Is FDA Authorization for Novavax's Vaccine Imminent?

Since the start of 2020, shares of Novavax (NVAX 4.18%) have soared by more than 1,600%, making the S&P 500's 30% returns during that period look minuscule. And the main reason for all that bullishness has been the COVID-19 vaccine the company has been developing, which could lead to billions in revenue for the business.

The company only recently filed for an Emergency Use Authorization (EUA) of its vaccine, and if it obtains it, shares of the stock could once again go soaring. Is approval imminent for Novavax, and is now a good time to buy shares of the healthcare stock?

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Novavax filed for an EUA in January

On Jan. 31, Novavax formally submitted its request to the Food and Drug Administration (FDA) to have its COVID-19 vaccine approved for EUA. Up until now, the FDA has only given the OK to three vaccines: from Pfizer, Moderna, and Johnson & Johnson. 

Here's how long it took those vaccines to obtain EUAs when they first applied for them in late 2020/early 2021:

Data source: Company filings, FDA filings.

Based on the previous submissions, it took the FDA roughly three weeks to issue an EUA. As of March 8, it has been 36 days since the Novavax submission.

Should investors be worried?

It may be unsettling for investors that Novavax's COVID-19 vaccine hasn't secured EUA yet, but no response doesn't necessarily mean that the FDA won't give it the green light. There are a few reasons investors shouldn't worry just yet.

If the FDA has concerns about the vaccine, investors will likely learn about them. When biotech company Ocugen announced in May of last year that it was planning to file for an EUA for its COVID-19 vaccine, the company told investors on June 10, 2021, that the FDA had already encouraged it to seek a more comprehensive Biologics License Application instead, which takes longer (the vaccine still hasn't gained approval in the U.S.).

Another reason for optimism is that Novavax's management recently said the company would pursue full approval of its vaccine in the latter part of this year. That's a positive sign that shows confidence that the company doesn't see any problems with receiving approval, which suggests that no issues have come up thus far.

There are 36 countries that have approved Novavax's vaccine for use, including Canada, which granted authorization last month. 

Should investors buy Novavax?

Currently trading at around $70 per share, Novavax's stock is now at levels not seen since June 2020, during the early stages of the pandemic. Falling COVID-19 case numbers have made investors less optimistic about Novavax, as its vaccine may generate underwhelming revenue even if it does obtain approval, by getting to the U.S. market so late. While it has approvals in other countries that will help bolster its sales, it may not be enough to convince investors the stock is worth investing in.

The company is also coming off a tough fourth quarter where it incurred a net loss of $846.3 million for the last three months of 2021. That's nearly five times the $177.6 million loss it incurred a year earlier. The increase is largely due to rising research and development costs, which doubled to $963 million in Q4. On the positive side, Novavax did report $127.2 million in royalties in other revenue, which it says were largely due to its COVID-19 sales in South Korea and Indonesia. And for 2022, it expects it will generate up to $5 billion in revenue from vaccine sales plus grant, royalty, and other revenue. 

Beyond that, there are many question marks. In the future, the company could be generating revenue from NanoFlu, its flu vaccine, which may be a blockbuster that brings in up to $1.7 billion in annual sales at its peak (but that might not be until 2028). However, that's not a lot to hold out hope for. And that's why it's crucial for Novavax to generate as much revenue from its COVID-19 vaccine as it can (the influx of cash can be used to develop its pipeline or pursue acquisitions), and that means obtaining approval in the U.S. market.

A lot hinges on that EUA, and that's why the healthcare stock, despite its potential upside if it receives authorization, is an incredibly risky buy. Given the volatility with Novavax's stock, the safest approach may be to buy some call options in the event that there is positive news.