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www.cnbc.com/2022/01/28/the-new-bapoint2-omicron-subvaria...

 

The latest Covid variant is 1.5 times more contagious than omicron and already circulating in almost half of U.S. states

 

Key Points

 

■ The omicron subvariant, known as BA.2, is 1.5 times more transmissible than the original omicron strain, according to Danish scientists.

■ The U.K. Health Security Agency on Friday said BA.2 has a “substantial” growth advantage over the original omicron, known as BA.1.

■ Nearly half of U.S. states have confirmed the presence of BA.2 with at least 127 known cases nationwide as of Friday.

 

There are already dozens of cases across almost half of the U.S. of a new Covid subvariant that’s even more contagious than the already highly transmissible omicron variant.

 

Nearly half of U.S. states have confirmed the presence of BA.2 with at least 127 known cases nationwide as of Friday, according to a global data base that tracks Covid variants. The Centers for Disease Control and Prevention, in a statement Friday, said although BA.2 has increased in proportion to the original omicron strain in some countries, it is currently circulating at a low level in the U.S.

 

The subvariant is 1.5 times more transmissible than the original omicron strain, referred to by scientists as BA.1, according to Statens Serum Institut, which conducts infectious disease surveillance for Denmark.

 

The new sublineage doesn’t appear to further reduce the effectiveness of vaccines against symptomatic infection, according to the U.K. Health Security Agency.

 

“Currently there is no evidence that the BA.2 lineage is more severe than the BA.1 lineage,” CDC spokesperson Kristen Nordlund said.

 

BA.2 overtook the original omicron as the dominant variant in Denmark over the course of a few weeks, said Troels Lillebaek, the chairman of the Scandinavian nation’s committee that conducts surveillance of Covid variants.

 

BA.1 and BA.2 have many differences in their mutations in the most important areas. In fact, the difference between BA.1 and BA.2 is greater than the difference between the original “wild strain” and the Alpha variant, which was the first major mutation to take root across the world.

 

The BA.2 variant has five unique mutations on a key part of the spike protein the virus uses to attach to human cells and invade them, Lillebaek told CNBC. Mutations on this part of the spike, known as the receptor binding domain, are often associated with higher transmissibility.

 

The U.K. Health Security Agency on Friday said BA.2 has a “substantial” growth advantage over the original omicron. The sister variant spread faster than the original omicron in all regions of England where there were enough cases to conduct an analysis, according to the agency.

 

However, a preliminary assessment found that BA.2 doesn’t appear to reduce the effectiveness of vaccines any more than the original omicron. A booster dose was 70% effective at preventing symptomatic illness from BA.2 two weeks after receiving the shot, compared with 63% effectiveness for the original omicron strain.

 

The World Health Organization has not labeled BA.2 a variant of concern. However, WHO officials have repeatedly warned that new variants will arise as omicron spreads across the world at an unprecedented rate. Maria Van Kerkhove, the WHO’s Covid-19 technical lead, warned on Tuesday that the next Covid will variant be more transmissible.

 

“The next variant of concern will be more fit, and what we mean by that is it will be more transmissible because it will have to overtake what is currently circulating,” Van Kerkhove said. “The big question is whether or not future variants will be more or less severe.”

 

Lillebaek said there is not enough data yet to determine whether BA.2 is able to reinfect people who caught the original omicron. However, prior infection would likely provide some crossover immunity to BA.2.

 

Pfizer and Moderna started clinical trials this week on omicron-specific shots amid growing concern that new variants will emerge as immunity induced by the original vaccines wanes.

 

New Covid cases are increasing in Denmark, with more than 50,000 new infections reported on Friday in a country of 5.8 million people, according to the country’s health ministry. Lillebaek said it’s safe to assume that BA.2 is driving the increase of new infections in Denmark right now.

 

New hospital admissions in Denmark rose by 12 for a total of 967 patients who are Covid positive. Lillebaek said this increase is likely within the limits of what the health system can manage. However, he noted that 80% of Danes are fully vaccinated and 60% have received booster shots.

 

“If you are in a community or living in a country where you have a low vaccination rate, then you will have for sure more admissions to hospital and more severe cases and then more going to ICU,” he said.

 

In the U.S., about 67% of those eligible are fully vaccinated, according to data from the CDC.

 

seekingalpha.com/article/4482445-novavax-several-positive...

 

Novavax Marches Ahead With Several Positive, Major Developments

 

Summary

 

» Novavax said it's on track to make 200 million doses per month by March. In early January, the Serum Institute had already made 200 million Novavax doses.

» A consortium says over 18 billion high-quality vaccine doses are likely needed in 2022. Novavax says, excluding China and Russia and children under 12, about 11.6 billion doses are needed.

