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Is Novavax a Buy?

By Adria Cimino – Sep 15, 2021 at 12:00AM

Key Points

  • Novavax plans on completing a U.S. regulatory filing for its COVID-19 vaccine candidate in the fourth quarter.
  • The company expects to produce 150 million doses of vaccine a month by that time.
  • Novavax has predicted billions of dollars in revenue ahead.

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The shares are lagging behind those of biotech rivals.

Novavax (NVAX -0.35%) was one of last year's biggest coronavirus vaccine hopefuls. The U.S. government invested $1.6 billion in the company's development program last summer. And the shares soared 2,700%, well outperforming those of today's vaccine leaders Moderna and Pfizer.

This year, Novavax's shares are still on the rise. But gains of about 109% are moderate compared to last year's performance. What's replaced the excitement that used to surround Novavax? A bit of disappointment. That's because the company's U.S. regulatory submission is taking longer than expected. Now, considering today's stock price and what may be ahead for Novavax, is the stock a buy? Let's take a closer look and find out.

Person sitting on the floor in a living room, looking at laptop and documents.

Image source: Getty Images.

The positive points

First, let's look at the positive points. Novavax reported excellent clinical trial results. The company first conducted a phase 3 trial in the U.K. Then, it launched another phase 3 study in the U.S. and Mexico. This trial is particularly important for regulatory authorization in the U.S. In the study, the vaccine showed overall efficacy of 90.4% against mild, moderate, and severe disease. And it showed 100% protection against moderate and severe disease.

Novavax has also reported six-month booster data from trials in the U.S. and Australia. There, more good news. Neutralizing antibodies increased four-fold from their levels following initial vaccination. And antibodies specifically targeting the delta variant increased six-fold.

Speaking of variants, a blood analysis of those who received the initial two-dose vaccine showed neutralizing antibodies targeting the delta, alpha, and beta strains.

The company has also completed the enrollment of more than 2,000 individuals in a teen trial of its vaccine candidate.

Then earlier this month, Novavax launched a project that could ensure its spot in the vaccine market further down the road. The company began a phase 1/2 clinical trial of a combined flu and coronavirus vaccine. Novavax is in a particularly strong position to do this. Here's why: Prior to the pandemic, Novavax reported its flu vaccine candidate -- NanoFlu -- had met all primary endpoints in a phase 3 trial. The next step would be a regulatory submission. So, Novavax has a strong flu candidate. Now, the company is pairing that with its strong coronavirus candidate.

Other companies -- such as Moderna -- are working on a combined vaccine. But Novavax's head start in flu may give it a serious edge over rivals. Novavax predicts the launch of such a product in 2025.

The negative points

Now, let's talk a little bit about the negative points that have plagued Novavax this year. Initially, investors expected the biotech company to complete its U.S. regulatory filing in the first half of the year. But it's taking Novavax longer than expected to prepare its full submission.

One headwind has been shortages in supplies of raw materials. In the first-quarter earnings call, Novavax said it expected its suppliers to increase capacity -- and in turn, Novavax would be able to ramp up production. More recently, Novavax said it was on track to make 100 million doses per month by the end of the third quarter and 150 million per month by the end of the fourth quarter. At the same time, Novavax now plans on completing its U.S. regulatory filing in the fourth quarter.

Investors may be concerned about two things moving forward. Will Novavax encounter more raw materials shortages in the future? And will there be demand for Novavax's vaccine this late in the game?

It's possible Novavax will face shortages down the road. But the company surely has learned a few things during the shortages this year -- and that may make such problems in the future less likely. As for vaccine demand, I'm not expecting Novavax to immediately play a big role in the U.S. vaccination program. But some near-term opportunity exists in other parts of the world. For example, this summer Novavax finalized an advance purchase agreement to provide the European Union with as many as 200 million doses.

Novavax's opportunity

Novavax's opportunity mainly will be in the mid- to long term. The company's goal is to make its eventual vaccine the booster of choice and a favorite for annual revaccination. Since it uses a technology different from that of leaders Pfizer and Moderna, it may be able to carve out a significant spot.

So, what about the share price? Today, Novavax is trading at a lower price than biotech rivals in the coronavirus vaccine space. (BioNTech is Pfizer's partner in the coronavirus vaccine program.)

Chart comparing prices of Novavax, Moderna, and BioNTech.

NVAX data by YCharts

Yet, once Novavax launches its vaccine candidate, it may generate billions of dollars in revenue -- just like Moderna and BioNTech.

In fact, in its first-quarter earnings call, Novavax predicted that would happen in the coming four to six quarters. Is this possible? If regulatory agencies give the nod, absolutely -- although at this point, I would expect revenue to roll in during the latter part of that forecast period. And, as mentioned above, Novavax's potential extends beyond these early days of vaccination. An eventual combined flu/coronavirus vaccine could ensure billions in revenue in the future.

Of course, Novavax probably won't repeat last year's meteoric share price performance. But that doesn't mean the Novavax story is over. Right now is a great time to buy Novavax shares, especially if you're a long-term investor. Many catalysts lie ahead. And if all goes smoothly for Novavax's potential products, investors are likely to reap the rewards in the years to come.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.

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