Most investors get excited when a stock becomes a 10-bagger over several years. And why wouldn't they? Nearly everyone would react enthusiastically to multiplying an initial investment tenfold.
But excited isn't strong enough of a word to describe how investors who've owned Novavax (NASDAQ:NVAX) since the beginning of this year feel. The stock has become a 26-bagger in less than seven months. You read that right: Novavax shares have skyrocketed more than 2,600% so far in 2020.
Some might think it's way too risky to invest in this high-flying biotech stock. That's not necessarily the case, though. Here are three reasons to buy Novavax sooner rather than later.
1. NanoFlu's chances of approval are good
I think the main argument for buying Novavax now is that the chances of approval for flu vaccine candidate NanoFlu are actually quite good. Don't take my word for it, though. Look at what's happened in the past.
Biopharmaceutical industry trade organization BIO analyzed FDA approval data from 2006 to 2015. During that period, over 74% of vaccine candidates in phase 3 testing went on to win FDA approval. Even better, 100% of the 32 vaccine candidates for which regulatory filings were submitted during those years won approval.
NanoFlu sailed through phase 3 clinical testing with flying colors. In March, Novavax announced that its flu vaccine candidate achieved all primary and secondary endpoints in the late-stage study. The company is now working on preparing a biologics license application (BLA) to submit to the FDA. If history is any guide, Novavax will soon be on its way to picking up its first regulatory approval.
2. The price is still right
That leads us to the second reason to buy Novavax sooner rather than later: The price is still right.
NanoFlu beat Sanofi's FluZone Quadrivalent in a head-to-head matchup in Novavax's phase 3 study. Sanofi's flu vaccine franchise, led by FluZone Quadrivalent, generated over $2 billion in sales in 2019. Analysts' estimates vary on how much money NanoFlu could make if approved. However, one analyst thinks that peak annual sales of $1.7 billion are achievable.
Biotech stocks frequently trade at around six times sales. If NanoFlu is able to rake in $1.7 billion in annual sales, Novavax's valuation should soar to close to $10 billion. Its market cap currently stands below $6 billion.
Keep in mind, though, that we haven't factored in any potential for the rest of Novavax's pipeline. The biotech still thinks that its respiratory syncytial virus (RSV) vaccine candidate ResVax has a pathway to regulatory approval. Novavax has licensed its Matrix-M adjuvant for use in an experimental malaria vaccine. And there's one other pipeline candidate that could really change the dynamics for the company.
3. You get a lottery ticket with the COVID-19 vaccine candidate
Novavax's COVID-19 vaccine candidate NVX‑CoV2373 could be a game-changer. The biotech expects to report preliminary results from a phase 1/2 study of the vaccine candidate later this month.
Make no mistake about it: Novavax is a serious contender in the race to develop a safe and effective COVID-19 vaccine. The amount of money its COVID-19 program has attracted underscores that fact.
The Coalition for Epidemic Preparedness Innovations (CEPI) committed to investing up to $388 million in Novavax's COVID-19 vaccine program. Novavax also recently won an award of $1.6 billion for developing and manufacturing NVX‑CoV2373 from Operation Warp Speed, the U.S. government's program to support the rapid development of COVID-19 vaccines.
If NVX‑CoV2373 ultimately wins approval, Novavax could have a mega-blockbuster vaccine in its lineup. NanoFlu certainly has better odds of success. However, the biotech's COVID-19 vaccine candidate is kind of like a lottery ticket. It might not pay off, but if it does the payoff will be huge.
Why not wait?
To be sure, there is a legitimate reason to hold off on buying Novavax. FDA approval for NanoFlu isn't a sure thing despite the historical track record for vaccine approvals. Novavax shares would definitely sink if any safety or efficacy issues for NVX‑CoV2373 arise in clinical trials. On the other hand, if all goes well, you probably won't be able to buy Novavax at a much lower price than you can right now.