The initial readouts of phase 3 trials for COVID-19 vaccines have been impressive. With efficacy rates as high as 95% (the average annual flu vaccine reaches only 40% to 60%), there's finally hope. All this progress, and ongoing plans to start administering these vaccines (when approved) to those most at risk, is wonderful news -- but where does it leave companies still working through clinical trials of their own candidates?

Novavax (NASDAQ:NVAX) chose a potential vaccine to test in April, and has experienced both progress and setbacks since.

Normally, when a biotech is developing a new drug, the constraint is money. But in Novavax's case, the issue is time. If other companies continue to get approvals for COVID-19 vaccines, will there be a place in the market left for Novavax even if it does end up getting regulatory approval? The company also has a new seasonal flu vaccine coming; how much will that contribute to sales? The answers to these questions and others will help investors understand whether the stock is a buy.

A doctor wearing a stethoscope holding a vial labeled COVID-19 vaccine

mage source: Getty Images

A more traditional approach

Pfizer (NYSE:PFE) and its partner BioNTech (NASDAQ:BNTX), as well as Moderna (NASDAQ:MRNA), have gotten a lot of publicity lately for their use of messenger RNA (mRNA) to develop COVID-19 vaccines. It's deserved: These would be the first approved vaccines using the revolutionary technique.

Novavax, on the other hand, uses a more traditional approach, taking pieces of the spike protein from the virus that causes COVID-19, growing it in insect cells, and administering it to patients along with a proprietary adjuvant -- a compound called Matrix-M that boosts immune response. 

The approach has proven successful as recently as this year. Novavax finished phase 3 clinical trials for a new seasonal flu vaccine in March. The product, NanoFlu, outperformed one of the market leaders, Sanofi's (NASDAQ:SNY) Fluzone. The next steps for NanoFlu are U.S. Food and Drug Administration (FDA) approval and commercialization, andthe company has formed a leadership group to shepherd it through the regulatory process.

How it's going

Novavax has never had a vaccine approved -- NanoFlu is the farthest along of what it's got so far. Nonetheless, the company raked in funding earlier this year in support of its effort to develop a COVID-19 vaccine. In early May, Novavax received $388 million from the Coalition for Epidemic Preparedness Innovations, an organization related to the World Health Organization. That money was followed by $1.6 billion from the U.S. government's Operation Warp Speed in July.

For a company that had a market cap of $108 million entering 2020, that's a lot of cash. The funding was likely a demonstration of confidence after its NanoFlu vaccine showed such promise. 

Management has certainly put that money to work. With clinical trials already running in South Africa and the U.K. and another that should soon be fully enrolled in the U.S. and Mexico, the company will have a set of trial participants as large and diverse as any study to date. And in anticipation of growth beyond the current pandemic, management has signed a 15-year lease on office space and purchased a 10-acre site near its current headquarters in Maryland. All signs point to management expecting success soon and for the foreseeable future. But it hasn't all been smooth sailing up to now.

In late October, the company delayed its phase 3 trial by a month due to problems scaling manufacturing of its vaccine candidate. Management has tried to address the concern, going into great detail about the global production capacity it has lined up.

In South Korea, the company has partnered with SK bioscience. In the U.K., Novavax has expanded an existing agreement with Fujifilm's Diosynth Biotechnologies, which was already manufacturing a vaccine component in the U.S. In September, management enhanced an agreement with the Serum Institute in India.

Novavax also has production agreements in Spain, the Czech Republic, Sweden, Denmark, and Japan. All told, management expects a production rate as high as 2 billion doses annually by mid-2021.

Eventually, a business has to sell something

With a flu vaccine that has cleared phase 3 trials, loads of funding, and manufacturing capacity all over the world, Novavax next moves on to securing regulatory approval for its two vaccines. There is no clear timeline for NanoFlu at the moment, but we do have more insight into what to expect from its COVID-19 vaccine trials. Based on current enrollment, phase 3 results could be available in the U.K. as early as the beginning of 2021, and sometime in the first quarter of 2021 for the U.S. trial.

One important note: Novavax seems to be concentrating on especially vulnerable adults in several of the trials, establishing a separate cohort in South Africa of HIV-positive volunteers, and ensuring half of trial participants in the U.S. and Australia are between ages 65 and 84. This could be a key differentiating factor toward the second half of 2021, when there will likely be many vaccines on the market to choose from. 

Novavax had $571 million in cash on Sept. 30 (the end of the third quarter) and generated $86 million from operations based on work for the Operation Warp Speed contract. This is a good sign that the company has the cash to see its development programs through.

Although timing is unknown for commercializing NanoFlu, we do know that Sanofi's Fluzone (which NanoFlu outperforms) is the market share leader in the $4.45 billion industry.

And while we do not know what the ultimate demand for a coronavirus vaccine will be, nor how many of the vaccines will ultimately hit the market, we do know Novavax plans to be able to produce 2 billion doses per year. At a cost of $16 per dose, that's a big leap for a company with no history of revenue-generating products.

To buy, or not to buy

Ultimately, whether Novavax is a buy comes down to three questions: Can the company get regulatory approval for its two primary vaccines? What will the market opportunity be when they are approved? And will the company be able to produce enough to meet the available opportunity?

I believe Novavax can clear the necessary regulatory hurdles, and I also believe the company has diversified its production enough to increase the chances of meeting the demand with no further hiccups.

But the market opportunity does worry me, and that's because of the timing. The longer it takes to get these vaccines to the public, the less room there will be for them to take market share. NanoFlu performed well in trials, but many companies are working on seasonal flu vaccines they hope will be even better. And a COVID-19 vaccine will be wonderful, but there are dozens of companies trying to achieve the same goal, and several -- with better track records -- are approaching the finish line more quickly.

That's why I'm in wait-and-see mode. To buy shares in Novavax, I'll need a better idea of when it will have products on the market and what that market looks like by then. It's a U.S.-based biotech looking to get its first product on the market, and I hope it succeeds. But I'm not confident enough to buy shares until I know more.