings sell-off of close to 20%.
  • We present our thesis on why we think that the market's myopia has once again provided investors a great opportunity to add Novavax to their portfolio.
  • We also dive deeper to demonstrate to investors why Novavax's vaccine is highly competitive against its mRNA counterparts.
  • Most importantly, the market has valued Novavax at a huge discount as compared to Moderna, giving investors a great opportunity to add now.


Luis Alvarez/DigitalVision via Getty Images


Investment Thesis

Novavax (NVAX) released earnings on the same day after Moderna (MRNA). While Moderna reported a blockbuster Q2 following its strong momentum from Q1, Novavax reported that the company is "continuing to work with the FDA to finalize [Novavax's] filing package for authorization under emergency use authorization," with the approval expected to be no earlier than Q4'21.

Therefore, we were not at all surprised that Novavax slid almost 20% on Friday (Aug 6) on the back of the delay announcement, which in our opinion, once again demonstrated myopia on the part of the market, without considering the stack of emergency use authorizations ((EUAs)) that the company has filed with India, Indonesia, and the Philippines at the same time, which we have previously gone in detail in a recent article representing a tremendous opportunity for Novavax to penetrate as these markets have been unable to obtain sufficient vaccine supplies from Pfizer-BioNTech (PFE) (BNTX) and Moderna, leaving a desperately huge gap for a highly efficacious vaccine such as Novavax's to fill in.

In this article, we dive deeper to show our readers why Novavax's delay with the FDA is really not as bad as it seems while also detailing the company's opportunities and recent efficacy studies that clearly demonstrate its superiority against the variants. In addition, in contrast to MRNA, which has seen its stock's momentum spiked recently, NVAX looks to be mired in recent weakness as the market sought clarity. However, we think the clarity has already been provided, as we shall explain subsequently, and encourage our readers to take advantage of its weakness and uncertainly to add this stock right now.

Delay Again? Do Investors Need to Worry?

Investors who were particularly concerned about its manufacturing delays are relying on outdated information, as the company has already sorted out those delays on its global supply chain and has already stockpiled "many tens of millions of doses [and] they're already ready to go," once the company receives the approval on any one of the EUAs that they have filed with India, Indonesia, or the Philippines.

Concerns on the expiry of the batch of vaccines have also been overblown as the company emphasized that they have been working hard to extend the shelf life of their product while also expecting a fast licensing process as the company emphasized: "Yes. I think we're certainly working to make sure that we don't run into a shelf life problem. We have successfully extended dating from 6 months to 9 months on a variety of our in-process work. So our expectation is that's not going to be an issue. We expect fairly rapid licensure, and we expect to be able to use the product we make -- that we're scaling up right now."

On this point, CEO Stanley Erck also updated that the respective countries' regulators have been rapidly reviewing its EUA application, as he articulated:

I can give you insights that although we've just submitted the data within the last [few] days, we've had meetings with the substantial number of people in these regulatory agencies going over all the questions that you would expect to be asked. Meaning that they've [reviewed]. They've begun the review process. I can't predict when it's going to be approved. But they're doing all the things we would want to have early approval.

As a result, the company is confident in maintaining its manufacturing capacity that it committed back in Q1'21 at 100M doses per month by the end of Q3'21 and 150M per month by the end of Q4'21. We are confident that the company would be able to begin shipping by the end of August as the company reminded investors that "Indonesia and Philippines are desperate for [our] vaccine and they're following [our filing]."

Moreover, Novavax also recently reached an agreement with the EU for APA of up to 200M doses (100M doses purchase, additional 100M doses as an option through 2023), which Novavax said clearly demonstrates that "there's [a] very significant demand for our type of [protein subunit vaccine] product." The company is expected to file its EUA with the EU EMA "in weeks." Novavax is also expected to submit its filings to the WHO for emergency use listing ((EUL)) in August as "the grant of EUL by the WHO is a prerequisite for exports to numerous countries participating in the COVAX Facility."

