Novavax: All Eyes On Q1 2019

Novavax (NVAX) has experienced many ups and downs in recent years. This has largely been the product of exuberance about its adult RSV vaccine trial, which ended in failure and sent shares into penny stock territory. Since then, the company has been rebuilding with a focus on its second shot at a blockbuster RSV vaccine, this time in a Phase 3 maternal vaccine study. The market has also become enamored of a candidate deeper in the pipeline, NanoFlu, which has shown superior immunogenicity to currently available flu vaccines in both animal models and preliminary human testing. These prospects have helped to buoy Novavax of late, with shares holding steady even after a stock offering announced on April 11th.

On May 9th, Novavax reported earnings for Q1 2018. The financial results held little in the way of surprises, with revenue beating analyst estimates slightly and earnings missing by a cent a share. The immediate market reaction was slightly negative, with shares falling 1.8% in the wake of the announcement, but that is a rather minor movement for a stock that still trades under $2 per share. Closing at $1.69 May 22nd, shares are down just over 1% from the day earnings were announced.

The earnings report and conference call laid the stage for the rest of 2018, and set its sights on Q1 2019, when top-line data from a Phase 2 study of a quadrivalent NanoFlu will go head-to-head against market leader Fluzone, produced by drug giant Sanofi (SNY) and, more importantly, the interim results of the Phase 3 maternal RSV trial. The first months of 2019 will truly be the make-or-break moment for Novavax. After its beat-down in the market after the failure of the Phase 3 adult RSV trial, it is unlikely the company would survive another such disappointment. But if the interim results are good, the stock will soar. And it will fly even higher if the top-line NanoFlu data is also good.

The Boring Road to 2019

A number of small catalysts have been acting as a general tailwind for Novavax's shares over the past year, including updates on the maternal RSV vaccine trial and the acceleration of the NanoFlu program. But between now and 2019, there are precious few catalysts to look forward to. For a binary event-driven stock, that can mean a listless share price.

May 2018 marked an important turning point for the RSV program, with the Phase 3 trial having enrolled 4,600 participants, which is enough to conduct an interim data analysis. However, as mentioned above, this analysis will not be available until Q1 2019. Thus, there is not a whole lot of news in this program that could move the stock massively one way or the other.

Likewise, the NanoFlu program is not set to deliver any impressive catalysts during the remainder of 2018. There will no doubt be some attention paid as the quadrivalent NanoFlu model is tested against the latest iteration of Fluzone, but this will not involve a tremendous amount of solid data until early 2019, when the top-line data from the Phase 2 trial will be available.

So the remainder of 2018 looks to be a bit of a desert where catalysts are concerned. However, it is unlikely �� barring a general market correction downward �� that Novavax will trade violently downward. As events are concerned, things seem stacked slightly in the company��s favor. That is especially the case with the flu vaccine program, as another unpleasant flu season will likely drive positive attention toward a new alternative in the works.

Cash Position Remains Something of a Worry

Cash has been a nagging worry for some time at Novavax. In a March 22nd research note, we reflected on the mounting cash concerns after the company announced it would be presenting the interim results from the maternal RSV trial in Q1 2019 instead of Q4 2018. Novavax has allayed its immediate needs, albeit via diluting shareholders, raising $54 million in a stock offering in April. The dilutive offering sent shares down below $2, but they have stabilized far above where they were trading when market sentiment was uniformly negative.

Novavax had $164.2 million in cash and equivalents at the end of Q1 2018, after burning through $66.1 million to finance operations for the quarter. That was a substantial uptick from the same period in 2017, but newly minted CFO John Trizzino stated on the earnings call that the burn would be substantially reduced in subsequent quarters of 2018:

��We do expect to see a significant decrease over the subsequent quarters for the balance of the year. And so that's going to be attributed to the reduction, mostly of kind of R&D expenses. So I think that's enough to kind of give you an indication of what we expect our spending to be through the balance of '18.��

Assuming the cash burn falls more into line with previous recent quarters, Novavax has about three quarters of runway, comfortably speaking. It could probably stretch that to four in a pinch. But that would be cutting it mighty close, since the big data readouts from the RSV vaccine and NanoFlu trials are set to happen in the first quarter of next year. Novavax can probably stretch its resources that far. But it is an open question of whether it will take the risk. In any event, positive interim data for the maternal RSV vaccine trial will send the share price skyrocketing and would allow a share offering on much more favorable terms �� if Novavax is not snapped up by a big pharmaceutical company, that is.

Investor��s Eye View

Novavax continues to be an intriguing ��all or nothing�� stock. It continues to trade below $2 a share, which will look ridiculously cheap in the event of a positive interim data readout from the maternal RSV vaccine trial. An independent data analysis suggests that this trial will not be a repeat of the failed adult RSV vaccine trial, but nothing is certain in the biotech game. A bad result will likely mean Novavax will fold �� or at least dilute current shareholders to nothing.

That said, there is clearly a massive market and evident appetite for an RSV vaccine. Pfizer (PFE) announced on May 22nd that it has commenced a Phase 1/2 adult RSV vaccine trial. If Novavax��s maternal trial is a success, Pfizer might well decide to scoop up the developmental biotech. A proven RSV vaccine is a hugely valuable asset, so there would likely be many potential partners and buyers in the event of good news.

Q1 2019 represents the hinge of fate for Novavax. The upside is massive, but the risks persist. Investors must think carefully about their risk-to-reward appetites before taking a position. But evidence would suggest that a play on Novavax will meet with welcome rewards.

Disclosure: I am/we are long NVAX.

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.