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Should Investors Worry a Large Novavax Shareholder Cut Position in Q2?

RA Capital Management is a Bost0n-based hedge fund that invests in healthcare and life sciences companies. It is also Novavax’s (NASDAQ:NVAX) third-largest shareholder. As of April 19, 2021, RA Capital owned 5.1% of NVAX stock.

A bunch of glass vials of SARS-CoV-2 vaccines.
Source: Shutterstock

The hedge fund manager’s June 2021 quarterly 13F holdings report with the Securities and Exchange Commission shows that it sold 442,169 shares of Novavax between April and June, reducing its stake by 14%. It now owns 3.4% of Novavax, a position accounting for 8.2% of its overall portfolio. 

So, on the one hand, RA Capital has fallen below the 5% threshold, the normal requirement for filing Schedule 13D with the SEC within 10 business days of crossing the 5% ownership threshold. But, on the other hand, it is still the hedge fund’s second-largest position. 

If you’re considering buying NVAX stock, should any of what I’ve just written matter? 

I’ll consider this question in the context of Novavax’s current status as a vaccine in waiting.

 

NVAX Stock Price Doubled YTD

As I write this, NVAX is trading around $232.50, up more than 100% in 2021. On the last day of 2020, RA Capital’s 3,788,564 shares accounted for 6.0% of the company. The shares were valued at $422.46 million. Now, its existing 2,559,918 shares are worth $595.18 million. 

So, despite selling 14% of its 3.79 million shares, its position is worth 41% more than at the end of 2020. According to WhaleWisdom, RA Capital first picked up NVAX stock in the second quarter of 2020. It’s estimated to have paid $102.60 per share.

Novavax’s shares ended Q1 (April 30) at a closing price of $236.93 a piece. It finished the June quarter with a $212.31 closing price. In between, it traded as low as $121. Let’s assume RA sold the 442,169 shares in the second quarter for $175 a share. That’s gross proceeds of $77.4 million, or 20% of its total investment (3,788,564 shares multiplied by $102.60) in Novavax of $388.7 billion. 

The investment manager would have to sell another 1.34 million shares at current prices to get its entire investment back. If so, it would still have 1.22 million shares worth more than $283 million. 

That’s a nice payday for a one-year hold. Of course, hedge funds want more than that, especially those focusing on healthcare and life sciences investments. The risks involved require higher returns. 

My guess is it will continue to trim its position each quarter until Novavax makes its Emergency Use Authorization (EUA) application with the Food and Drug Administration. That’s now expected in October

Unfortunately, most 13F’s for the third quarter don’t get filed until the middle of November, so it will be too late to react if the hedge fund makes a major move one way or the other based on its own business intelligence.

Covid’s Not Going Away

InvestorPlace contributor Thomas Niel recently discussed how an “also-ran” vaccine candidate like Novavax could still end up benefiting from Covid-19, both here in the U.S. and overseas. In large part, it’s due to the genuine possibility that Covid-19 becomes a virus that’s kept at bay through annual booster shots much like the flu. 

“Investors may be more hesitant to give shares in Novavax the kind of boost they’ve given shares in Pfizer (NYSE:PFE), Pfizer’s vaccine partner BioNTech (NASDAQ:BNTX), Moderna (NASDAQ:MRNA), and Johnson & Johnson (NYSE:JNJ),” Niel wrote on Aug. 20. “Yet I wouldn’t put it in the same camp as bona fide ‘also-ran’ vaccine stocks, such as CureVac (NASDAQ:CVAC) and Ocugen (NASDAQ:OCGN).” 

I absolutely agree with my colleague’s assessment of the situation. 

In my last article about Novavax in early August, I argued that NVAX stock would likely trade in a tight range between $200 and $250 until more analysts jump on board or it delivers actual vaccines. 

Now that the Delta variant has proven to be a formidable adversary for the U.S. healthcare system, I would think a push to $300 would happen quite quickly once Novavax puts in its EUA application with the FDA.

So, the question you ought to be asking yourself at this point isn’t whether RA Capital is in or out with regards to its bet on Novavax, but if you believe the company will ultimately generate significant revenue from NVX-CoV2373. 

Niel argues that should Novavax deliver 2022 earnings at the top-end of the analysts’ estimate — $46.33 a share — it would be worth $463.30 based on 10x its 2022 earnings projection. 

But first, it has to get on the dance floor. It can’t do that until the FDA gives it EUA approval. But, of course, the approval doesn’t happen until Novavax gets its ducks in a row and makes the actual application. 

The Bottom Line

Investors are likely to face bouts of volatility until October. I wouldn’t be surprised if, at some time in the next two months, you could pick up NVAX stock in the low $200s. It traded there as recently as Aug. 9. 

Should investors be worried RA Capital trimmed its position? I don’t think so. 

That said, I don’t think you need to fear missing out due to a meteoric rise in NVAX stock. Without any catalyst, that doesn’t seem to be in the cards. 

I’d be patient about getting on the NVAX train. However, long-term, I like its chances. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2021/08/should-investors-worry-a-large-novavax-shareholder-cut-position-in-nvax-stock-in-q2/.

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