In addition, Novavax is also expected to file its EUA with the UK MHRA in September in what promises to be an exciting few weeks with so many pending and expected EUAs to be resolved that the company has emphasized that it expects a "cascading number of filings [to be approved]."

Therefore, we hope that we have presented a global view of Novavax's worldwide demand, in a nutshell, to remind investors that while the US market (whose COVID-19 vaccines market has been dominated by Pfizer-BioNTech and Moderna) is important, the global demand for Novavax's vaccines would likely see the company being able to diversify its reliance on the US market as a start, and it is looking increasingly likely that Americans would not be the first to receive a protein subunit vaccine that has been proven highly efficacious in clinical studies.

We are also quietly confident that the EUA approval with the US would likely happen shortly in Q4 as the company indicated, as the FDA also seems to be keen to have a protein subunit vaccine in the market as it emphasized:

There probably is going to be a point at which we stop giving emergency use authorizations, but right now one wouldn't want to rule out continuing to give emergency-use authorization. We still don't have an approved protein-based vaccine, for instance, and there are some people where that might be a very good alternative.

How is Novavax Going to Compete with the mRNA Vaccines?

We wouldn't be focusing on 2021's capacity constraints that Moderna and Pfizer-BioNTech are facing now since both have indicated that they would be able to ramp their capacity up to 3B doses each from 2022. Therefore, with the significant production ramp coming from the mRNA vaccine makers in 2022, Novavax's advantage would certainly have to be moved beyond just being able to mop up the demand that the mRNA players couldn't cope with for the remainder of 2021 as they looked determined to truly compete with excess capacity in the global arena in 2022.

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Share of the population fully vaccinated against COVID-19. Source: OWID

For a start, it's certain that in the high-income countries, for 2021, it's probably too late for Novavax to make a meaningful impact even if the company expects to file for EUA with the UK and the EU soon. Furthermore, the loss of opportunity for the US market in Q4'21 is almost a foregone conclusion since the EUA likely wouldn't be ready until Q4'21. Hence, we are not expecting the company to enter with a bang for the high-income countries in 2021, especially since the FDA seems close to granting full approval to Spikevax and Comirnaty soon as Dr. Fauci recently commented that: "A full approval from the Food and Drug Administration on the Covid-19 vaccines could arrive 'within the next few weeks.' I hope it’s within the month of August.” This is expected to significantly alleviate the concerns among those who have reservations regarding the safety and efficacy of the mRNA vaccines and is likely to encourage this group of people to proceed with their vaccinations.

Therefore, Novavax needs to make a resounding entry into the middle-income and lower-income markets in cooperation with COVAX. For developing countries, the main concern used to be the cold-chain management for the mRNA vaccines. However, since the revisions by the regulators recently that allow the vaccines to be "stored in standard refrigerators between 2 and 8-degree celsius for [30 to 31 days]," it has certainly made it easier for these countries to store the vaccines and therefore seems to neutralize the storage advantage that Novavax's vaccine would have previously. Most importantly, GAVI agrees, too, as it emphasized: "And now that the WHO has made a similar recommendation and updated its guidance, the [mRNA] vaccine can be stored at higher temperatures in Gavi-supported countries too."

However, investors should note that the inherent benefit where NVX-CoV2373 "can be stored, transported and handled at standard refrigerator temperatures (2-8°C)," certainly confers the vaccine an important benefit against the mRNA vaccines which could only last for 30 days (Moderna) to 31 days (Pfizer-BioNTech), according to CDC guidelines in standard refrigerator temperatures. As a result, we think that this storage advantage would exert less pressure on the supply chain and logistical management of the developing countries when handling Novavax's vaccine, making it the primary choice from this perspective.

