MTSL Issue 820
http://www.bioinvest.com/wp-content/uploads/2016/02/MTSL-Issue-820.pdf
ACAD, ALKS, CBMG, INCY, XON, MDCO, NKTR, NVAX
NVAX – Raises $300 Million As Phase III Completes and Prepares For The Next Blockbuster Vaccine
The announcement of the convertible bond offering initially took us by surprise. But after a deeper understanding of the Company’s strategy and a deeper dive into the commercial landscape, we are beginning to believe the market for the NVAX RSV F protein vaccine may be significantly larger than we previously thought. As a result, a major full court press by Novavax powered by a ~$600 million war chest would allow the Company to compete at the Big Pharma level.
How Big Can The RSV Vaccine Be? Follow Prevnar
The world’s best-selling vaccine is Pfizer’s Prevnar 13 – it is approved to prevent pneumococcal pneumonia. Prevnar 13 sales exploded in 2015 – approaching $5 billion per year – after the Company received a recommendation of the Advisory Committee on Immunization Practices (ACIP) in September 2014. ACIP, a division of the CDC that advises it on vaccines, recommended all adults ages 65 and over get the Prevnar 13 vaccine. Prevnar 13 is also approved for children under 5, and people ages 6 and up who have certain risk factors. Out of 45 million eligible people, Pfizer is estimates that it’s reached about 25% to 30%.
Rising Awareness – Demographics, Diagnostics and Soon Therapeutics
As the exhibit above shows, RSV infections in the U.S. are similar to that of the flu and double that of pneumococcus. A successful annual vaccine for RSV in the elderly, therefore, we believe has as large if not greater market than that of Prevnar. Furthermore, as the population ages, the prevalence of RSV will continue to rise. In addition, ever since the introduction of a rapid point-of-care diagnostic (e.g., Cepheid’s Xpert® Flu/RSV XC introduced in 2014), almost half of the physician visits by the elderly for the flu are actually documented RSV infections. Lastly, new RSV therapeutics are entering late-stage clinical testing (e.g., GS-5806, REGN0222, AL-8176, etc.). Taken together, the awareness and growth of the RSV market (Dx, Rx and vaccines) is expected to explode by 2025 to a multi-billion market, driven by a massive drive in awareness thanks to the introduction of rapid in-office diagnostics, large pharma players and Novavax’s F protein vaccine. With a seasoned management in global vaccine development, manufacturing and public policy, we believe that NVAX is focused not only on the clinical trials for the F protein vaccine, but once approved we expect the Company can achieve a similar ACIP recommendation from the CDC that has vaulted Prevnar sales to mega-blockbuster status. We recently learned that ACIP is putting together an RSV working group – our guess is it may be due to the anticipation of the NVAX vaccine.
Is Pharma Coming Knocking?
Biotech investors know that complete ownership of a successful product to commercialization delivers the greatest long-term returns. Of course there is greater risks by going it alone, but NVAX is right near the finish line with its RSV vaccine as the Phase IIIRESOLVE trial will be done by mid-year. With a ~12,000 subject worldwide trial well under way, NVAX’s burn rate is roughly $60 million per quarter.
The Company ended 2015 with about $230 million in the bank (plus another ~$170 million due from BARDA and The Gates Foundation but that capital is for flu/pandemic/RSV maternal not the elderly market). The current bond offering not only gives Novavax the capital to maximize the elderly opportunity, but also fend off any potential acquirers that may be circling in the current biotech stock bloodbath. While we have no idea if that is what is actually happening, on their latest quarterly call (1/13) CEO Stan Erck said “it was now time to get a foreign marketing partner for RSV.” Soon after that (1/25), the Company announced the convertible bond deal. One thought is that the ex-US deal discussions may have broadened to one of a global deal – with the potential partner suggesting that NVAX may not possess all of the infrastructure and/or capital to truly optimize the launch – projected for the 2017-2018 RSV season.
With Big Pharma/Big Bios explosive cash hoards and public intentions to make acquisitions as biotech valuations have collapsed, we believe NVAX makes an easy target. Hence, the bond deal may also be a useful defensive move while the vultures salivate at current prices. The question may lead to another game of chicken – what a buyer is willing to pay and what NVAX would accept. Based upon the possible change in strategy (partner vs. more funding) – maybe forced by the financial markets – NVAX maybe fending off potential buyers. With biotech stock so entirely out of favor, this scenario is a little hard to believe. But for a long time we have stated that with the abundance of positive clinical trials, NVAX has de-risked itself and subsequently made the Company a more attractive takeover candidate.
NVAX – Astellas and Mymetics Drop RSV Vaccine Program
The partnership helped form RSVC at the end of 2013, and represents Astellas’ foray into vaccines with a lead program in RSV. Astellas’ management stated that the reason for the stopping the program is “due to fast evolving market dynamics in the RSV vaccine market and in particular the development by several major pharma companies of promising candidates already at clinical stage.” One of those vaccines is no doubt the Novavax RSV F protein vaccine that is approaching the completion of the largest RSV vaccine program ever. Should their interest in RSV vaccines remain high, with $12 billion in revenues and a $31 billion market cap, Astellas could be another potential partner/acquirer of NVAX. If anything, the competition for the NVAX RSV vaccine just got a little thinner.
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