» Several large macro factors unrelated to Novavax and vaccines have hurt it and other vaccines stocks in recent weeks. I expect most of those to reverse and help the price.

» The majority of experts say additional variants will emerge and could be more severe or escape immune protection, and keep Covid from becoming endemic this year.

» Even if Covid becomes endemic, I think major annual Covid revenues will occur. Also, this year's earnings alone plus its strong pipeline make Novavax worth more than its current valuation.

 

Important positive developments and a much lower share price have made Novavax (NASDAQ:NVAX) an even better buy. The majority of the developments I cover below have not been reported at all by any Western news outlets or only barely covered by one outlet. Thus, strong results in the works are really under the radar. As they come into view and things are better than perceived, I think the share price will rise. I believe reading this will give you an edge to increase your alpha. In addition, I describe some macro factors that have irrationally driven the recent price decrease that have little or nothing to do with Novavax's situation. In the coming weeks, I think investors will realize these macro factors shouldn't affect Novavax, which will also help the price go higher.

 

I've encouraged people to buy on pullbacks and sell gradually on rebounds. The day I published my last article the price dropped to $112.52, and two trading days later it hit $137.66, for an increase of 22.3%. So I'm hoping people followed my suggestion and took a chunk of profits at 15% to 20% gain. In just two days, that's double the average annual gains of the market.

 

Since $137.66, the stock has pulled back to below ~$80, representing a great buying opportunity. The consensus short-term price target is $270, with a high of $315 and a low of $208. From ~$80, reaching the consensus would be a gain of more than 230%. Just reaching the lowest price target would be a gain of 134%.

 

A month ago, the price was at $236.5. A return to that level would be an increase of 166% from here. I think that is probable in the coming months since Novavax is in a much better position now than a month ago. Here I will describe several major positive developments that have improved Novavax's situation even further.

 

The Serum Institute already produced 200 million Novavax doses by early January

 

In a TV interview on January 10th, an India Covid Task Force member, Dr. Purvez Grant, said the Serum Institute (SII) has "already got 200 million doses ready" of Novavax, which uses the brand Covovax in India. Grant is the head of a hospital chain in the same city as SII with 750 doctors and the largest number of ICU beds in India. It has won many awards including the best medical tourism hospital in India. It has been purchasing AstraZeneca doses directly from SII, plus vaccines for other diseases.

 

In early December, the SII CEO said he had already developed capacity to make 150 million Novavax doses per month, and would start making that quantity upon authorization. He also planned to keep tens of millions of doses in stock in advance. Within a day of that, the WHO's chief scientist said on Indian TV that she expected the WHO to approve Novavax around December 16th. She said the EU and UK were reviewing it, and she supported approval.

 

As the main supplier of vaccines to low and middle-income countries (LIMCs), SII has a close relationship with the WHO. I think after hearing the WHO news, they assessed the situation, spoke to their contacts and determined Novavax would be approved and began the 150 million per month production a week before WHO approval. Thus they were able to have 200 million doses by January 10th. Watch the whole interview here.

 

By January 4th, only one week after India's EUA, SII had already sent 20 million doses to the Indian government. The government's lab had already tested and dispatched 10 million doses to the authorities for public use, and was close to being done testing the next 10 million. An official said SII would continue regularly sending batches of 10 million doses. It's been 3 weeks since then, so the number is likely much higher.

 

On January 12th the Novavax CEO said: "We're at a rate in this quarter of over 200 million doses per month by the end of this quarter," which is 2.4 billion doses per year. As I've detailed here, if Novavax and its partners bring their facilities to maximum capacity, they can make about 4 billion doses per year. I believe they will use much of this for production of a combination Covid-flu vaccine if trials for it are successful, which I expect they will be. Some space will also be used for its solo flu vaccine.

 

The IMF-WHO forecast is for 245 million Novavax doses delivered to high-income countries by June

 

I think the most accurate vaccine supply and delivery tracker is the IMF-WHO tracker that is updated weekly "in collaboration with countries and areas, suppliers, immunization, health and financing partners." It breaks expected deliveries out by month and by 3 categories of countries. AMC91 refers to the 91 poorest countries of the world.

 

The tracker correctly shows that in December, only a very small amount had been delivered overall. It forecasts that Covax deliveries will ramp up in the spring with about 70 million doses delivered per month to Covax in May and June. This is in line with poor countries saying they are setting up mass vaccination campaigns, but need time to do so.

 

The chart breaks out AMC91 deliveries by Covax and bilateral. Bilateral is when a country buys doses directly from a vaccine maker. For the end of Q1, it shows 200 million doses delivered to high-income countries. The Indian government's export tracker shows SII has already shipped 16 million doses to the EU, including 4 shipments in the last week. That is already 59% of the EU's Q1 order of 27 million. The first EU delivery was January 10th. Shipments to Australia are expected soon. Novavax said they'll have 100 million U.S. doses ready to deliver by EUA. The Fujifilm CEO said their UK facility made 60 million doses by the start of December. Thus I think the IMF-WHO forecast is right.

