The novel coronavirus pandemic has led to unprecedented highs for several pharmaceutical companies. Novavax (NASDAQ:NVAX) stock is no different. Shares are up by more than 2,600% year to date, and the momentum will not stop before we have a commercial vaccine for Covid-19.
But is there any money to be made on the stock after such an exponential rise?
Shares are still trading at a 41% discount to their 52-week high of $189.40 per share. However, I wonder if you could call shares fairly valued if they trade at 86x trailing 12-month price-to-sales.
With a market cap of $6.9 billion, the company is riding the Covid-19 momentum all the way to the bank. And it’s certainly not surprising.
For the biotech sector, the crisis has been nothing less than a boon. Established pharmaceuticals already have great fundamentals. And even if for some reason they lag behind the race for a Covid-19 vaccine, they have several product lines to rely on.
But biotechs like Novavax owe their success, largely, to the pandemic and the race to find a vaccine.
NVAX Stock Is Overhyped
At its peak, Novavax shares were up 4,000% in early August. Although interest has tempered a bit, shares are still trading high on Covid-19 hype. To its credit, the company deserves a pat on the back for gathering a lot of funds since the crisis started.
Initially, the company received $4 million via Coalition for Epidemic Preparedness (CEPI) vaccine development grant. It then received a further $388 million grant under the same program in May 2020.
Finally, the company got $1.6 billion in the shape of an Operation Warp Speed grant. Under this grant, the company is supposed to supply 100 million doses of NVX‑CoV2373, Novavax’ Covid-19 vaccine candidate, as early as late 2020.
Every time the company announced the latest round of financing, the share price spiked. The OWS grant was good enough to push NVAX stock north of $189 in intraday trading. The bottom line is that a lot of the excitement has little to do with its results and more to do with its financing.
Significant Risks
Like many biotechs, Novavax finds itself in foreign territory due to Covid-19.
There have been two times in its history that NVAX stock managed to fall below $1. But bulls are suggesting that the company’s issues are a thing of the past and therefore, they don’t have any bearing on its current state of affairs.
Well, even if you buy that argument, you can’t expect Novavax to have the kind of infrastructure layout to disseminate its vaccines like the big pharma candidates Pfizer (NYSE:PFE), GlaxoSmithKline (NYSE:GSK), and Sanofi (NYSE:SNY). It will most likely have to partner with another company so that it can build out manufacturing capacity. That will contribute further to negative margins.
There’s also the risk that the company falters in its clinical trials because it has a track record of doing so, having failed two late-stage clinical trials in 2016 and 2019. A third failure will be disastrous for the company and reinforce the negative narratives surrounding its brand.
Summing Up
It may seem like I am completely pessimistic about this company. But there are plenty of reasons why you should be bullish on this one. Government spending on such a large scale means that Novavax’s solution is rated highly. Early data also suggests that its vaccine is effective in terms of its potency and durability.
The vaccine candidate is also inexpensive to produce, which will play a key role in moving forward. I don’t think that there will be just one “winner” in the Covid-19 vaccine race. Ultimately, the scale of this crisis means that it’s all hands on deck, so to speak. Companies that can offer an affordable solution, which can be stored easily, stand to benefit immensely.
But we also have to be realistic regarding the company’s prospects while acknowledging its past. That past, unfortunately, doesn’t instill a lot of confidence.
And before we finish, I do want to highlight one other point. The focus on Covid-19 has pushed NanoFlu and several RSV vaccine products to the back burner. These are all late-stage vaccines that the company was working on. However, it doesn’t seem likely that we will get to see any revenues from these products anytime soon.
Maybe you should follow the lead of several Novavax executives, who sold millions of company stock recently. If not, I would want to take a sizeable chunk of my profits and invest in a company that possesses more of a long-term growth story.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
