Biotech Big Gains – Cash Out Time?

Yesterday, we were all reminded that even with the great Chinese free-market growth story over the last 20 years, they are still a ‘Red’ China.

Government intervention is not only permitted, but expected. The devaluation of the Yuan sent ripples to markets all over the world. A greater lesson on government meddling can be learned here.

In Monday’s Goldman Guide we mentioned the fact that biotech and healthcare funds have enjoyed 10 straight weeks of inflow, but some of the recent trading indicates the contrary. Is it time to sell out of some of our biotech picks?

One of the few bright spots yesterday was the 24% single day pop in Novavax, Inc. (NASDAQ – NVAX - $13.89) on news that in a few years the biotech Company's genetically engineered shot could become the first vaccine approved against respiratory syncytial virus, or RSV. We first featured the stock at $2.35 in early April 2013, and it is now up nearly 500% since then. The chart below illustrates the performance of NVAX over this time along with the 200-day EMA, which the stock is currently trading well above.

NVAX April 2013 – August 2015, 200-Day EMA

(Source: www.otcmarkets.com)

Novavax, Inc., a clinical-stage vaccine Company, focuses on discovering, developing, and commercializing recombinant nanoparticle vaccines and adjuvants. The Company produces its vaccines using its proprietary recombinant nanoparticle vaccine technology. Its product pipeline includes respiratory syncytial virus (RSV) vaccine candidates for elderly and maternal immunization that are in Phase II clinical trials, as well as pediatric respiratory syncytial virus candidate, which is in Phase I clinical trial; seasonal quadrivalent influenza and pandemic H7N9 vaccines, which are in Phase I clinical trials; vaccine candidate against Ebola Virus that is Phase I clinical trial, as well as combination respiratory vaccine candidate, which is pre-clinical trial; and seasonal influenza vaccine candidate that is Phase III clinical trial, as well as rabies G protein vaccine candidate, which is in Phase 1/2 clinical trial. The Company also has pre-clinical stage programs for various infectious diseases, including the Middle East respiratory syndrome coronavirus; and develops technology for the production of immune stimulating saponin-based adjuvants.

Again, we revisit the question should we keep NVAX? For a developing biotech firm, $813,000 is very little debt. Additionally, while the Company’s reported EPS is still in the red, they have beaten analysts’ estimates two quarters in a row. Positive drug pipeline news, like the RSV news, has been somewhat constant for the firm over this great run also.

We think NVAX is a keeper for now. For those who don’t want to get too greedy a covered call or protective put strategy may be in order. We think $15 is achievable this year.

Have a great day!

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