Novavax (NASDAQ:NVAX) stock already made investors a nervous bunch before Merck (NYSE:MRK) and its co-development partner, Ridgeback Biotherapeutics, reported on Sept. 29 that its experimental Covid-19 oral antiviral drug, molnupiravir, could be very effective against different variants of the virus, including the Delta variant.
Since the news surfaced, NVAX stock has lost 16% of its value.
Over the past year, I’ve remained a steadfast believer in Novavax’s NVX-CoV2373 Covid-19 vaccine candidate. As recently as Sept. 22, I suggested that Novavax’s stock would reward the very patient in the long term.
However, the latest news from Merck has me wondering if NVAX stock is cursed, and the company will never benefit from its hard work and money spent developing its Covid-19 candidate.
Novavax Will Survive the Latest Setback
InvestorPlace’s Dana Blankenhorn recently reminded investors that Novavax has applied for emergency approval from the World Health Organization as a way to go around western agencies who’ve yet to approve it.
“The best vaccines, in terms of efficacy, seem to be those based on messenger RNA (mRNA) technology. Novavax’ is a protein-based vaccine, along with an adjuvant meant to increase its effectiveness. But our Louis Navellier still thinks Novavax can be a winner in this race. That’s because Novavax’ compound doesn’t require cold storage, like mRNA vaccines,” Blankenhorn stated in late September.
So, the company’s vaccine is still in the running for big bucks because it doesn’t require cold storage meaning it could be utilized by many countries in Africa, where only 6.9% of the population has been partially or fully vaccinated. That compares to 66% for Canada and the U.S.
Africa has 1.38 billion people, according to the latest United Nations estimate. However, the continent also has a very young population with a median age of 19.7 years. By comparison, Canada’s median age is 41.1 years while the U.S. is 38.3 years.
So, for the sake of revenue projections, let’s assume that only those over the median age of 19.7 will get at least one vaccination. That’s 690 million people. Using a dose cost of $8 (about half what Novavax will charge in the U.S.) you get $5.52 billion in revenue. Assuming half of the group over 19.7 get two shots, the estimated revenue pool expands to $8.28 billion.
Let’s assume Novavax gets 25% of the African doses. That’s $2.07 billion in revenue. Based on Moderna’s (NASDAQ:MRNA) price-sales ratio of 20x, that would give it a value of $41.4 billion, not taking into account the U.S. or global revenue in 2022 and beyond.
At present, NVAX has a market capitalization of $13 billion, so there’s plenty of upside despite the latest piece of bad news in the Covid-19 sweepstakes.
NVAX Stock Is Cursed
On Sept. 29, InvestorPlace’s Chris MacDonald reported that the future potential of Covid-19 vaccines could face the law of diminishing returns as the world returns to normal post-pandemic.
“Today, a number of reports are highlighting the potential for Covid-19 vaccine stocks to see a less impressive run than what was previously expected. Based on recent comments from Pfizer (NYSE:PFE) CEO Albert Bourla, it appears the runway for vaccine stocks may be shorter than expected,” MacDonald stated.
“Mr. Bourla said he expects post-pandemic life to begin within a year. That’s a relatively short time frame for those expecting continuous boosters for many years to come.”
That’s not good news for any vaccine makers, but it’s incredibly disheartening for those who haven’t made it across the finish line, such as Novavax and Ocugen (NASDAQ:OCGN) and even Merck.
First, there were delays in May and August to file the paperwork with the FDA to get emergency use authorization in the U.S. Now; the total addressable market appears to be shrinking by the day.
Six months or a year ago, the argument that there would be plenty of business to go around for all the vaccine candidates no longer appears to hold water.
So, the billion-dollar payoff most shareholders were counting on might not materialize, making the risk-to-reward proposition far less attractive.
The Bottom Line
In my September article about Novavax, I suggested investors needed to be patient about their investment.
“I find it hard to believe that Novavax will be completely shut out of the Covid-19 vaccine game, but you’ve got to be patient. The FDA won’t be bullied into making a snap decision about any vaccines,” I wrote. “If we don’t hear from Novavax by mid-October, then I’d start to worry. Until then, chill.”
Well, we’re approaching mid-October, and there’s been no news about the U.S. EUA application, which is why NVAX stock is trading $35 below $200.
Despite the Merck news, I still think Novavax shareholders will be rewarded in the future. So if you haven’t bought NVAX, now would be a good time to buy some shares leaving aside some cash in case it drops further.
I don’t think its stock is cursed, per se.
That said, it hasn’t been an easy ride for anyone who bought in 2020 and is still holding. But, good or bad, we’ll know soon enough what the future will bring.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
