The winners of the race for a novel coronavirus vaccine are going to make big money. I believe Novavax (NASDAQ:NVAX) will be one of those winners. That alone makes NVAX stock a buy.
But the good news at the moment is that investors can pay an even lower price to get in on the story. NVAX stock has retreated some 42% from early August highs.
Skeptics might retort that the stock is still up over 2,600% year-to-date (yes, 2,600%, and no, that’s not a typo) — and thus remains too expensive. But that’s looking at it the wrong way.
After all, on Jan. 1, no investor could have predicted the pandemic, or the dire need for a vaccine. Novavax, due solely to that opportunity, is a very different company than it was eight and a half months ago.
Meanwhile, Novavax is taking advantage of that opportunity — and making real progress toward a vaccine. Importantly, it’s doing so at a rapid pace. As a result, I believe the vaccine will be approved — and that will make NVAX stock fly.
Right on Track
In less than seven months, Novavax has made impressive progress.
After all, at the beginning of the year, Novavax was looking to develop vaccines — but not yet for the novel coronavirus. The company was focused on its flu vaccine, which hit Phase 3 endpoints in March. The same month, the company announced a partnership to work on a malaria vaccine.
But it wasn’t until late February that Novavax disclosed its first step toward a coronavirus vaccine. It began assessing candidates in animal models. From there, it’s been milestone after milestone.
Phase 1 data in early August impressed, sending NVAX stock higher. Data published this month showed that the vaccine was both well-tolerated (with minimal side effects) and showed early efficacy. The candidate now has moved into Phase 2 trials.
Meanwhile, Novavax has raised plenty of capital. Primarily from Operation Warp Speed, the company has secured some $2 billion in funding. That’s obviously more than enough to get the vaccine to approval.
That’s not all. Novavax has added key executives. It has set up partnerships in Asia. It has signed agreements with the governments of Canada and the United Kingdom.
And once the drug is approved, Novavax should have no problem producing it. An agreement with a manufacturer in India provides annual production capacity of over 2 billion doses.
The Risk/Reward in NVAX Stock
To be clear, Novavax still needs to get the vaccine over the finish line. That’s not guaranteed. Nothing in drug development is.
But what’s also clear is this: Novavax has done everything it could, and everything it needed to, to create the best odds of success. After all, in the race for a coronavirus vaccine, simple approval isn’t enough.
After all, there are literally dozens of companies targeting a coronavirus vaccine. The list includes some of the world’s largest drugmakers.
And so being first — or second — matters. The initial vaccines approved likely will become the standard of care. They will have significant pricing power in the early going. There will be huge profits to be made.
Novavax seems to have a good chance at being one of the first companies with an approved vaccine. That’s big. Of course, it would be even bigger if it ends up being the first.
Again, this is a high-risk play: a “good chance” is not the same as a guarantee. Yes, there’s some value in NanoFlu, the flu vaccine. Even so, if Novavax stumbles in its coronavirus efforts, NVAX stock has a long way down. Investors need to keep that in mind.
Cheap Enough
Still, on a risk/reward basis, I believe NVAX stock looks attractive, particularly with the recent pullback.
After all, even after the massive year-to-date rally, Novavax still has a market capitalization of less than $7 billion. Analysts expect the company to earn more than $1 billion in profit in 2021 alone.
It’s possible that the Novavax vaccine, if approved, will bring in those profits for another company. Success on the coronavirus front would read across well to the rest of the pipeline. One of the diversified major pharmaceutical players could see that as a reason to acquire Novavax. That aside, the larger firm could bolster Novavax’s approved coronavirus vaccine with its existing worldwide sales and marketing infrastructure.
That’s all speculation. But the broad case here is relatively simple: if Novavax gets a vaccine approved, NVAX stock is going to be a winner. At this price, and given the progress so far, I think the rewards of betting on Novavax outweigh the risks.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