Consortium of experts says over 18 billion high-quality vaccine doses are likely needed in 2022

 

Last week, a consortium of experts released a report saying about 20 billion more high-quality Covid shots are needed in 2022 to vaccinate the world. It notes currently Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE) are the only high-quality shots. As Novavax is rolled out around the world, I think there will soon be a third.

 

The report notes the largest number of people vaccinated so far received inactivated vaccines such as Covaxin and Sinovac. It notes: "multiple comparative studies showed statistically significant inferiority of inactivated vaccines" against infection, severe disease and death; Plus rapidly declining antibodies and a lack of cross-protections against variants.

 

One study of Sinovac found "no neutralization activity was detected" against the Beta and Omicron variants. It says "significant evidence" shows people who received either these inferior vaccines or one dose of Johnson & Johnson (NYSE:JNJ) will need two doses of a high-quality vaccine to have suitable immunity. As a result, it estimates that most likely 10.5 billion high-quality doses are needed in 2022 to boost people who were vaccinated last year.

 

The report also notes 3.3 billion people have not been vaccinated at all, and will need two initial doses and a booster several months later. That's 9.9 billion doses. The two numbers combined are 20.4 billion. It describes other factors that could mean 22 billion doses are needed this year. If we conservatively reduce that amount by 35% it is 14.3 billion. If we reduce it by 50%, it is 11 billion doses.

 

This report was not covered by most news outlets. That plus other things make me think most of the news outlets are missing the boat on 2022 and 2023 vaccine sales. The majority of infectious disease health experts say new variants will emerge, and it is likely one will escape half of or all of our immune protection. They also say we can't predict if new variants will be more severe.

 

I think the reason most media outlets are not giving much coverage to this is because it's depressing to think about, so their minds push it to the side. But from an investment perspective, I think it's been a mistake for people to sell (or short) vaccine stocks in recent weeks primarily because they think the pandemic is over, or Covid vaccine sales will be very low going forward.

 

Novavax shows strong demand, including the EU already ordering 250% more than its minimum

 

Novavax's market research found that even if China and Russia are excluded, 11.6 billion doses are needed in 2022. That doesn't include fourth doses that many people will probably need by the end of 2022. That also doesn't include the roughly 1.72 billion people under 12, which is 22% of the world. Two doses for them are 3.44 billion doses, and three are 5.16 billion doses.

 

The CEO of Gavi (the co-leader of COVAX) on January 13 said demand for Novavax in Europe was strong: "We're beginning to see a lot of demand in European countries for this vaccine.... It's been a very effective booster." Further proof is the EU recently expanded its order from 27 million doses in Q1 to add another 42 million doses in Q2. That's 250% more than the EU's minimum commitment of 20 million. It's 35% of the maximum number of 200 million doses. At this pace, the EU would use up all 200 million in 17 months, and need to buy more.

 

Germany is planning to do a country-wide vaccine mandate, as 60% support it, only 32% oppose it, and the head of the country is "firmly convinced" it is the only way to end the pandemic. I think Germany will require 3 doses, as it already requires that for entry into bars and restaurants. 21 million Germans are unvaccinated, so 3 doses for them are 63 million doses.

 

51% of unvaccinated Germans cite dislike of the RNA and adenovirus technologies as a reason for not being vaccinated. If they plus 9% of the others prefer Novavax, that's 60%, or 38 million doses. 70% is 44.1 million doses. About 20 million of the vaccinated haven't received a booster. About 1.4 million need two more shots. If 15% of those groups prefer Novavax, it is 3.4 million doses.

 

I think these are the reasons why Germany is getting 34 million Novavax doses this year, which is its entire allotment of the 200 million, split based on population sizes. If some smaller EU countries don't take their full allotment, I think Germany will take them because besides the above, they will likely need boosters in 2023. But I believe other EU countries will take their whole Novavax allotment as a low-cost insurance policy that would save large numbers of lives and great economic losses if a variant escapes RNA vaccines, while Novavax's provides protection.

 

A possible risk is if Novavax only delivers a low number of doses in Q1 such as 100 million. That said, don't believe inaccurate claims that Novavax guided for 80 million doses. In fact, they've said until more EUAs come in, they aren't yet giving guidance for total numbers of deliveries. They simply gave examples of Q1 deliveries to two entities (the EU and Covax) that already approved it. Adding these two and claiming it is Q1 guidance isn't accurate. For example, it clearly doesn't include the 20 million doses already delivered to the Indian government or the 40 million SK Bio is planning to deliver to Korea. In addition, the CEO clearly said: "In the first quarter, we expect to see an acceleration in shipments as more authorizations are received."

