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Better Buy: Novavax, Inc. vs. Pfizer Inc.

By Keith Speights - May 30, 2016 at 1:02PM

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Small vaccine developer or big pharma? How Novavax and Pfizer stack up.

Every day it seems like viruses are making the news. Savvy investors looking to make a profit (and one that they can feel good about!) might be taking note of this global healthcare trend and looking to invest in vaccine makers working to combat these viruses. Two companies on polar ends of the spectrum in the vaccine world are Novavax (NVAX 11.12%) and Pfizer (PFE -0.23%). The former is currently valued at around $1.5 billion and doesn't have a product on the market yet. The latter boasts a market cap of over $200 billion, and lays claim to the world's top-selling vaccine in recent years, the pneumococcal vaccine Prevnar.

But does Pfizer's size and existing product lineup make it the better pick for investors? Or does Novavax's future potential give it an advantage? Here's how the two stocks stack up against each other.

The case for Novavax

Novavax's management is unashamedly bullish about the prospects for its lead candidate, a vaccine for respiratory syncytial virus F-protein nanoparticle (RSV F). They project potential peak revenue of $6 billion to $8 billion for the vaccine. That's considerably higher than the $1.86 billion that Pfizer made on Prevnar last year.

Could Novavax's RSV F vaccine really become that successful? Maybe. Novavax hopes to address two markets with the vaccine in the not-too-distant future: infants up to six months old and older adults. The company has phase 3 studies in progress for both target populations.

Phase 2 results for Novavax's vaccine administered to older adults showed 44% prevention of all types of RSV, with 46% prevention of RSV with symptoms of lower respiratory tract infection. The vaccine also prevented 64% of older patients from developing serious symptoms of lower respiratory tract infections. Those results were comparable to Prevnar's efficacy.

Novavax's phase 2 testing for protection of infants via maternal immunization also met with success. Pregnant women in their third trimester were given the RSV F vaccine, and gave birth to infants that were found to have 110% to 120% of their mothers' antibody levels, suggesting protection from RSV for at least 90 days.

So what does all of this mean for Novavax's stock potential? Even if the company's peak sales projections are overly optimistic, the sheer market size of around 65 million older Americans and 4 million infants in the U.S. should translate to significant revenue -- if, that is, all goes well with phase 3 testing and the regulatory approval process.

There haven't been any major safety concerns thus far. Efficacy for both older adults and infants appears promising. While the possibility exists that Novavax could encounter problems somewhere along the way, the company's chances of gaining regulatory approval seem reasonably good at this point. If phase 3 results for Novavax's RSV F vaccine are positive, particularly the study focusing on older adults, the stock would probably soar by triple-digit percentages. 

The case for Pfizer

It's highly unlikely that Pfizer's stock will see the kind of surge that could potentially be in the cards for Novavax. On the other hand, the big drugmaker doesn't have nearly the level of risk that Novavax has, either.

Think of Pfizer's play as being the same as the tortoise in its race with the hare -- slow and steady. Pfizer's main problem, though, is that it hasn't been all that steady in recent years. Revenue has fallen over the last few years, in large part because of loss of patent exclusivity for key drugs.

Pfizer's situation should improve, however. The company projects that 2016 revenue and earnings will increase respectably compared to 2015. Pfizer got off to a great start in the first quarter, with year-over-year revenue growth of 20%.

Prevnar continues to perform very well, but Pfizer has other winners as well. Sales of new breast cancer drug Ibrance are booming. Smoking cessation aid Chantix/Champix and rheumatoid arthritis drug Xeljanz are also showing impressive sales growth.

Pfizer is also buying growth, or at least trying to do so. The big pharmaceutical company recently announced that it planned to acquire Anacor Pharmaceuticals (NASDAQ: ANAC) for $5.2 billion. Anacor's big draw is anti-inflammatory drug crisaborole. Phase 3 testing of the drug went well, and the FDA expects to make an approval decision by January 7, 2017. 

Whether or not Pfizer gets the growth it expects from the Anacor deal depends on how well crisaborole does, assuming the drug gets a green light from regulators. Pfizer thinks that crisaborole will generate peak annual sales of $2 billion. If the drug hits this mark (and sustains that sales level for a while), the Anacor deal will look pretty smart in hindsight.

Meanwhile, investors can enjoy Pfizer's juicy 3.5% dividend yield. The company's dividend payout ratio of over 93% is high, but Pfizer has enough cash to keep the dividend payments flowing while its earnings situation improves. 

Better buy

So which is the better stock for investors right now? It really depends on how risk-averse you are. If you shudder at the thought of wild stock price swings, Novavax probably isn't a good choice for you. If you're comfortable taking on risk, though, the smaller company is worth a look.

I think that Novavax is likely to ultimately win approval for its RSV F vaccine in addressing both of its primary target populations. (The company also has a phase 1 clinical trial in progress for children between six months and five years old, but it's way too early to know how that study will turn out.) If Novavax is successful, this stock will pay off in a huge way for investors who buy at current price levels. While the tortoise won in the old fable, I'll go with the hare in this race.

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$52.31 (-0.23%) $0.12
Novavax, Inc. Stock Quote
Novavax, Inc.
NVAX
$57.15 (11.12%) $5.72

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