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The Waiting Game Crushed Novavax, Inc. in March, Sending Shares Down 15%

By Sean Williams – Apr 5, 2017 at 10:55AM

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The company's cash burn rate is a serious concern.

What happened

Shares of Novavax (NVAX 2.44%), a clinical-stage biotechnology company focused on the development of vaccines and adjuvants, continued its steady and slippery downward decline in March. Shares of the company wound up falling 15%, according to S&P Global Market Intelligence. The culprit for Novavax's ongoing share price decline appears to be a lack of clinical data and its expected cash burn.

So what

Novavax dropped a bombshell on investors in mid-September after announcing that its phase 3 trial (RESOLVE) of RSV F vaccine as a treatment for respiratory syncytial virus (RSV) in adults ages 60 and up failed to meet its primary endpoint. Making matters worse, the phase 3 study also missed its secondary endpoint and did not demonstrate vaccine efficacy. Shares of the company cratered more than 80% following the announcement and they've not recovered.

A senior getting a vaccine.

Image source: Getty Images.

However, Novavax isn't giving up on its RSV vaccine. The company is still running the phase 3 PREPARE trial to prevent RSV in infants via maternal immunization, and it's giving it another go with older adults in a phase 2 trial with one and two dose formulations, both with and without adjuvants. It could be some time before we have any additional data on Novavax's RSV vaccines, and biotech investors clearly don't like waiting.

The bigger issue for the company is its cash burn rate. Novavax ended 2016 with $235.5 million in cash and cash equivalents. That might sound like a lot, but the company used $255.5 million in net cash in operating activities last year. Even with its 12,000-person RESOLVE study completed, the company is expected to face hefty costs and potential funding concerns in the quarters that lie ahead. 

Now what

Everything pretty much comes down to the PREPARE trial at this point. If PREPARE misses the mark like the RESOLVE study, Novavax's hopes and dreams will effectively be dashed.

Beyond its RSV vaccines, there's nothing else in clinical trials aside from an Ebola vaccine – and Ebola has essentially disappeared for now thanks to the cooperation and response of multiple countries. Even if Novavax were to develop an Ebola vaccine and have it approved by the Food and Drug Administration and other global regulatory agencies, there's little guarantee that it would generate enough recurring revenue to push the company anywhere near positive cash flow.

Shareholders investing in Novavax are really hoping for their prayers to be answered at this point, and the share price action of late suggests that it's a longshot at best. With the company continuing to burn through its cash on hand, the safest place for investors in the interim is safely on the sidelines.

Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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