Stock Pick for 2014Initiating Coverage

Novavax Inc.The next Biopharma M&A target?

INVESTMENT THESIS

On September 30 the biggest Pharmaceutical Manufacturer in the world, Johnson and

Johnson (Ticker: JNJ) acquired Alios Biopharma (a private company and a competitor of

Novavax) for US $1.7 Billion. Johnson and Johnson bought Alios mainly for its RSV drug potential. Alios is still in very early preclinical

stage studies while Novavax is already in Phase 2 Clinical Studies. Novavax is made up of the

Medimmune Biologics researchers. Just like Novavax it had a value of about $1Billion. Medimmune developed Synagis (RSV treatment)

and was acquired AstraZeneca for 15.6 Billion in 2007. Synagis, like Alios, treats but is not a

vaccine for RSV. NVAX of course has a platform for vaccine production, including RSV. In light of this someone will be knocking on the door if not

already. Question is who and at what premium.

Recommendation: BUY (Growth)

Symbol/Exchange: NVAX/NASDQSector: BiopharmaceuticalsAll dollar values in US$ unless otherwise noted.

Current price: $4.05One-year Target: $7.5052week Range: $2.68 - $6.95Market Cap: $978.32M___________________________________________

About Novavax Inc.

Novavax, Inc. (Nasdaq: NVAX) is a clinical-stage b i o p h a r m a c e u t i c a l c o m p a n y c re a t i n g recombinant protein nanoparticle vaccines to

address a broad range of infectious diseases. The company is developing a portfolio of

vaccine candidates targeting seasonal and pandemic influenza (H5N1), a vaccine designed to protect children and the elderly against

respiratory syncytial virus (RSV), rabies and other candidates. In addition, the company is

developing its vaccine candidates for worldwide commercialization including: a joint venture in India with Cadila Pharmaceuticals; a licensing

arrangement with LG Life Sciences in Korea; a collaboration with PATH for the development of

an RSV vaccine for the protection of infants through maternal immunization; an advanced seasonal and pandemic influenza vaccine

development contract with the U.S. Department of Health and Human Services Office of

Our SMALL CAP pick for 2014

Novavax Inc.

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October 2014

B i o m e d i c a l A d v a n c e d R e s e a r c h a n d Development Authority (BARDA); and a research collaboration with the U.S. Department of

Homeland Security to develop a virus-like particle (VLP) vaccine countermeasure to protect

the United States from foot-and-mouth disease.

Source: Novax Inc. Website

VALUATION

We are initiating coverage on Novavax with a target price of $7.50 per share and a BUY (Growth) recommendation. Our valuation is based on a 1.0x multiple on conservative net asset value of Novavax current and future product portfolio.

Analyst Reported Projection

Yahoo Finance upgraded their one-year target price on September 20, 2014 to $10.58. That is over 200% higher than recent trading prices.

With sales growth outpacing expense growth, NVAX was able to report a reduced net loss of just $12.2 million, or $0.08 per share, compared to a loss of $22.5 million, or $0.15 in the prior-year period. Despite using $25.5 million in cash during the quarter, it still ended with cash, cash equivalents, and investments totaling $208.8 million.

Source: Novavax Audited Statements

LATEST QUARTERLY FINANCIAL HIGHLIGHTS

• Total company net revenues of $8.3 million (increase of 134%)

• Net loss of $0.08 per share as compared to net loss of $0.15 per share last year.

• Cash, cash equivalents, and restricted investments of $208.8 million as of June 4, 2014.

Novavax Inc. recently exercised its option on its contract with U.S. Department of Health and

Human Services, Biomedical Advanced Research and Development Authority (BARDA), which will give it access to US $179 million in additional

funding for its research.

“Progress in the second quarter maintained the

momentum built in both the first quarter of the year and in 2013. We continue to make progress in our RSV and influenza vaccine development

programs,” said Stanley C. Erck, President and CEO of Novavax. “The second half of 2014 will

be the most productive period in the company’s history. We plan to initiate 4 clinical studies before the end of 2014; RSV maternal

immunization, pediatric and elderly, as well as a seasonal influenza clinical trial. We also plan to

initiate a combination RSV/seasonal influenza clinical trial in early 2015. In addition, we plan to present pre-clinical and clinical data at several

important medical meetings later this year.”

Source: NOVAX Inc. Audit Statements

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RECENT M&A ACTIVITY IN THE SECTOR

On April 28, 2014 the board of directors of AZN rejected Pfizer’s $106 billion takeover bid just

hours after it was levelled, describing it as inadequate.

Pfizer was offering 50GBP($84.47) a share. The offer was a 7.3 increase on a previous bid of $100 billion.

On September 20, 2014, Johnson and Johnson acquired Alios Biopharma for $1.7 billion.

Johnson and Johnson could have been looking at Novavax and Alchion as well. This will definitely cause Johnson and Johnson’s

competitors to look at bringing on board there own RSV medications into their pipeline.

Longtime Ernst & Young biotech analyst Glen Giovannetti thinks it's likely that a Big Pharma company or two in search of added product

revenue will go on the hunt for Smaller Biotechs. And as for a merger of Big Pharma equals: "I

wouldn't rule out that there couldn't be another mega-deal.

Regardless he Giovannetti believes, “$1 billion

to $20 billion buyouts represent the industry's sweet spot now, and those deals are likely to go

for higher premiums with more companies elbowing their way to the auction block.”

Source: Ernst And Young Life Science Report

NOVAX Inc and Ebola

Novavax is definitely late to the game of Ebola, but that doesn't mean they won't join it, and we

are sure they are working feverishly at it right now. The reason is because there is too much

money being thrown to anyone who has an Ebola preclinical program, and willing to go into Phase I trial. Novavax has the right people, and

all the capacity it needs to meet this challenge head on.

Ebola is not a simple virus that you can just whip up a vaccine for. Ebola, effectively hides the surface proteins of the infected cells, and

basically the infected cells are masked to the immune system. Ebola does this by sterical

hindrance, or as Novavax stated in their analyst meeting slides when they mention "epitope subversion" for Ebola. This reminds us of the

RSV Site II, the question for Novavax; is how to expose this for Ebola. The current Zaire strain

may be the most difficult to treat as well because its ability to mask itself. As you can see, it is not simple. But if anyone can do this, it'll be the

team in Novavax because of their VLP platform. And if they can have something that works, and

do an animal study, the rest is the easy part since they have the bioreactors and capacity built for pandemic response.

Any achievement, even a small one, could have a major impact on the price of Novavax Stock

regardless of any take over talk.

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