 

Novavax displayed a slide of its orders totaling about 2 billion doses. This doesn't include any doses from India because it hasn't placed an official order yet.

 

Grant, of the Indian task force, said he thinks Novavax will soon be the vaccine of choice: "I think very shortly this new vaccine will be given to everybody. .... So this vaccine is what is going to come out in a very, very big way very, very shortly." If yes, the number above could be as much as 700 million doses higher.

 

This week, a Korean stock analyst said SK Bio has made supply agreements with Thailand and Vietnam that are large enough to increase SK Bio's price target. They are classified as upper middle-income and their combined populations are 163 million. Novavax's chief commercial officer John Trizzino said on January 12th: "the trend line is that there's an increase in demand for vaccines, not a decrease."

 

Australia's APA of 51 million doses and the EU's H1 order of 69 million may mean $2 billion in profits

 

Last week Australia approved Novavax. The head of its drug agency said there was strong public interest because it relies on older technology than mRNA. Australia has an APA to buy at least 51 million doses with an option for an additional 10 million. I've read 7 Covid APAs between OWS vaccine companies and governments (the UK, the EU, etc.). None can be cancelled except in very unusual situations such as breach, fraud or acts of God. Likewise, countries cannot delay receipt of the order until the next year. Even in a breach, companies have 30 days to remedy it. Most of Novavax's 2 billion doses ordered are APAs.

 

On its earnings call, Novavax said doses from SII to higher-income countries are being made on a contract (NASDAQ:CDMO) basis, in which Novavax pays a fee per dose and keeps all profits. For example, they said: "And we've also signed an agreement with [SII] if we want for them to make product for high income markets, and so we have a CDMO agreement with them." CDMO means they are done for a set fee. B. Riley also said Novavax keeps all profits on SII doses to high-income countries. B. Riley said concerns about Novavax production are unwarranted, and it would capture "meaningful share" of the $60B+ 2022 Covid market.

 

Novavax has said it's charging high-income countries $20 per dose. In August, Denmark issued a statement revealing the price to the EU is $20.9 per dose. Danish news outlets reported the same. Then Denmark realized the price is confidential and took it down. It's possible the price is 15% to 20% higher than $20.9 if it doesn't include the advance payment the EU usually makes to vaccine companies.

 

I estimate Novavax is paying SII ~$3 per dose, giving $17.9 profit per dose. Including only the 51 million Australia doses, the 69 million H1 EU doses and ~20 million H2 Germany doses, that would be $2.51 billion in profits. Even if it's paying SII $4 per dose, it would be $2.37 billion in gross profits. That's only some of the orders.

 

Total revenues and profits this year

 

Novavax's quarterly 10-Q says that from its existing APAs alone, there is $7.2 billion due to it just for completing the APAs' minimum obligations. Novavax says it expects to fulfill those by this September.

 

That doesn't include optional doses in the APAs. For example, it only includes 20 million guaranteed EU doses. The EU has already ordered 49 million more than that in H1 plus Germany's roughly 20 million in H2. That's 69 million more than the minimum. At $20.9 per dose, that adds $1.44 billion in revenues for a total of $8.64 billion.

 

In 2021, Novavax received $1.26 billion of deferred revenue, which will be recognized this year. That would bring total revenues to $9.9 billion. That doesn't include royalty profits from its licensing agreements. For those, SII is expected to sell 750 million doses to Covax and 250 million to LIMCs. SK Bio is slated to sell 40 million to Korea plus unknown amounts to Thailand and Vietnam. Takeda has an APA for Japan to buy 150 million. If Novavax gets an average of $3 royalty per dose, the above doses would add $3.57 billion, for total revenues of $13.47 billion. Feel free to adjust any of those numbers up or down.

 

Last quarter, its expenses were $486 million. Its Q3 expenses dropped due to no longer having to conduct two huge phase 3 trials. Using 2022 expenses of $2 billion, earnings would be $11.47 billion. If its expenses increase by 50% over last quarter to be $2.9 billion total, its earnings will be $10.57 billion. If expenses double to be $3.89 billion, earnings will be $9.58 billion. That alone is far higher than the current market cap. At a PE of just 5, it would be a valuation of $47.9 billion.

 

The earnings above don't include Vietnam or Thailand orders, nor any EU doses in H2 except Germany, nor any new orders from countries throughout Latin America and Africa and some of Asia that have not placed orders yet.

