Novavax closes in on Covid triumph after 33 years of failure

Less than a year before the Covid-19 pandemic ravaged the world, Novavax was facing delisting from the Nasdaq. The pharmaceutical company had poured hundreds of millions of dollars into research and development for vaccines — and yet, at 33 years old, was approaching middle age without a single approved shot. 

Investors were scorning, rather than rewarding, foresight. In January 2020 short interest hit 30 per cent, according to S3 Analytics. Even after the company began work on its Covid-19 vaccine, shortseller Citron Research reportedly dismissed it as a “serial promise and non-deliver [er]”. 

Now the Maryland-based company is on the verge of getting approval in the UK, which will probably be followed by the US. Interim data have shown that its vaccine has an efficacy rate up there with the shots developed by BioNTech/Pfizer and Moderna, based on revolutionary messengerRNA technology. However, it is cheaper and easier to transport and can be stored at room temperature for at least 24 hours. 

Citron has deleted its critical tweet and did not respond to a request for comment.

“It’s a Cinderella story,” said Stacey Schultz-Cherry, an infectious disease specialist at St Jude’s Children’s Research Hospital in Tennessee. “A little company that was on the verge of potentially closing has really been able to play with the big boys in the race for the Covid vaccine.” 

Experts saw promise in its technology worth paying for: the US vaccine programme Operation Warp Speed gave Novavax $1.6bn to expand manufacturing, while Covax, the World Health Organization programme to supply the developing world, has ordered 1.1bn doses. 

Novavax CEO Stanley Erck: ‘I’ve raised money for many years in good times and bad times, mostly bad times. But we’ve never run out of money’ © Kevin Dietsch/UPI/Bloomberg

Finally, investors followed. The company raised $250m in a secondary offering in May and shares have soared around 4900 per cent since the start of 2020.

“The shorts are not my friends, ever. I love to disappoint the shorts,” Stanley Erck, Novavax chief executive, told the Financial Times. “I’ve raised money for many years in good times and bad times, mostly bad times. But we’ve never run out of money.” 

‘The trial failed, but the product actually worked’

But Novavax has come close. The company was founded in 1987 to develop “novazone” particles to deliver a vaccine before taking a detour into women’s health, when it realised it could use these particles to deliver hormones.

Yet by 2005, when Rahul Singhvi took over as chief executive, the women’s health business was being derailed by competition and concerns that oestrogen treatments increased the risk of breast cancer. He said Novavax — which had $5m in cash and $35m in debt — was burning $2m a month.

“The company obviously couldn’t have found a more seasoned CEO at that time because nobody would take this job,” said Singhvi, who was 40 and had never led a company.

But he had worked on vaccines at Merck. He spotted the value in an unloved unit of just 25 people still working on inoculations, led by Gale Smith, now Novavax’s vice-president of vaccine development.

The department, on a site in a different state, was surviving on grants from the US National Institutes of Health. Singhvi sold the prospect of a pandemic flu vaccine to investors and the stock began to climb. 

After Singhvi left, Novavax added an adjuvant — which boosts the efficacy of a vaccine — and embarked on developing vaccines for Sars, Mers, and then the respiratory syncytial virus (RSV), a common virus that can be deadly for babies and older adults. Shares rose as investors realised this could be the first vaccine for the disease. 

But problems with a trial in 2016 took Novavax crashing back down to earth, with the stock losing 83 per cent in a week. Not enough disease was around to reach a firm conclusion, and the investigators relied on a diagnostic tool not widely available in doctors’ offices.

The regulator wanted a new trial — but Novavax could not afford it.

“It turns out the trial failed, but the product actually worked. At the time, we didn’t have the funding to reinvent the phase 3 trial,” said Erck. “Even in the successful companies, no company that’s gone from here to there [has done so] in a straight line. It’s just the way biology works.” 

‘Sometimes a dark horse is an interesting horse’

The shorts may have been betting against Novavax — but scientists weren’t.

Paul Duprex, director of the Center for Vaccine Research at Pittsburgh University, said its technology is a “different way of doing something old” that can easily compete with the snazzier mRNA vaccine makers. “Sometimes a dark horse is an interesting horse,” he said. 

The company inserts the genes for Sars-Cov-2’s spike protein into an insect virus. The virus infects moth cells, which scale up the proteins. They are then harvested, put into nanoparticles and combined with its proprietary adjuvant. 

With an adjuvant, the vaccine can contain less of the antigen, the ingredient that induces an immune response, that is needed. This lower volume means more doses are available to go around. Eventually, it could be useful to combine shots for different variants in the same vaccine.

Importantly, it is also cheaper than many of the other vaccines, although Novavax will not disclose the price. The African Union has agreed to pay $3 a dose, according to people familiar with the matter.

Novavax has been heavily shorted by investors

Nick Jackson, who oversees vaccine R&D at the Coalition for Epidemic Preparedness Innovations, part of Covax, said it now feels “enormously relieved and quite vindicated” that it invested almost $400m to help Novavax expand its adjuvant production back in May.

Even so, Novavax has suffered some manufacturing setbacks as it tried to expand. Some of its troubles have been shared by other vaccine makers, including bottlenecks in the supply chain such as obtaining enough large plastic bags

But having laid off 120 manufacturing and quality-control staff as recently as 2019, the company had to hire 600 in just six months and sign up partners including India’s Serum Institute for global production.

Erck said the company lost time as it tried to scale up manufacturing. “We lost maybe as much as six to eight weeks, learning the process. But that’s opposed to a year, or two years,” he said.

Now it is ready to produce 150m doses a month, as soon as its vaccine is approved.

A fallen angel rises

Wall Street does take bets on unproven biotech — but it can be unforgiving of failure. Investors supported Moderna, which also did not have any approved products. The Boston-based start-up made a splash with the largest biotech initial public offering ever when it floated in 2018. 

Charles Duncan, an analyst at Cantor Fitzgerald, said Novavax and Moderna were at the “opposite end of the bell curve”: Moderna had raised huge amounts on the private market and was backed by big names, whereas Novavax had disappointed with RSV.

“Novavax was a fallen angel,” he said. 

Moderna also received significant government funding before the pandemic started. Luciana Borio, vice-president at In-Q-Tel, the venture capital firm that supports US intelligence agencies, speculates that because Moderna’s technology originated inside the US government, it may have been more likely to support development. 

“Moderna was like a ‘no fail’ company that people would do everything they could to make it succeed, whereas Novavax was like, ‘Let’s throw you some life support and let’s see if you can manage’,” she said. 

Bar chart of Covid-19 shots under contract (doses bn) showing Vaccine makers race to supply the world

Novavax has finally stopped gasping for air and Duncan forecasts it will generate more than $5bn in revenue this year. The company made a loss of $240.7m in the first nine months of 2020.

It still has its doubters, with about a 10 per cent short interest placing it in the top five pharma or biotech shorts by value, according to S3 Partners. But JPMorgan said in a note that its Covid-19 shot has the potential to be a “best in class” vaccine.

The company now has money to fuel its science and is about to embark on a trial for a new variant, which could lead to more regular sales if boosters are required.

It is also applying for approval for a flu shot and may yet return to RSV. Later this year, it will start studies on combining the Covid-19 and flu vaccines into a single shot. 

But success now relied on a risk it took last January, before either the US government or investors injected cash. When the genetic sequence of the virus was released, Novavax started developing a vaccine, two months before Erck asked President Donald Trump for money in a March 2020 meeting at the White House.

“That’s the whole problem with global health systems: they don’t fund things prospectively,” he said. “If we hadn’t started then, we wouldn’t be where we are today.”

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