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

By Keith Speights - Feb 23, 2018 at 6:09AM

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One has big money. But the other has big momentum.

Would you be better off buying Novavax, Inc. (NVAX -0.44%) stock or Pfizer Inc. (PFE 2.92%) stock? The answer to that question so far in 2018 is Novavax. The clinical-stage biotech's share price has soared over the last couple of months, while Pfizer stock hasn't moved very much.

But basing your investment decisions on short-term stock movements isn't a good idea. You're much better off evaluating stocks on their growth prospects over the long run. Which of these two drug stocks is the smarter pick for long-term investors? Here's how Novavax and Pfizer stack up against each other.

Medical professional with syringe and vial

Image source: Getty Images.

The case for Novavax

You're not going to find a reason to buy Novavax stock in its financial statements. The company continues to lose money like it's going out of style. Novavax's meager revenue stems solely from research and development collaborations. However, there are two reasons investors could really like Novavax.

One is the company's lead pipeline candidate, a vaccine for respiratory syncytial virus (RSV) based on the RSV fusion (RSV F) protein. The RSV virus hits infants especially hard. Around 8.4 million newborn babies are diagnosed with RSV each year in the top nine markets. Another 55 million RSV cases occur annually in the rest of the world.

There currently are no approved RSV vaccines, and Novavax is the only company with an RSV vaccine in late-stage testing. The company expects to announce results from this phase 3 study by early 2019. If the RSV F vaccine ultimately wins approval for maternal immunization of infants, it could achieve peak annual sales of $1.5 billion or more worldwide.

But the recent excitement about Novavax in the investor community stems largely from another pipeline candidate: NanoFlu. Novavax announced very promising pre-clinical results for the nanoparticle-based influenza vaccine in August. The company quickly advanced the experimental vaccine to a phase 1/2 study. Results from this study should be reported any day now.

Although there are already several flu vaccines on the market, the current nasty flu season has shown that there is a lot of unmet need. In the pre-clinical studies conducted in ferrets, NanoFlu generated better antibody responses than a current leading flu vaccine.

Novavax is still a few years away from potentially being able to market NanoFlu -- assuming all goes well with its clinical studies. But if NanoFlu is successful, the company should be in good position to grab a significant chunk of the $3 billion-plus flu vaccine market. 

The case for Pfizer

It's a much different investing thesis for Pfizer. The big pharma company's revenue totaled $52.5 billion last year. Pfizer posted earnings of $21.3 billion, although that figure was bolstered by a one-time tax benefit of $9 billion.

One major reason to buy Pfizer stock is its great dividend. Pfizer paid out $7.7 billion in dividends last year -- more than 10 times Novavax's entire market cap. The dividend currently yields 3.78%, ranking Pfizer as one of the top income stocks in the healthcare sector.

Pfizer's current product lineup includes multiple blockbuster drugs with solid sales growth. Ibrance stands at the top of the list. In 2017, sales for the cancer drug soared 46% over the prior year to $3.1 billion. Another successful product, Eliquis, which Pfizer co-markets with partner Bristol-Myers Squibb, contributed revenue of more than $2.5 billion for Pfizer -- a 47% year-over-year increase.  

There's also a lot to like with Pfizer's pipeline. The company thinks it could win approval for up to 15 potential blockbusters over the next five years. By comparison, Pfizer launched only five blockbusters over the last five years. Included in the group of potential winners on the way are breast cancer drug talazoparib and pain drug tanezumab.

Investors could also benefit from Pfizer's business development deals. The company is evaluating selling or spinning off its consumer healthcare business. Pfizer could be in the market for more acquisitions as well, with some thinking that its partner, Bristol-Myers Squibb, could be on the short list of potential buyout candidates

Better buy

Pfizer definitely appears to be the safer choice for investors. The company is in solid financial shape and seems positioned pretty well for long-term growth. On the other hand, Novavax is the kind of stock that could double or more in a short period of time if the company's pipeline candidates perform well in clinical studies.

Which is the better buy? My view is to heed the old saying that "a bird in the hand is worth two in the bush." Pfizer has some risks, but you can buy the stock and feel good about the company continuing to grow and pay dividends for years to come. Novavax could fizzle quickly if its RSV F and NanoFlu vaccines don't pan out. I like Novavax as a speculative play, but my money is on Pfizer.

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$52.42 (2.92%) $1.49
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$76.83 (-1.18%) $0.92
Novavax, Inc. Stock Quote
Novavax, Inc.
NVAX
$51.62 (-0.44%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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