As new drug-resistant novel coronavirus variants have emerged, a painful truth has become increasingly clear: we could be living with endemic Covid-19 for years. Wall Street, however, has been slow to acknowledge this fact. Vaccine maker Novavax (NASDAQ:NVAX) has traded sideways since its U.K. approval in early February. Moreover, NVAX stock fell nearly 10% on Tuesday on fears that the U.S. could delay accepting its stunningly strong U.K. results.
As markets wake up to the grim reality of endemic Covid-19, however, Novavax will eventually step back into the spotlight. That’s because NVX-CoV2373 — the company’s vaccine — is the only vaccine with a 90% success rate that hospitals can store at normal refrigerator temperatures.
In other words, it’s the best shot that governments have at cutting infection rates in the developing world — and thereby in the “rich world” as well. That makes NVAX stock one of my top picks for 2021.
NVAX Stock: The Top Candidate for the Developing World
Just twelve months ago, Novavax was a struggling 30-year-old vaccine company that had never brought a vaccine to market. And though its vaccine platform produced one of the fastest, most effective Covid-19 candidates to date, its lack of clinical-trial experience meant the company lagged behind rivals in getting approval.
In February, though, I threw that calculus out the window. As long-delayed U.K. clinical trial data started coming in, Novavax found that its Covid-19 vaccine was almost 90% effective in preventing infection. The other two refrigeration-only rivals — Johnson & Johnson’s (NYSE:JNJ) and AstraZeneca’s (NASDAQ:AZN) candidates — achieved far lower efficacy.
So, patients taking those rival vaccines are more likely to develop Covid-19. That means governments will start to favor the vaccine behind NVAX stock, especially in countries without the frozen-chain logistics needed for mRNA candidates.
Covid-19 Becomes Endemic
Back in December, health experts predicted a return to everyday life by the end of 2021. For a short time, the Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX) vaccine’s surprisingly high effectiveness made it look as if the world could swiftly eliminate the novel coronavirus.
Optimism, however, soon turned to realism as countries started discovering new, drug-resistant variants. For instance, on Monday, the South African government announced plans to return one million Covid-19 vaccines made by AstraZeneca for their inability to protect against a mutant strain.
Today, there’s a growing consensus among scientists and politicians alike that Covid-19 will become endemic — a disease that won’t disappear entirely for a long time. That’s because the virus acts much like other coronaviruses. It’s fast to mutate and can quickly turn into new strains.
So, in order to protect their citizens, it’s not enough for rich-world governments to vaccinate their own people. Instead, to prevent re-infection, these governments will have to help vaccinate citizens of developing countries, too. And as more money gets thrown at the problem, companies like Novavax will find themselves in far greater demand. That means a huge boon is in store for NVAX stock.
Is Novavax’s Vaccine a Silver Bullet?
Markets tend to be relatively quick in assimilating new information. For instance, vaccine stocks rocketed higher from March to June last year as investors realized the massive economic and social costs Covid-19 would bring.
This time, however, investors have been slow to react to the potential of endemic Covid-19. Since January, shares in defensive companies have flatlined while cyclical consumer stocks have surged. That makes Novavax an unusually underpriced stock.
After an over 1o0% surge in response to its upbeat U.K. clinical trial data, NVAX stock has traded sideways. Today — at its $18 billion market capitalization — NVAX is still incredibly small compared to rivals. But a target price of $350 (suggesting a $20 billion market cap) is easily achievable for the stock. And further vaccine developments for new Covid-19 strains could send this name even higher. Basically, Tuesday’s slump represents an excellent entry price.
Risks for NVAX
All that said, though, Novavax’s vaccine also has faults.
Firstly, it requires two doses instead of JNJ’s single-shot serum. Secondly, the jab is only 50% effective against the South African variant — better than most flu vaccines, but not good enough to eliminate a disease from the population. Finally, clinical trials also pose a problem. Though the company only took days to finalize their vaccine candidate, it took almost a year to prove that it was safe and effective.
However, Novavax’s recent successes mean it now has the capital to develop future clinical trials. Plus, its drug platform remains a strong competitive advantage. So, as investors wake up to the reality of endemic Covid-19, NVAX stock should continue to rise.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing