The president’s recent Covid-19 diagnosis and hospitalization has shaken up the biotech sector. Previously, the Trump Administration had focused heavily on vaccine development. But now, priorities may be shifting a bit. Where does that leave Novavax (NASDAQ:NVAX) stock?
As you may have heard, when President Trump returned from the hospital recently, he credited the experimental therapies he took for his quick recovery. In particular, he cited Regeneron’s (NASDAQ:REGN) antibody treatment for helping to “cure” his ailment. Further, he suggested that Americans will have free access to Regeneron’s breakthrough therapy in coming weeks and months. Regeneron, for its part, has filed the necessary paperwork to bring the drug to market on an expedited basis following President Trump’s endorsement.
The science behind various treatments for Covid-19, including Regeneron’s therapy, is still to be fully determined. However, the possibility of a breakthrough therapeutic for the disease puts everyone else on notice. In particular, for Novavax, what does life look like if investors are no longer eagerly awaiting an approved Covid-19 vaccine?
The Shelf Life of Vaccine Stocks Is Shrinking
A big part of the appeal for coronavirus vaccine stocks was that there were essential for getting life back to normal. Many parts of the economy, including education, offices, dining out, and travel are in a state of suspended animation right now. And, it seemed, many people simply wouldn’t want to go out in public until a vaccine was ready.
As such, the government spent billions on Operation Warp Speed to promote the speedy development of a vaccine. This, in turn, helped the leading vaccine candidate companies, such as Novavax, to enjoy an unprecedented boom.
However, things could now shift. If therapies from the likes of Regeneron or Eli Lilly (NYSE:LLY) are successful, it will greatly reduce the sense of urgency behind the vaccine products. Once society has a way to help critically ill patients, the need for prevention will diminish.
To be clear, there will still be demand for a vaccine. But it won’t be the pressing issue anymore. Expect less in the way of government aid, and investors may lose interest. Again, we don’t know just how effective therapeutics such as Regeneron’s are just yet. But vaccine stock owners should be monitoring developments closely.
What Happens to NVAX Stock Without Covid-19 Revenues?
Heading into 2020, Novavax had around $80 million in cash. That was enough to support operations in the short-term, but it certainly wasn’t much of a war chest. Now, however, Novavax has been able to use Operation Warp Speed and the favorable press coverage associated with that to build its treasury to $424 million as of the most recent quarter.
Prior to Covid-19, Novavax was losing around $100 million a year. So even if the company earns no revenues in the immediate future, it still has at least a few years of cash on hand thanks to all that it has accomplished this year.
And it gets better. Our Chris Markoch explained how Novavax successfully developed its first approved vaccine, NanoFlu, for seasonal influenza. NanoFlu was already set to go this spring, and was helping give Novavax’s share price a boost even before the pandemic hit. As such, NanoFlu should provide some ongoing revenues to Novavax and also provide more credibility as it seeks to broaden its vaccine lineup once Covid-19 has wound down.
Novavax’s Bottom Line
If you’re confident that Novavax’s vaccine has the best prospects of being the ultimate winner in the Covid-19 race, then the stock is still attractive here. If you’re just long on speculation that it might work, however, be careful. Time is winding down on the Covid-19 vaccines, and thus Novavax is at risk of a big drop on any unfavorable developments. And now, with the President’s attention turning more to drugs for fighting the disease rather than vaccines, federal funding priorities may change as well.
That said, Chris Markoch does make a great point about the pipeline value of Novavax’s influenza vaccine. The company is not a one-trick pony by any means. And it’s been able to use its success this year to raise a great deal of money. Novavax — as a company — is in it for the long-haul, regardless of how things turn out in 2020.
However, if the company’s coronavirus vaccine doesn’t end up being a major commercial success, the stock is still going to get slammed. You simply aren’t going to make much money on a stock that is already up from $5 to $110 if the main catalyst doesn’t play out. There’s a long-term story at Novavax. But unless it wins the race for the Covid-19 vaccine, shares are still too expensive here.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.