With the Tuesday morning announcement of a $1.6 billion dollar investment from the White House's Operation Warp Speed COVID-19 vaccine accelerator, Novavax (NVAX 1.03%) stock skyrocketed more than 30%. Under the terms of the investment by the U.S. Department of Health and Human Services, Novavax will move forward with its clinical development and mass-scale manufacturing of vaccine components, with the dual goals of initiating phase 3 trials in the fall of this year while concurrently producing 100 million vaccine doses by early next year.
These goals are extremely ambitious, but now the company has a huge vote of confidence from the government, which ostensibly has the most detailed information about the prospects of all of the COVID-19 vaccines in development. In fact, Novavax's funding from the federal government is significantly larger than any other award disbursed by Operation Warp Speed so far, with the runner up being Oxford University and AstraZeneca's (AZN -0.39%) $1.2 billion. This puts Novavax's vaccine project on equal or better footing compared to many of its larger and more established competitors in the race for a COVID-19 vaccine.
Investors who already hold Novavax shares ought to be thrilled at a strong third-party validation of the company's efforts. But how should potential investors approach the news?
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Novavax scales gracefully to match the demands of the pandemic
Since before the award by Operation Warp Speed, Novavax's leadership team was expanding and adapting to cope with the manufacturing and clinical-development capabilities that the company needs to produce a COVID-19 vaccine. In late June and early July, the company hired a new head of global sales while also promoting several leaders to new positions in manufacturing and sales operations. This is a good sign because it shows that the company is anticipating its future personnel needs rather than reacting to personnel shortages in key positions, which would be particularly disruptive given the rapid pace of the dramatically abridged vaccine-development process.
In this vein, potential investors should keep an eye out for announcements of leadership changes, new hires, and new strategic collaborations to support manufacturing operations, as these will demonstrate that the company is maintaining its momentum.
Critically, with its new funding package, Novavax no longer needs to worry about how to finance its clinical-trial operations or its staging for large-scale vaccine manufacturing. Before the award, Novavax's $237.36 million in cash on hand in the most recent quarter may not have been sufficient to move its COVID-19 vaccine project through clinical trials without raising additional funding, especially considering its $331.87 million in debt against only $18.06 million in trailing 12-month revenue. Thus, the $1.6 billion in funding from Operation Warp Speed is especially positive news for Novavax shareholders because it ensures that the company won't need to issue as much new stock to cover the cost of the vaccine's clinical development.
Likewise, if the company's COVID-19 vaccine becomes its first product to get regulatory approval, it will be in an enviable position because it will have offset the cost of the most expensive portions of the clinical trial process without sacrificing any of the returns. Current shareholders will benefit the most from the subsidy, but the company will likely benefit from the extra breathing room for years to come.
It isn't too late for investors to benefit from Novavax's rapid growth
Novavax's COVID-19 vaccine project is only one of its nine different potential vaccines in development. This means that even if the company's COVID-19 vaccine doesn't meet safety or efficacy requirements -- a prospect that Gregory Glenn, Novavax's president of research and development, estimates is fairly low -- Novavax still has plenty of growth in its future. If Novavax's COVID-19 vaccine effort fails, it will probably be a year or two before the company's other projects start to deliver new growth opportunities, given that two of the company's vaccine projects are currently in phase 3 clinical trials.
Potential investors should recognize that Novavax is probably a good addition to their portfolio of biotech or COVID-19 vaccine stocks. There probably won't be too many opportunities to purchase the stock at a discount, however, as positive results from phase 1 and phase 2 clinical trials are likely to catapult it even higher.