In addition, based on NVC-CoV2373's phase 3 trials, it also appears "to have a substantially lower rate of side effects than the Pfizer-BioNTech or Moderna vaccines," especially in the "rare cases of Myocarditis (heart inflammation)," that even the FDA is closely monitoring, as the agency emphasized:

Myocarditis is clearly one of the emerging serious adverse events that we have to keep track of. We are looking at this quite closely using a variety of different systems. To date, the benefits have clearly outweighed the risks of this vaccine. We'll want to describe those risks as best as possible. So we need to have the benefits locked down and we have to have the risks locked down. That's what we're working through now.

Countries that have been highly successful in their vaccination campaigns, such as Singapore, which is now second in the world rankings for its share of the population fully vaccinated against COVID-19 according to OWID data, have primarily depended on the mRNA vaccines in their national vaccination program. However, the island-state has also reported its share of the rare adverse reaction, as the "Health Sciences Authority received 12 reports of myocarditis and pericarditis after close to 5.5 million doses of vaccines administered, as of Jun 30."

In particular, the condition also received national attention where "a 16-year-old boy suffered cardiac arrest six days after receiving his first dose of COVID-19 vaccination" while he was weightlifting at the gym.

This led to the Ministry of Health (equivalent to the United States Department of Health and Human Services) issuing an advisory "recommending that individuals should avoid strenuous activities such as swimming, cycling, lifting of heavyweights, and ball and racket games, competitive sports, and physical education classes for 7 days after receiving their first and second doses of a COVID-19 vaccine."

While the advisory did not particularly specify mRNA vaccines, given that only the mRNA vaccines have been used in the national vaccination program (even though the Sinovac vaccines are also available for private providers, but not in the program as the safety evaluation has not been completed), it's clear this advisory is directed at the mRNA vaccines, as Singapore has also not reported any cases of heart inflammation linked to the Sinovac vaccine.

Even though these adverse reactions are infrequent on an otherwise highly successful and beneficial vaccine rollout, they may likely add to vaccine hesitancy, which we think may be more prevalent in developing countries, where the level of scientific knowledge and education is markedly lower than that of the high-income countries, leading to a lack of trust especially on new technology like the mRNA vaccines.

This vaccine hesitancy directed at the mRNA vaccines was also especially noted among the some in Singapore who flocked to the Sinovac vaccine as "it is based on conventional technology," as one 62-year old Singaporean added: "The mRNA technology has been around for 30 years, but it has never been injected into a human until recently due to Covid-19 emergency, how safe is it?" Another 47-year old homemaker also voiced her concerns as she added: “[The mRNA vaccines] have no long-term track records to show what will happen later. Even though many say it is safe and there aren’t many side effects at the moment, how will it impact the body 10 or 20 years down the road? I don’t think I am alone in having such thoughts." Still, she indicated that she might consider the Sinovac vaccine as she thinks "the traditional vaccination approach is 'safer,' given its longer track record."

The advantage of Novavax's vaccine here is that it uses a well-established protein subunit vaccine technology that may likely address the concerns of this segment of the population better who has demonstrated vaccine hesitancy over the novel mRNA technology, which may significantly hamper the respective countries' drive in their vaccination rollout, especially in the developing countries.

Interestingly, the Singapore government has also signed an APA with Novavax with the expectation of including the vaccine as part of its national vaccination program, even though there is a sufficient supply of mRNA vaccines. The Singapore government also commented that "while we recognize the need to facilitate timely access to the vaccine, there should be no compromise on the scientific rigor of the assessment of their quality, safety, and efficacy," in response to the safety evaluation tests that the government is conducting on Novavax's vaccine.

Therefore, we think that Novavax's vaccine has certainly shown early promise even though it has not been launched to help many countries in its drive to vaccinate as much of the population as possible, whether in high-income countries or developing countries, especially among the hesitant segment of the population or among those who developed adverse reactions to the mRNA vaccines as the Singapore health ministry also added: "Those who have received one dose of an mRNA COVID-19 vaccine but are 'medically unable' to receive a second dose due to allergic reactions may choose to wait for the non-mRNA vaccines that the ministry plans to bring in for use in the national vaccination program."

