Novavax (NASDAQ:NVAX) develops vaccines based on protein nanoparticles which can help increase the immune response in patients. It is currently awaiting results of phase 3 trial. A successful result will provide significant bump to the stock and also make it an attractive acquisition target by bigger pharmaceutical companies.
RSV F maternal vaccine candidate in phase 3
Data from RSV F vaccine in phase 3 will show its efficacy. We should see the results by the second half of this year. If the results are excellent it will allow Novavax to target 4 million people.
The market opportunity of this vaccine is enormous. Close to 57,000 children younger than 5 years are hospitalized due to RSV infection. Being the only drug can provide significant advantage to Novavax. The RSV F vaccine for maternal immunization is estimated to have annual US cost burden of around $770 million. For older adults this burden is a staggering $28 billion. NVAX will be able to launch the RSV F vaccine for maternal immunization by early 2018 whereas vaccine for older adults can be launched in 2019.
Peak sales target
The past success rate of phase 3 drugs getting FDA approval is close to 50%. According to NVAX the market opportunity for maternal immunization vaccine is close to $770 million. This would result in a peak sales estimate of $380 million as there is no other competition for this drug. Valuation of a clinical stage biotech company is between 3-5 times its peak sales. Taking a conservative estimate, this $380 million in peak sales will translate to a $1.14 billion market capitalization for the company. Currently the stock has a market cap of $223 million.
Currently the stock is trading at $0.82/share. If the above approval is provided we can see the stock skyrocket to $4-$4.5/share. Becoming an acquisition target soon after approval will also provide a good premium valuation to the stock in a short time.
Risk/Reward associated with the stock
Although the upside for the stock is quite strong at the present moment, it should be noted that everything hinges on RSV F vaccine getting FDA approval. In case this vaccine does not meet the requisite standards we should see a slump in the shares. A similar event happened in September 2016 when RSV F vaccine did not meet the standards for older patients. This led to over 80% fall in its stock price.
Fall in NVAX prices after its last drug failure in meeting the standards on older patients in September 2016
Novavax is developing RSV F vaccine for Respiratory Syncytial Virus. This vaccine for infants through maternal immunization is in Phase 3 and the results should be declared in the latter half of 2017. If it gets the requisite approval from FDA, it will be the first drug in the market for RSV segment and will have a peak sales market opportunity of $380 million. This can boost the price of the stock to over $4/share from current price of $0.80/share.
If it goes through the acquisition route, the stock valuation can increase much sooner. However, traders much also be aware of the risk associated with this stock. The stock is heavily reliant on the positive outcome of its RSV F vaccine and if this does not happen, we can see a decline in the stock for quite some time.