JPM | Cautious on CMC Filing Gambit ... but These Remain Unprecedented Times; 3Q Takeaways
On the heels of a string of emergency-use filings for NVX-CoV2373 (Covovax), an authorization announcement in Indonesia, and tonight's 3Q earnings update, we wanted to provide some updated thoughts on the regulatory and commercial outlook for the vaccine candidate and NVAX shares. In our view, somewhat underappreciated in the recent share accretion (+33% since the UK filing announcement last week vs NBI +2%) is the novelty of the company's filing strategy. Indeed, we view the current move to leverage CMC packages generated by Serum Institute of India (SII) toward global regulatory authorization (including high-income countries (HICs) within the EU, UK, Canada, Australia, New Zealand and the US) as a departure from prior expectations where assay validation and integration across Novavax’s internally controlled supply chain had been the key gating item. While rather confident in the likely authorization of Covovax in India, by the WHO and in countries served by the Covax facility (underscored by the Indonesia authorization and the recent Covaxin approval by WHO), we remain somewhat cautious on the potential for similarly positive decisions across the scope of HICs. Setting aside the authorization of COVIDSHIELDTM (sublicensed from AZN, and benefiting from the parallel approval of AZD1222), we see little precedent for the approval of a solely SII-manufactured vaccine for use among the aforementioned HICs. Combined with low visibility into i) effective gross margins from SII-made product for HICs, and ii) gating items ahead of supplemental CMC filings with NVAX's own supply chain, as well as a narrowing window of opportunity among the unvaccinated, we see NVAX shares continuing range-bound over the mid-term.
Relative economics on doses produced by SII versus proprietary supply chain remain a key outstanding question. With inbounds increasingly focused on pricing and unit costs in HICs, we derived little clarity from the conference call. Of note, some of the highlighted supply alternatives include leveraging SII as a CDMO for the supply of antigen or the production of entire finished vaccine product, or utilizing the company's proprietary manufacturing network to both produce and distribute vaccine. That said, the company anticipates limited impact on net margins regardless of the supply chain used for HICs, indicating similar access to low cost of goods for SII-made product for LMICs, but with an added royalty obligation to SII.
Planning underway for label enabling boosting studies. Potentially reflected in the acute share weakness leading up to the call, we see MRNA's moderation of its FY21 revenue guidance and related commentary around COVID-19 shifting to an endemic market further underscoring a narrowing window of opportunity for Covovax among the unvaccinated, and relegating the vaccine primarily for use as a booster. Notwithstanding the easing of health authority recommendations related to heterologous boosting, based on the call commentary, we do not anticipate data from the ongoing phase 2 booster studies (both NVAX-led and external) to enable a booster label indication, leaving the company limited ability to detail to such use following potential authorizations in the near term. Planning for a larger company led boosting study capable of demonstrating comparability with homologous boosts is underway, however, while timelines to the initiation and potential completion of such a study remain unclear.
Pediatric study submissions anticipated in 1Q22. Having completed the blinded crossover in the PREVENT-19 phase 3 pediatric expansion trial as of October, the collection of safety and efficacy data remains ongoing, with submission of regulatory packages anticipated within 1Q22. Of note, while complicated somewhat by concurrent filings with global agencies, the company expects to submit pediatric data as variations of initial filing packages.
Reiterate Neutral.