A key aspect where we think would also give NVX-CoV2373 a huge boost against their mRNA counterparts is that its recent results from its Phase III efficacy studies have shown very high efficacy of the vaccine against variants of concern, with an efficacy of 92.6%, as well as 100% efficacy against severe disease. These are breathtaking results demonstrating that the company's technology is operating at similar levels of efficacy as the mRNA vaccines, coupled with the advantages that we discussed earlier.

However, Yale Medicine also highlighted that "it’s important to note that the study was conducted in the U.S. and Mexico, when Alpha was the predominant strain in the U.S., although other variants were on the rise. Therefore, more data is needed to determine the effectiveness of Novavax against the Delta variant."

Therefore, while we think that Novavax has proven itself in clinical studies so far, it doesn't yet have the real-world data that its mRNA counterparts have been amassing, which may be useful in the evolution of its vaccines to counter the rise of potentially new and more dangerous variants. Thus, we think the data advantage is an important consideration for the mRNA vaccine makers that investors would need to consider to evaluate Novavax's real-world efficacy after it's launched.

Main Risk to our Thesis

As we have highlighted earlier, investors need to consider that Novavax is a late mover, coming in at a time when the rest of the major vaccine makers, especially Moderna and Pfizer-BioNTech, have sufficiently ramped their production capacity to cope with the demand from the developing countries in 2022, which are the key focus of Novavax's market penetration strategy through the COVAX initiative. As a result, the market for COVID-19 vaccines is likely going to be even more competitive than what we saw in 2021, and the evolving market dynamics must be carefully monitored by investors moving forward.

However, since there is still substantial unmet demand in the developing countries, we think Novavax should hold its sway well in its initial market penetration as long as it can rapidly "cascade" its EUAs following the initial launch. Therefore, investors are encouraged to continue monitoring these developments closely and evaluate the efficacy data coming from Novavax's initial launch markets moving forward.

NVAX Valuations and Price Action Analysis

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MRNA and NVAX EV / Fwd Rev trend. Data source: S&P Capital IQ

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Street's mean target price for NVAX. Source: TIKR

Investors should be able to easily glean that NVAX is much more attractively valued (valued at 6.1x EV / Fwd Rev) as compared to MRNA (valued at 8x EV / Fwd Rev) as NVAX's expected revenue moderation from the COVID-19 vaccines moving forward is estimated to be less drastic than what MRNA is expected to experience. Therefore, if we consider the Biotech comp set mean of 14.14x, we could easily observe that NVAX's forward valuations are looking so attractive that we think the market has certainly not priced in a realistic assumption that the company would succeed in its quest to develop a commercially successful COVID-19 vaccine.

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Biotech Comp set mean. Source: TIKR

The Street is also optimistic on NVAX, as it values the stock at an implied EV / Fwd Rev of 8.27x, indicating that the Street thinks that NVAX should trade on par with MRNA, giving the stock a mean target price of $257.40, which is 35.5% above NVAX's last closing price.

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Source: TradingView

NVAX's price action also looks highly encouraging as there is clearly no doubt of its long-term uptrend bias. In addition, the profit-taking from the recent post-earnings sell-off is also expected from the price action point of view as the stock was testing the key resistance at the $240 level. Therefore any "bad news" would have inevitably led to profit-taking by astute investors.

Nevertheless, we have shared previously in an earlier article that we are keen to add the stock closer to the $170 price level, and we maintain our opinion and would bide our time.

However, investors who do not consider price action as part of their investment analysis could certainly add at the current price as it has moved down significantly from the key resistance level, and it's significantly undervalued based on our valuation discussion.

Therefore, we rate Novavax a Buy.

This article was written by

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JR Research

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Disclosure: I/we have a beneficial long position in the shares of MRNA either through stock ownership, options, or other derivatives. 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.

Additional disclosure: We may be initiating a position in NVAX over the next 72 hours.



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