Boxers of different weight classes aren't supposed to fight against each other. Lightweights shouldn't be in the ring with heavyweights. If stocks were boxers, Novavax (NVAX -6.50%) would probably be a lightweight with its market cap of around $8 billion. Roche Holdings (RHHBY 1.20%) would definitely be a heavyweight with its market cap above $300 billion.
But investing isn't like boxing. Every stock, regardless of size, competes against one another to win your investing dollars. And sometimes lightweights pummel heavyweights. So far this year, for example, Novavax stock has skyrocketed over 3,400% while Roche is up nearly 12%. Which of these stocks is more likely to be the champion over the long run?
The case for Novavax
Why consider buying a small biotech stock like Novavax? It has a pretty good shot at becoming a much bigger biotech stock. If you like playing the odds, Novavax's flu vaccine candidate NanoFlu stands out as the top reason why shares could rise significantly higher.
The company reported great results in March from a late-stage study evaluating NanoFlu in a head-to-head comparison with Sanofi's FluZone Quadrivalent. To use the boxing metaphor from earlier, the lightweight -- unproven experimental vaccine NanoFlu -- won a technical knockout over heavyweight and market-leading blockbuster FluZone.
Novavax plans to file for FDA approval for NanoFlu based on its strong phase 3 results. Its chances of securing approval appear to be really good, at least based on history. Biopharmaceutical industry trade organization BIO researched FDA approvals from 2006 through 2015. BIO found that 74% of vaccine candidates that made it to phase 3 testing later won FDA approval. And 100% of regulatory submissions for vaccine candidates during the period analyzed were approved.
And if NanoFlu does win FDA approval, Novavax could be on its way to achieving tremendous commercial success. One analyst projects the flu vaccine could generate peak annual sales of $1.7 billion.
Novavax also has an even greater opportunity, although it's more of a longshot. Its COVID-19 vaccine candidate NVX‑CoV2373 is currently in phase 1/2 testing. There's a long way to go and no guarantee that it will prove to be both safe and effective. If it is, though, Novavax would almost certainly have a megablockbuster on its hands.
A lot of money has been bet on NVX‑CoV2373. The Coalition for Epidemic Preparedness Innovations (CEPI) agreed to fund up to $388 million for the development and manufacturing of the vaccine candidate. Operation Warp Speed, the U.S. government's initiative to accelerate the development of COVID-19 vaccines, awarded $1.6 billion to Novavax for its coronavirus vaccine program.
The case for Roche
There's a much different reason to consider buying shares of Roche. The healthcare giant isn't likely to double or triple in size over the next few years. However, it provides the stability that many investors seek -- thanks largely to its diversification across the healthcare sector.
Roche's pharmaceuticals segment generates more than three-quarters of its total sales. Its top-selling pharmaceutical products include multiple sclerosis drug Ocrevus, breast cancer drug Perjeta, and cancer immunotherapy Tecentriq. But the company's lineup also includes another 37 approved products.
More winners could be on the way. Roche's pipeline includes a long list of late-stage programs. Most of them are pursuing additional indications for already-approved drugs. However, it also has promising new late-stage candidates such as RG6042, which targets the treatment of Huntington's disease, and emicizumab, which targets the treatment of hemophilia A.
The company ranks as a leader in the global diagnostics market as well. Roche sells a wide range of diagnostics products, from diabetes care products to molecular diagnostics platforms and next-generation sequencing systems.
The COVID-19 pandemic presents growth opportunities for Roche on a couple of fronts. Roche quickly established itself as a leader in COVID-19 testing. It's also evaluating rheumatoid arthritis drug Actemra in combination with Gilead Sciences' remdesivir in treating COVID-19 patients with severe pneumonia. However, Actemra wasn't successful in an early stage study as a monotherapy in treating COVID-19-related pneumonia.
Roche generated revenue of nearly $61.5 billion last year. It made almost $13.5 billion in profits. The company pays a dividend that currently yields close to 2.5%. This underscores Roche's financial strength, which Novavax can't compete with at this point.
Which of these two stocks is the better pick? It totally depends on your investing style.
Risk-averse investors will likely prefer Roche for its stability and dividend. More aggressive investors will probably view Novavax as the better choice.
My view is that there are other big healthcare stocks that provide better growth prospects and stronger dividend yields than Roche does. I like Novavax as a speculative play, though. It's certainly risky, but my take is that Novavax could have more room to run.