A few weeks back, Novavax (NASDAQ:NVAX) looked as if it was falling fast behind. But now, with its recent game-changing development, this near “also-ran” for the novel coronavirus vaccine crown is getting a second wind. As NVAX stock soars back towards prior price levels, it’s time to consider jumping on the bandwagon.
Why? With the timeline for a vaccine shifting to 2021, there’s more runway for the company’s candidate to play catch up.
Sure, it lacks the “first mover advantage” of Moderna’s (NASDAQ:MRNA) candidate, but this should not make much of a difference as long as its vaccine is viable.
Granted, buying now, when investors are excited again about Novavax, leaves you exposed to heavy losses if the company’s candidate falls short. But, given that a secondary catalyst (more below) could soften the blow if the Covid-19 catalyst fails to deliver, the risk/return proposition may be in your favor.
That’s not to say this risky biotech play is a slam-dunk, by any means. But, at today’s prices, it’s still worthwhile to consider a small, speculative position in this pandemic vaccine stock.
Phase 3 Trials and NVAX Stock
With Novavax’s NVX-CoV2373 now in what Barron’s has coined “the Covid finals,” are shares heading back to their August highs? More likely than not. While not the front-runner, with the Phase 3 announcement, the company’s odds of at least bringing its candidate to market look much brighter now than they did earlier this month.
And, just because its candidate wasn’t in the lead right out of the gate hardly means it can’t take the crown. In fact, this candidate may have some advantages over its much further ahead rivals.
For example, Novavax’s candidate has less stringent storage requirements, unlike the RNA vaccines from Moderna and Pfizer (NYSE:PFE). Another advantage?
As our own Dana Blakenhorn wrote Sept. 21, the vaccine candidate’s adjuvant, Matrix-M may be the “secret sauce” that gives it an edge when it comes to marketability. Simply put, an adjuvant helps to maximize potency and reduce dosage requirements. Said adjuvant could help the company quickly bring billions of doses to market. If and when its candidate obtains approval.
But, while the company’s prospective vaccine is a viable contender, the jury’s still out whether its a viable vaccine. Yet, when weighing potential gains from vaccine success versus potential losses from its candidate falling short, the risk/return proposition may be firmly in your favor.
Potential Gains May Outweigh High Risk
How high could NVAX stock climb if everything works out? As our own Matt McCall wrote Sept. 18, analyst estimates call for the company to earn $1 billion next Fiscal Year (ending December 2021).
If the company hits high estimates for FY21 earnings ($29.94 per share), a move to prices as high as $300 per share doesn’t seem out of the question. Even if next year’s results are largely a one-time windfall.
Yet, before you buy on potential gains alone, you need to handicap potential losses. That’s par for the course with any sort of speculative biotech situation. So, how far could Novavax shares decline if its Covid-19 catalyst fizzles out?
At first glance, you may say, worst case scenario, shares fall back to pre-pandemic price levels (under $10 per share). But, even failing to get approval for its Covid-19 vaccine may not sink shares that badly.
Why? Chalk it up to the company’s secondary catalyst, its NanoFlu flu inoculation candidate. As this commentator noted, NanoFlu is set to obtain regulatory approval. That is to say, this company, which has never brought a product to market, will finally have one out there.
And, with this factor in mind, shares likely wouldn’t fall 90% off today’s prices. Sure, shares would definitely take a big haircut in the event NVX-CoV2373 winds up a bust. But, thanks to the NanoFlu catalyst minimizing downside, the odds for this high-risk stock look favorable.
Consider Novavax a Buy Ahead of Phase 3 Trials
With vaccine stocks, nothing’s certain. A vaccine play that’s a front-runner today could be a long-shot tommorrow. But, in the case of Novavax, with the risk/return firmly in your favor, a small position may be warranted.
Sure, those who buy in today (as shares zoom past $110 per share), risk substantial losses if the company gets knocked out of the “Covid finals.” But, thanks to the NanoFlu catalyst, the risk of loss may not be as severe with this name compared to more speculative vaccine stocks.
Bottom line: don’t bet the ranch, but NVAX stock is a buy as it enters Phase 3 trials.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.