Why Is Novavax Breaking Out?

Shares of the developmental stage vaccine maker Novavax (NASDAQ: NVAX  ) broke through its 52-week highs last Tuesday, and did so in stunning fashion, ending the day up almost 20%. What's most impressive is that this dramatic upswing isn't the result of a clear cut news event. Instead, it's simply the continuation of the stock's nearly two year-long rally. Specifically, Novavax has been one of the best performers in the health care sector, rallying almost 250% over the last two years.

Novavax develops recombinant nanoparticle vaccines and adjuvants for an array of infectious diseases, such as influenza, respiratory syncytial virus, or RSV, and rabies. At present, the company has seven experimental vaccines and adjuvants undergoing clinical trials, many of which are funded by third parties. The company's lead vaccine candidates for RSV and seasonal influenza are currently in mid-stage trials. And this is one of many reasons why Novavax shares are heating up going into year's end.

Poised for a breakout 2014?
Novavax's management has, in many ways, set up 2014 as a transformational year, and the market is clearly reacting to these moves. By raising $87 million through a public offering last September, Novavax should end the year with close to $140 million in liquid assets.

What's important to understand is that Novavax will also earn somewhere around $40 million to $50 million from its contract with the U.S. Department of Health and Human Services, Biomedical Advanced Research and Development Authority, or BARDA, next year for its pandemic flu vaccine work. Taken together, this means that Novavax should be fully funded well into 2016.

And there is good reason to believe that the company will have a commercial vaccine on the market before funding becomes an issue. Namely, Novavax is expected to release full mid-stage data for both its RSV and seasonal influenza vaccines by the middle of 2014. Because of its ability to trigger strong immune responses in earlier trials, management believes pivotal late-stage trials could be under way before the end of next year. In sum, Novavax's innovative clinical pipeline and strong financials look promising going into the New Year, and appear to be the underlying causes behind the stock's recent upswing.

Foolish outlook
Novavax's vaccine platform is undoubtedly cutting-edge, allowing it to formulate novel vaccines in record time. Earlier this year,  Novavax engineered and tested a novel vaccine for Avian Flu in under four months. If that wasn't impressive enough, the results were published in the New England Journal of Medicine, which is rare for early stage data. Indeed, this is the reason why the U.S. Government is working so closely with Novavax in its efforts to defend the Nation against natural and man-made threats.

While naysayers may point to the U.S. Food and Drug Administration's, or FDA, long history of exercising caution with novel technologies as a potential risk, there are recent examples of the agency approving nanoparticle-based vaccines. In 2009, GlaxoSmithKline pushed its highly effective human papillomarvirus , or HPV, vaccine Cervarix through the regulatory process. The vaccine is now a major competitor to Merck's blockbuster Gardisil.

So unlike other next-generation vaccine makers like Inovio Pharmaceuticals (NASDAQ: INO  )  -- whose DNA approach has yet to be validated, at either the developmental or commercial levels, Novavax's platform has been broadly validated and its regulatory pathway has been vetted by a major player in the pharma world. In short, I believe Novavax offers less risk than Inovio when comparing the next generation of vaccine developers.

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