The only one thing more valuable to development-stage drugmakers than cash is cash that doesn't dilute shareholders. Novavax (Nasdaq: NVAX) is up 15% today on top of an 11% spike at the end of yesterday after the government announced that it had awarded Novavax a contract to develop a new flu vaccine.
The contract offers $97 million over three years with the potential for an additional $82 million if the contract is extended for two more years. That's a heck of a lot of money for a company that had just $37 million in cash and short-term investments at the end of September.
Traditional flu vaccines made by Novartis (NYSE: NVS), GlaxoSmithKline (NYSE: GSK), and sanofi-aventis (NYSE: SNY) are produced in chicken eggs, but it takes four to five months to produce a vaccine once a new strain is discovered. Novavax is developing a new way to produce flu vaccines using virus-like particles in insect cells.
Novavax's contract will finance a manufacturing facility that can reduce the development time down to just three months. Scaling up production using Novavax's system is also a lot easier than it is in chicken eggs, where you need about one egg for every dose of vaccine produced. Novavax hopes to be able to produce 50 million doses within six months of a pandemic flu outbreak.
All of this, of course, depends on the vaccine actually working. Novavax plans to run a phase 2 trial this year and then move its seasonal flu vaccine into phase 3 development in 2012. The pandemic flu vaccine is a little farther behind, but one can assume it would take the lead should the swine flu, bird flu, or some other animal flu rear its ugly head.
Even after an increase over the last two years, Novavax should still have plenty of room to run, but it won't get there until the vaccine makes it to market, which is years away. There's potential for earlier sales if a pandemic flu hits, but who want to use that as their investment thesis?
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