 

A potential risk to examine is if Novavax does much lower than the numbers above. If Novavax does a full 50% less, earnings would still be between $4.79 billion and $5.73 billion. That's roughly the current market cap, and doesn't include sales of its Covid vaccine beyond 2022, its flu vaccine and its probable malaria vaccine and RSV vaccines. Thus, while there is some risk to the stock going as high as I expect, I think the risk of losing money at this valuation is very low. And the upside is excellent.

 

Novavax is "extremely effective" against Omicron

 

Novavax notes a strength of its vaccine is "strong cross-protection against variants." A main explanation is it presents a full-length spike protein to the immune system, while the RNA and adenovirus vaccines only present a portion of the spike. The problem is that portion, which is located at the top of the spike, regularly mutates and thus can more easily evade those narrow vaccines.

 

Novavax has the top part of the spike, and also the full length of the stalk, aka the stem or trunk. This diagram shows the top portion and the stalk of the full-length spike proteins on a Covid virus

 

Novavax gives antibodies that can recognize Covid by either its top part or its stalk, and thus neutralize it either way. With the RNA and adenovirus vaccines, if the top part mutates too much, the virus can escape. They don't even attempt to recognize the stalk.

 

Another major way this helps Novavax is the stalk mutates much less than the top. Thus, Novavax can recognize Covid in ways the RNA and adenovirus vaccines cannot, plus those ways are much less subject to change. The top part of the spike can mutate significantly, yet still infect people - as Delta and Omicron both showed. But if the stalk mutates too much, the whole spike no longer functions and that mutation won't survive.

 

An analogy is if police are told to find a suspect with long blond hair, brown eyes, glasses and earrings. But the suspect changes all of those. That is akin to vaccines that target only the top of the spike. Novavax does that too, but also knows the suspect is 5'4", weighs 140 pounds and has a limp. The suspect can't really change those things, so Novavax's probability of catching the suspect is far higher. Novavax has two sets of things to look for, and one set doesn't change much.

 

I think this is why Novavax's flu vaccine (Nanoflu) beat the previous best flu vaccine (Fluzone) by 20% to 66% in three head to head trials, including in cross-protection against drifted strains. Nanoflu is poised to take a sizable share of the flu market, which is slated to double to $9.5B by 2027. With Nanoflu better than Fluzone and SII's tremendous sales and distribution network, I think Nanoflu will get over 20% of it. That would be more than $1.9 billion in annual sales with strong margins.

 

At a price to sales multiple of 7X, Novavax's valuation would be $13.3 billion. If it only gets 12% share, it would be $1.14 billion. At a 7x multiple, it'd be a valuation of $8 billion, which is more than 25% higher than the market cap now. That would be a gain of 5% per year without including any sales from Covid, malaria or RSV. It also doesn't include the over $6 billion in cash it will likely have by year end. So even if zero Covid sales occur from 2023 onwards, I think Novavax will be worth much more than now.

 

Novavax's strength in cross-protection against new variants was further demonstrated in the stellar results of its booster study showing its vaccine produced high levels of neutralizing antibodies against Omicron. Its booster increased antibodies against the omicron 73.5-fold, and was more effective in stopping Omicron from entering cells than other vaccines.

 

Moreover, SII has been conducting a phase 3 efficacy trial of Novavax since last February. Grant, India's task force member, said SII told him the Novavax vaccine is "extremely effective" against Omicron, in the vicinity of 90%.

 

He added: "I think it is extremely important that everybody be given the third shot and as quickly as possible. Now, what we have found is that people who are taking Covishield, the third shot has not been so effective. But the new vaccine that is coming out from Serum Institute, Covovax, is very, very effective. In fact, against the Omicron virus, if you've taken the new vaccine of Serum, we are finding fantastic results."

 

I think most investors didn't see the interview on Indian TV. When SII announces the results, it could be a game-changer by making Novavax the only vaccine with high efficacy against Omicron. Novavax has also been doing a large booster trial during the Omicron wave in the US. I expect it will announce results in March or April.

 

It's incorrect to predict Covid is becoming endemic or that future variants won't be more severe

 

In September, a physician wrote: "Covid will soon be endemic..." and "widespread immunity, vaccinated and natural, will bring control and a full return to normal". Since then, the delta and omicron waves have killed another 180,000 in the US. Now, some media outlets and officials are repeating the same mistake by predicting Covid will be endemic this year.

 

Aris Katzouraki, an Oxford professor and editor of the journal BMJ Evolutionary Biology, wrote: "Rosy assumptions endanger public health.... There is a widespread, rosy misconception that viruses evolve over time to become more benign. This is not the case. .... Thinking that endemicity is both mild and inevitable is more than wrong, it is dangerous: it sets humanity up for many more years of disease." For example with Covid, "most transmission happens before the virus causes severe disease." He noted Alpha and Delta were both more severe than the original.

