If you had invested in Novavax (NVAX 3.81%) at the beginning of 2020, you'd be sitting pretty right now. Shares of the biotech have skyrocketed by a whopping 3,340% in the past year and nine months. Novavax's efforts to develop and market a vaccine for COVID-19 explain the company's terrific performance of late.
That being said, there remains some healthy upside ahead for Novavax, at least according to Wall Street. The company's average price target of $264.20 implies gains of 93% from its share price of $136.86 as of this writing. Should investors heed Wall Street's advice and purchase shares of this popular biotech stock?
Looking at Novavax's hopes in the coronavirus vaccine market
Novavax's COVID-19 vaccine, NVX-CoV2373, proved 90.4% effective at preventing COVID-19 in a phase 3 clinical trial. Its efficacy against moderate or critical cases of the illness was 100%. Despite its success in studies, NVX-CoV2373 has yet to earn emergency use authorization (EUA) in the world's major markets. The company has applied for EUA in India, Indonesia, and the Philippines.
Novavax also said it would apply for EUA in Europe in the third quarter (between July 1 and Sept. 30) and in the U.S. in the fourth quarter (between Oct. 1 and Dec. 30). Despite not yet earning the regulatory green light, NVX-CoV2373 seems to be very popular already. Novavax has signed several advanced purchase agreements (APAs) for its candidate -- including one for up to 200 million doses of the vaccine it penned with the European Commission.
Novavax's vaccine could earn EUA in the U.S. and elsewhere within the next three to six months, and the regulatory nods will likely send its share price soaring.
Image source: Getty Images.
Why the upside could be bigger than what Wall Street expects
Novavax has had its share of headwinds. A news article published in Politico (a website that focuses on political news) on Oct. 19 claimed that the company is facing vaccine manufacturing quality problems. The news sent Novavax's shares down by more than 10% but was the sell-off justified? First, note that the Politico article cited anonymous sources that were allegedly familiar with the matter.
It's always best to take the word of anonymous sources with a grain of salt. Further, Novavax issued a press release in which it responded to this piece. The company expressed its confidence in its ability to manufacture its vaccine and reaffirmed its intention to complete regulatory submissions in Europe, Canada, Australia, and New Zealand in the next couple of weeks. The company also expects to file for EUA in the U.S. by the end of the year.
There are no sources more familiar with the matter than Novavax itself, and that's why investors should put a lot more faith in the company's words than in the Politico article. Meanwhile, Novavax's market cap is currently just $10 billion. That seems pretty low, especially when we compare it to one of the leaders in the COVID-19 vaccine market: Moderna (MRNA 2.89%).
Moderna's market cap stands at $130 billion -- or more than 10 times Novavax's. Analysts expect Novavax to generate $2 billion in revenue this year, all of which will presumably come from sales (in the form of APAs) of NVX-CoV2373. Next year's predictions for the company are in the order of $5.5 billion. Moderna expects $20 billion in sales this year and at least $12 billion next year from its coronavirus vaccine -- and it has no other products on the market.
These figures will almost certainly be revised upward. The pandemic is dragging on largely due to the more contagious Delta variant of the virus that causes COVID-19. The need for vaccines will remain strong for the foreseeable future; but using these numbers alone, it is highly doubtful whether Moderna deserves a market cap that much higher than Novavax's.
To be fair, Moderna is profitable while Novavax isn't. However, Moderna only became profitable after its COVID-19 vaccine earned approval -- and the same will likely happen to Novavax. If things go as planned and the company earns approval for NVX-CoV2373 within the next six months, the company looks likely to turn a profit next year. Of course, we can't ignore both companies' pipeline programs.
Perhaps Moderna's candidates are much more valuable than Novavax's, which justifies its significantly higher market cap. But while Moderna certainly does have a raft of promising mRNA-based vaccines it is working on, Novavax's late-stage pipeline is arguably more valuable. None of Moderna's programs have made it to a phase 3 clinical trial (other than its coronavirus vaccine).
By contrast, Novavax's NanoFlu, a potential flu vaccine for adults aged 65 and older, has already produced solid results in a phase 3 clinical trial. This product will likely earn regulatory approval before any of Moderna's other candidates. The flu continues to wreak havoc every year, especially among senior citizens, who make up the majority of hospitalizations and deaths from the disease.
The global flu market was worth a little over $5.6 billion last year and it is projected to continue growing. Novavax could realistically generate several hundred million in revenue from NanoFlu every year. Novavax has other promising candidates, too, including a potential vaccine directed at both the flu and COVID-19.
The market is still severely undervaluing Novavax's potential, and in my view, there remains significant upside potential for the biotech company. I foresee Novavax's stock outpacing the market -- and surpassing its lofty Wall Street expectations -- in the next 12 months.
