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This Vaccine Stock Is a Money Machine in the Making

By Alex Carchidi - Apr 3, 2021 at 6:10AM

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The only question is whether it's too late for new investors to cash in.

For most of the 2010s, vaccines were not considered to be particularly profitable projects for biotech companies to pursue. After all, the nature of the market is that demand is linked to population growth, making it consistently low, which in turn keeps prices and margins down. Now, it looks like the coronavirus pandemic could flip the script and leave vaccine makers flush with cash and broadly profitable, at least in the medium term.

Between its recently approved coronavirus vaccine and its other projects on the verge of commercialization or major milestones, Novavax (NVAX 2.96%) is one company that's on track to enrich investors for the foreseeable future. Over the next couple of years, its revenue reports will start to reflect its soon-to-be tremendous sales volume, and it will continue to innovate with vaccine technologies. But potential buyers may struggle to find an entry point for the stock they are comfortable with, especially if they don't understand the most important catalysts coming up for the company.

A man holds up a coronavirus vaccine record card while giving a thumbs up.

Image source: Getty Images.

More vaccines on the market means more revenue

At the start of 2020, Novavax was a clinical-stage biotech with minimal revenue and no products on the market. Now, it has trailing revenues of more than $475 million, and by the end of this year, it might be selling two different vaccines, perhaps winning more than $4 billion in annual revenue. NVX-CoV2373 is the company's coronavirus vaccine, and probably the main reason why most investors know about the stock. 

Clinical trials showed NVX-CoV2373 to be upwards of 96% effective against the original strain of the coronavirus, and recent follow-up trials have also confirmed that it is at minimum 51% effective against at least a couple of the newer strains of concern. That means the company won't need to adjust its formulation as quickly while gaining market share during the rest of the pandemic, though work on booster regimens and variant-specific vaccines is already in progress. 

U.S. regulators are expected to give conditional approval to NVX-CoV2373 in the second quarter, which should give Novavax's stock a small bump. But investors should note that while the vaccine will supercharge Novavax's revenue over the next few years, with an expected annual output of around 2 billion doses, there's quite a bit more to be excited about in the company's repertoire. In particular, its NanoFlu product for seasonal influenza in older adults is likely to be a big seller once it reaches the market.

Perhaps the most exciting prospect for NanoFlu is that Novavax is investigating whether it could be safely and effectively combined with NVX-CoV2373 into a single jab. Assuming that the coronavirus will keep circulating for a while even after the pandemic subsides -- which would qualify it as an "endemic" disease -- a combination vaccine could be a powerful and lucrative tool. It would make Novavax the master of flu and coronavirus season by providing an all-in-one product that could simplify purchasing logistics worldwide, not to mention streamline the process of vaccinating people at clinics.

Don't expect a discount on the stock anytime soon

There's just one problem for investors looking to get in on Novavax's growth trajectory: The market bid up this stock a long time ago, when it initiated its coronavirus vaccine program. As a result, its shares command a hefty price relative to its revenue today, even after the ratio's collapse from its meteoric heights in the middle of 2020. Especially as sales revenue starts to pour in, it's unlikely for Novavax's valuation to look any cheaper. Some investors might even consider it to be too late in the game to buy Novavax shares with the goal of becoming a millionaire, which I generally agree with. In my view, it would take a major and highly unexpected stumble in the manufacturing process or with regulators to put a dent in its price, at least in the near term.

What's more, there are a few obvious upcoming catalysts, namely the final regulatory green lights for its vaccine, which are expected to arrive as soon as May. Then, there will be its first earnings reports documenting vaccine sales later in the year. The market may have already priced in the final go-ahead from the U.S. Food and Drug Administration, given how likely it seems. In short, for investors interested in getting exposure to Novavax's future vaccine sales with a purchase of this stock, there's no time like the present.

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