Courtesy of Benzinga.
Holy cow, not the bird flu! Or is it holy bird, not the cow flu? There have been so many variants of the influenza virus originating from animals that it has become hard to keep track.
The avian flu, which is caused by the H1N1 virus, is actually one of the more prevalent threats to American society. In 2009, when the avian flu was on everyone’s mind, the Center for Disease Control released a report stating that the estimated number of victims was between 1.8 million and 5.7 million – and at that time, H1N1 was easier to deal with.
Currently, a mutated version has shown up and may cause another fervent reaction from the public. However, one small-cap company may have found the answer to our problems. Novavax (NASDAQ: NVAX) is a pharmaceutical company that focuses on manufacturing virus-like particles, which attempt to mimic viruses without containing their harmful DNA.
Recently, Novavax released a study that displayed the efficacy of its drug on a sample set of patients. The problem with this study is that it targeted the old version of H1N1 that was prevalent in 2009. While the drug may be able to alleviate the current H1N1 pathogenicity, investors need to keep in mind that results may not be as high as they think.
Benzinga tried to reach out to analysts covering the stock, including one from McNicoll, Lewis & Vlak, whose price target is $9.50. Unfortunately, analysts and other officials were either unavailable or unwilling to comment.
In any event, investors should consider the company’s fundamentals before considering it for their portfolio. Novavax’s cash pile decreased significantly from 2009 to 2010, from $39 million to $8 million. However, short-term investments increased from $8 million to $24 million, so the company may have transferred funds in order to hedge itself from adverse events. The company’s property, plant, and equipment have been increasing over the last few years, which may signal increased growth.
Novavax’s short-term debt decreased to almost $0, but it accrued payables and other liabilities. Long-term debt also decreased to about $0, but other long-term liabilities increased to about $5 million. The firm’s shareholders’ equity decreased from 2009 to 2010. While paid-in capital increased, retained earnings decreased significantly, bringing the overall item lower.
Interestingly, Novavax had almost no revenue in 2009 and 2010. While it is not clear why this is the case, it could be speculated that the company has focused on research and development for its H1N1 vaccine. According to its income statement, R&D expenses have been increasing year over year. After non-operating expenses, Novavax’s net loss actually decreased from 2009 to 2010, to -$36 million. Accordingly, loss per share decreased from -$0.45 to -$0.34.
As a result of net income, stock-based compensation, and working capital, Novavax’s cash flows from operations stayed stagnant at -$33 million. Capital expenditures increased a bit and the company made short-term investments, resulting in $19 million in cash used for investing activities. Cash flows from financing activities decreased in 2010 as a result of decreased stock issuances. Combining all cash sources, the company lost about $31 million in cash from 2009 to 2010.
Investors could also use common financial metrics to determine Novavax’s value. When considering price/sales and price/book value, Novavax is quite overvalued compared to its competitors. The company also has lower margins than its competitors, which may be a result of the company’s apparent focus on research.
Growth measures like revenue and EPS also show slower growth than comparable companies. Return on equity was also negative, which may mean that investors may not want to invest in the company.
As is common with biotech companies, Novavax currently has lagging financials and does not look very attractive. While financial statements and metrics may not entice some investors, they should consider the possibility that Novavax may have created a vaccine for the H1N1 virus. If so, the company could be holding a blockbuster drug which would increase its top-line greatly and bump up its market capitalization. Analysts who claim that the company deserves to be trading at around $9 may eventually be correct, which would mean shareholders will profit handsomely if everything works out.
Novavax is currently trading at about $1.90, down about 20% for the year.
ACTION ITEMS:
Bullish View:
Traders who believe that Novavax is an appropriate long investment might want to consider the following:
- The company may have produced a blockbuster drug which could have a global impact.
- Various analysts are bullish on the equity, and some even claim that the company has about 800% upside over the next year.
- The company is involving itself in innovative technologies that could enable it to target other diseases. This also enables them to have an edge over competitors when it comes to intellectual property.
Bearish:
Traders who believe that Novavax is more suited for a short play may consider an alternate position:
- The company’s stock is not as liquid as some other companies’ stocks, despite rumors that the company may release a blockbuster drug.
- The firm’s financial statements point to slowing growth and also show investors that it is losing cash and is not garnering anything on its top-line.
- Novavax appears to be overvalued compared to its competitors, which may mean that the market has priced in the possibility of this drug. It could also mean that the stock is expensive and is not worth it if the H1N1 vaccine is not released.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.