 

Dr. Stuart Campbell Ray, an expert at Johns Hopkins University agrees its a myth. He added that with both omicron and delta circulating, people could get double infections that spawn "Frankenvariants."

 

The vast majority of experts say four things: 1) Many new variants will emerge; 2) They may be more severe; 3) They may be more infectious; 4) They will likely escape our acquired immunity, either due to mutations or waning immunity. If you're basing your investing on assumptions that any of those aren't true, view this page of 30 prominent experts saying they are true. They include the head of the Mayo Clinic's vaccine division, the head of the WHO and numerous others.

 

Experts say a problem is trillions of mutations are occurring around the world every day, which makes it fairly easier for Covid to escape our developed immunity. Dr. Luis Ostrosky, an infectious disease expert, said: "I see Omicron as our kind of final warning shot." He thinks if countries don't do something "drastic and permanent," Covid will mutate to completely escape vaccines and therapeutics.

 

Endemic means widespread, ongoing disease and most likely high vaccine revenues

 

Katzouraki said: "The word 'endemic' has become one of the most misused of the pandemic. And many of the errant assumptions made encourage a misplaced complacency. .... a disease can be endemic and both widespread and deadly. .... Endemic certainly does not mean that evolution has somehow tamed a pathogen so that life simply returns to 'normal'."

 

If it becomes endemic, experts say people will probably need boosters every one to two years. The head of Mayo's vaccines division recently said: "If you got your flu vaccine this fall... then you got vaccinated against a variant of influenza that first showed up in 1918. So, a hundred-plus years later, we're still vaccinating against that," Poland adds. "One hundred years from now, our great, great, ... great grandchildren will be getting immunized against coronavirus."

 

If he's correct, it will result in huge amounts of revenues for vaccine companies. Novavax getting even 10% of that market would make its valuation far higher than now. Market research firm GlobalData forecasts Novavax will have annual Covid sales of $7 billion in 2027. At a sales multiple of 6x, that would be a valuation of $42 billion, about 900% higher than now, not including Nanoflu and other vaccines.

 

Omicron has resulted in people missing work, economic losses and high numbers of hospitalizations and deaths. On January 23rd, the 7-day average death rate in the US was 2,174 deaths per day., more than the worst average of the Delta wave.

 

A recent Israeli study found people over 60 who get a 4th dose have 300% more resistance to serious illness than people who didn't get a 4th dose. That means people under 60 probably have improved resistance of at least 100% and 200%. In addition, the more months people are past their 3rd dose, they will receive an even higher benefit from the 4th dose.

 

In the study, people got 4th doses relatively soon after the 3rd doses, but they received a big benefit. People who have gone an additional 2 to 6 months longer since their 3rd dose will probably receive a greater benefit. I think this data indicates 4th doses will become the norm in the majority of high-income and middle-income countries during the course of this year.

 

A statement by an EU regulator was misinterpreted. He said boosters are "not something that we can think should be repeated constantly" because doing so could dampen immune responses. This was misinterpreted as every 6 to 12 months, even though constantly implies far more often. So he removed the statement and later clarified the EU's position: immune responses might only be dampened if boosters were given at "very short" intervals, and even then, it would only be "potentially making the vaccination a little bit less efficient over time."

 

He said boosters are successfully reducing severe disease and hospitalization. He urged people to "get a booster shot as soon as possible and now." He also said annual boosters each fall may be the best approach. Countries who are doing 4th doses or have decided to do so include Denmark, Israel, Hungary, Chile and Sweden. Moderna just reported its booster rapidly wanes after 6 months, further evidence that fourth doses are needed.

Why South Korea giving SK Bio and Novavax full BLA approval is important

 

The Korean drug agency recently gave full approval to the Novavax vaccine. This is important for 3 reasons:

 

1) This application used SK Bio's manufacturing, so it's another partner whose manufacturing is authorized. Short sellers can no longer say only SII manufacturing is authorized. It also further dispels the claims that the other Novavax locations cannot make the vaccine.

 

2) They filed for and received full approval (known as a BLA), not just an EUA, which is sometimes called "conditional marketing authorization." Experts from inside and outside of the government assessed the full filing. Full approval has requirements that are much more stringent and comprehensive, making it far harder to get. In all, Novavax is one of only 4 vaccines that have received full approval in a high-income country (HIC).

 

According to the New York Times approval tracker and this tracker, AstraZeneca (NASDAQ:AZN) hasn't received full approval in any HIC, Moderna and Johnson & Johnson have only received it in Canada, and Pfizer has received it in a few countries. The Times says Moderna is approved in Switzerland, but it's only a temporary EUA. Moderna applied in the US in June, then submitted more complete data in August. But in October the FDA said it's concerned Moderna causes myocarditis in young people and hasn't approved it.

