When novel coronavirus vaccine developers resumed their clinical studies in the last week, not all drug manufacturing stocks rose. Shares of biotechnology firm Novavax (NASDAQ:NVAX) topped $120 in mid-October, but NVAX stock approached the end of the month around $80.
Why is NVAX stock falling and what will it take for investors to buy it from here?
NVAX Stock Missing a Catalyst
On Oct. 23, regulators approved AstraZeneca’s (NYSE:AZN) U.S. trial resumption. It had paused the study on Sept. 6 after one subject suffered a serious neurological illness. The development is positive for the industry because the vaccine’s safety is a deep concern for the government.
STAT reported that the Food and Drug Administration had cold feet over issuing emergency use authorizations that would let companies launch Covid-19 vaccines early. A safer approach might involve using expanded access. This limited program would give scientists more time to study clinical results.
Marion Gruber, director of the FDA’s office of vaccines research and review, said, “We are concerned about the risk that use of a vaccine under an EUA would interfere with long-term assessment of safety and efficacy in ongoing trials and potentially even jeopardize product approval.”
Novavax’s data presentation at World Vaccine Congress Europe 2020 is a potential positive catalyst. Any reports that shed light on the vaccine’s efficacy, safety and immunogenicity will lower investor uncertainties in the company’s product.
Competition Heating Up
Getting a vaccine first to market would give a company a significant lead. For example, Pfizer’s (NYSE:PFE) CEO, Albert Bourla, wrote an open letter. He said, “assuming positive data, Pfizer will apply for Emergency Authorization Use in the U.S. soon after the safety milestone is achieved in the third week of November.”
Novavax is unlikely to have a product ready to market as fast as its competitor. The stock performance reflects that view. Pfizer held steady in the last three months, while drug partner BioNTech (NASDAQ:BNTX) formed an uptrend that began in September.
Novavax shares are well off the $189.40 high reached in August.
On Wall Street, the average price target is $220.80 (according to Tipranks). Using a 5-year discounted cash flow growth model, assume the following:
|Discount Rate||12.0% – 11.0%||11.50%|
|Perpetuity Growth Rate||3.5% – 4.5%||4.00%|
|Fair Value||$77.64 – $100.82||$87.69|
Data courtesy of finbox (click on the link to change assumptions)
Furthermore, forecast revenue growth as follows:
|(USD in millions)||Input Projections|
|Fiscal Years Ending||19-Dec||20-Dec||21-Dec||22-Dec||23-Dec||24-Dec|
|% of Revenue||-664.00%||-26.50%||25.00%||50.00%||114.40%||100.00%|
With those data points, Novavax has a fair value of around $88. This is a downside valuation scenario. If market optimism remains, the stock will not likely stay at the $88 downside target price.
Novavax’s NanoFlu, which protects people from the regular flu, may potentially raise the company’s revenue potential. The company promoted Russell Wilson to the executive vice president position. There, he will have the responsibility of focusing exclusively on advancing NanoFlu, an influenza vaccine candidate, through global licensure. He will also be responsible for exploring a combined influenza/Covid-19 vaccine.
The company is aiming to have the dual vaccine product in a post-pandemic setting. So, its primary objective is still getting NVX-CoV2373, its Covid-19 vaccine, on the market. Concurrently, it will file a biologics licensing application for NanoFlu. With two products on the market, investors may forecast the company’s revenue potential in the years ahead.
NVAX stock lost much of its buying momentum that began in June. Investors who missed the chance to lock in gains at above $140 a share are now doing so. Yet if the company posts strong clinical results from its NVX-CoV2373 studies, the market may infer that it will have a product on the market soon.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.