Why Novavax, Inc. Shares Fell Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Novavax  (NASDAQ: NVAX  ) briefly fell to a 10% loss this morning, but have since stabilized at a loss of roughly 7%, following the release of yesterday's post-market news that Novavax would issue a secondary offering of $100 million in new stock.

So what: Novavax will offer $100 million in stock, with a 30-day option for joint underwriters Citigroup and JPMorgan Chase to purchase up to $15 million in additional shares. Novavax's market cap, which was slightly over $1 billion before the announcement, has fallen by roughly as much as would be expected from a $100 million dilution. Over the past five years, Novavax's shares outstanding have increased  by nearly 140%, but its share price has actually improved by 45% as well (after suffering through a prolonged weak patch from 2010 to mid-2012), as investors continue to be optimistic about Novavax's prospects.

Now what: This will the second time in the past year that Novavax has diluted its shareholders, following last September's offering of roughly 27.7 million shares to raise over $80 million in new funding. Shares have since gained 52% from that offering, which was priced at $3.14 per share, so it makes sense for Novavax to raise more capital now while its value is elevated. The company still has over $110 million in cash on hand, and if its current cash burn rate of roughly $20 million per quarter continues, it is likely to have about two more years of cash on hand to fund its operations following this capital raise.

This two-year window would hopefully be enough for Novavax to gain regulatory approval for at least one of its treatments, which should mitigate the need for further capital raises in the future. Investors who feel like they missed out on a big pop now have a great opportunity to buy in, and curious onlookers now have a good reason to investigate Novavax's prospects more closely.

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