 

Covaxin and the Russian and Chinese vaccines haven't received full approval in any country besides China and two tiny countries. So Novavax receiving full approval is a major achievement. It also indicates Novavax can file for BLA in other countries soon and receive it.

 

3) This means SK Bio doses will be going out for use soon in Korea and other countries. It means more Q1 revenues and earnings, and more exposure for Novavax. SK Bio made 40 million doses by September under its licensing contract. They passed all quality assurance steps including testing. SK Bio recorded some revenue for those in Q3. It's expected to record another $312 million (374B won) on those in Q4, plus more on delivery in Q1.

 

Under the 2nd contract in which Novavax pays a fee and keeps all profits, they also made doses by September that passed all tests. I think they've made many more since then. To ramp up production, SK Bio raised $1.26 billion via the largest IPO of the last 4 years in Korea. Its government also pledged $1.9 billion in funding to make Korea one of the biggest five vaccine manufacturers globally.

 

In Q3, SK Bio expanded their Novavax capacity by adding another production line. That increased Novavax capacity to 100 batches per annum, or 200 million doses. Last month, SK Bio and Novavax further expanded their partnership. Last week, they yet again expanded it, this time by 15%.

Several macro factors that have recently affected Novavax's share price

 

In the last two months, several macro factors having nothing to do with Novavax's sales or earnings have affected the share price negatively. These are:

 

1) A bear market in biotech: In the last 4 1/2 months, the IBB biotech ETF dropped 30% from $176 to $123.68. Just since December 23, it dropped 20% from $155.17. The XBI biotech ETF is down 36% since November 4th and down 27% since December 23rd. Also, since late December the NASDAQ dropped by 15%

 

2) In 2016, ETFs accounted for 30% of all trading by value. Since then, assets managed by ETFs increased by 168% from $3.55 trillion to $9.55 trillion. So I estimate ETFs currently make up over 40% of trading. For a company the size of Novavax that's not yet widely known, frequent selling by ETFs throws the supply / demand balance very out of whack and has an extreme effect on the price.

 

3) Novavax has long been a high-beta stock. When the market or biotech sector declines, it often drops far more. When they rise, Novavax often gains far more. Some robo-trading apps do nothing but sell high-beta names when the market or sector declines, and buy them during broad increases.

 

Among dozens of examples throughout 2021, notice that between April 27 and May 13, IBB fell 8% from a 3-month high of 157.88 to a 52-week low of 146.13. But NVAX plummeted 53% from a 3-month high of $257.67 to its 2021 low of $121. That's 6.5 times more. From there until early September, IBB rose 20% to $176, yet NVAX skyrocketed 124% to $270.8. That's 6.2x times more. Both of them peaked and bottomed at the same times, but the change in NVAX was roughly 6 times greater.

 

From there to October 27, IBB dropped 10.5% to 157.54 while NVAX dropped 48% to $141.55. From there to November 3, IBB rose 4.6% while NVAX jumped 40%. If you view the other rises and falls between those major peaks and troughs in this 1-year chart, you'll see similar co-relations usually magnified by 3 to 9 times

 

I recommend moving around the interactive comparison charts here and here to see how often Novavax gains dramatically on moderate rebounds in the sector. It shows the worst time to sell NVAX is during sector pullbacks. Likewise, buying NVAX on these pullbacks frequently gives high gains.

 

4) The current NVAX drop has been greatly exacerbated by some traders increasing their short sales during the last several weeks. For example, in the 30 days between December 15th and January 14th, 49.35% of daily volume of NVAX was short sales. That is a giant percentage.

 

5) With growing expectations for higher interest rates, investors have sold off companies that don't have earnings and won't have significant earnings until far into the future. Novavax is seen as one of them, so it's gotten hit extra hard in the last month. But that's about to change.

 

6) Fears of a hawkish Fed causing a recession have added to the current market drop.

 

These factors combined have had a major effect on the share price, but fortunately I think most of them are going to reverse in the near future.

 

Macro improvements and company-specific advances are likely on the horizon

 

Many non-fundamental traders have become attracted to Novavax. I think some saw the imbalance from the automatic ETF selling and beta selling as a trading opportunity and jumped at it. After the price bottoms, I think many of the same traders will help drive the price higher. As I detailed here, 19 major price swings occurred in the last ten months with a pullback followed by a sizable rebound each time. The sizes of most swings aren't rational, and some occur on no real news.

 

In December, Seeking Alpha contributor The Fortune Teller did a great job at describing 4 reasons why the biotech sector will probably rebound in 2022 in this article. They followed it up last week with data showing a 90% probability of a major rebound in biotechs this year.

