According to a report by Grand View Research, the value of the global vaccine market stood at approximately $32.5 billion in 2015 and is estimated to grow at a healthy compound annual growth rate (CAGR) of 10.3% over the next eight years. This astonishing level of growth is being fueled by greater access to healthcare across the globe, combined with a spike in innovation that's helping to address a number of unmet medical needs.
Inovio Pharmaceuticals (NASDAQ:INO) and Novavax (NASDAQ:NVAX) are two publicly traded vaccine specialists that appear to be particularly well-positioned to take advantage of this emerging trend. So, with this in mind, let's consider which stock offers the more compelling risk-to-reward profile right now.
Key value drivers
Although the market has reacted positively to Inovio's recent collaboration with GeneOne Life Science to develop a DNA-based vaccine aimed at preventing infection from the Zika virus, the biotech's most important value driver remains its experimental HPV-16/18-related high-grade cervical dysplasia vaccine candidate dubbed VGX-3100. The good news is that the company is reportedly on track to launch a pivotal phase 3 trial for VGX-3100 sometime in the fourth quarter of 2016.
VGX-3100 is Inovio's most advanced clinical candidate, and industry experts believe it could generate somewhere in the neighborhood of $500 million in peak sales. That would be a big haul for a company whose market cap has never exceeded $900 million.
Unfortunately, the biotech has a long history of taking the slow road when it comes to executing clinical trials in general, making it next to impossible to even handicap when this key vaccine candidate might be ready for a regulatory filing. As a result, investors can probably expect the market to remain focused on Inovio's high-profile early-stage assets in emerging infectious diseases like Zika for the time being.
Turning to Novavax, this biotech is scheduled to report top-line phase 3 results for its F-protein nanoparticle RSV vaccine candidate in elderly adults this quarter. If this experimental vaccine hits pay dirt its ongoing phase 3 study and goes on to become one of the first treatments ever approved for RSV -- a virus that infects the lungs -- it would undoubtedly be a huge win for shareholders.
After all, Novavax's experimental RSV vaccine candidate is forecast to generate somewhere between $1 billion and $6 billion in sales as a preventative RSV treatment in adults aged 60 or older, depending on its pricing scheme.
The company's goal, assuming a positive readout, is to file for the vaccine's regulatory approval in the U.S. in 2017 and with European authorities by 2018. This proposed regulatory time frame means that the vaccine could reach the U.S. market by 2018 and become commercially available in Europe by 2019.
Apart from ushering in the commercial phase of Novavax's life cycle, a successful phase 3 readout would also go a long way toward validating the biotech's somewhat novel recombinant nanoparticle and Matrix-M adjuvant platforms. What this means for investors is that the market might be willing to pay a higher premium for the company's other clinical and pre-clinical assets in RSV, influenza, and emerging viruses such as Ebola and Zika.
Inovio's primary risk is its problematic cash burn rate that drove an $18.7 million net loss in the second quarter of 2016. With the company exiting the second quarter with cash, cash equivalents, and short-term investments of only $134.5 million, it's almost a certainty that Inovio will raise additional funds in the relatively near future to carry out VGX-3100's planned phase 3 trial.
The most obvious risk facing Novavax at the moment is a negative result for its experimental RSV vaccine in the elderly. The biotech, after all, already sports a market cap of nearly $2 billion, implying that the market is anticipating a positive result followed by a successful regulatory filing.
Which stock is the better buy?
While both stocks definitely inhabit the speculative side of the biotech spectrum, Novavax seems to offer the better risk-to-reward ratio because of the looming "prove it" moment for its RSV vaccine candidate. Basically, investors are going to know whether Novavax's platform can actually produce a viable commercial candidate by the end of this year. Inovio, on the other hand, is years away from reaching this stage, and will thus need to continue to rely heavily on public offerings to fund its clinical activities going forward.