 

They analyzed the 35 largest trading days since the biotech ETF XBI began 20 years ago. They found that a year "after an average 'large trading day', there's a 90% probability for an average return of 47%." Moreover, 7 out of the 14 days with the largest trading volumes in history occurred in the past six weeks.

 

They say that while these have been "undoubtedly rough times for those investing in biotech.... Nonetheless, this is neither the first nor the second time that biotech stocks are going through a major correction/collapse, and just as the case was in previous such events - they can, and likely are going to, recover."

 

If this probability happens and the sector rises 47%, I think high-beta biotechs like Novavax will jump far higher than that. JP Morgan also predicts the entire biotech sector will rebound this year.

 

Sector pullbacks often hit most stocks in the short-term. Later, investors analyze the companies and buy the ones that didn't deserve it. It can take a few weeks for enough fundamental investors to assess the various stocks that dropped and determine which have become good buys. But it usually happens. I think many will realize that:

 

A) Usually healthcare is only barely affected by recessions, and vaccines are especially recession-proof. They are one of the lowest-priced healthcare services, and insurers and governments cover most of the cost.

 

B) Novavax has $1.9 billion in cash and will soon have large amounts of earnings, making it a good company to own during higher rates. It also has a strong pipeline, and only a tiny amount of debt.

 

C) Pricing power is considered important during inflation. Many investors have been assuming the top Covid vaccines won't have pricing power, but over time they will understand the vaccine industry better. This comprehensive study of flu vaccine prices shows that even with many flu vaccines competing, vaccine companies consistently raise their prices to be in line with or higher than inflation. It concludes that "the prices of covid-19 vaccines are expected to rise in the coming years." Vaccines have pricing power, even when there are many vaccines for a disease.

 

In the coming weeks, Novavax will be rolled out in 27 EU countries, Australia and India. Soon after, it will probably be rolled out in the US, the UK, Canada and other countries. This will greatly increase public awareness of Novavax in those countries, which combined have a huge amount of wealth. I think some of those people will view Novavax and discover it's a strong buy. Related, an email newsletter for Novavax investors now exists, with daily updates related to the company, Covid-19 and the vaccine sector.

 

Due to the low valuation, the Motley Fool's healthcare analyst thinks US approval may cause the price to go parabolic. This quarter Novavax is also planning to file for adolescent approval in the US, plus announce results of its combination Covid-flu vaccine trial. In December, Moderna reported disappointing results for its flu shot, causing shares to tank 14%. Immune responses weren't better than existing vaccines, and even at the lowest dose, a staggering 78% of people under 50 had side effects. 13% were severe and 30.4% were medium. The next dose up caused severe side effects in 43%. It even caused side effects in 92% of people over 50.

 

I think Moderna needs to switch to smaller doses, but that would weaken immune responses even lower. If it tries to also add its Covid dose, which causes high side effects on its own, I think side effects would reach levels unacceptable to the FDA and the public. Other RNA vaccines experience similar problems when packing numerous strains into one shot. Adenovirus vaccines can't be used for multivalent shots. Sanofi, which is far behind Novavax in development of a Covid vaccine, has back-burnered work on a combination shot. So I don't see any real competition for Novavax's combination shot, which has blockbuster potential.

 

Markets are forward-looking. So I think as more approvals, production and deliveries occur, investors (and short sellers) will realize Novavax will be very profitable this quarter and dramatically profitable this year.

 

Most of the macro factors have been affecting other Covid vaccine companies, especially the higher-beta ones such as BioNTech (Nasdaq:BNTX) and Moderna. Those two have also been hurt by investors irrationally thinking that vaccine sales going forward will probably be very low. However, they are at far, far higher valuations, so I think Novavax is a far better buy. Johnson & Johnson and AstraZeneca have been partially affected by these things, but they are not high-beta names and won't benefit as much on a rebound.

 

Conclusion

 

I think Novavax is tremendously undervalued and will have a strong year. I recommend having a very over-sized position while the price is very low and taking profits gradually as the price increases. You might also consider putting a portion into call options. I recommend expirations between April and July, since by those months, the market will probably have figured out Novavax is having large revenues and earnings. I favor strike prices between $140 and $230 for those months.

 

I think even in the highly improbable scenario in which no Covid doses are needed from 2023 onwards, Novavax in 12 months would be worth more than it is now at this very low valuation. This is due to the profits from this year plus the Nanoflu vaccine, the RSV vaccines, the malaria vaccine plus other vaccines they start to do.

 

Of all drugs that enter phase 1 trials, only 14% ever make it to market. Once Nanoflu goes to market, Novavax will have two major approved products. The malaria vaccine is in phase 3 and will finish in 12 to 18 months with a very high probability of success. Both of its RSV vaccines are ready for new phase 3s, and I think the probability is high they will succeed.

Done