If your portfolio looks like it could use a shot in the arm lately, you're not alone. Between macroeconomic disruption and a lingering pandemic, finding sources of growth is as important as ever, and biotech stocks just might fit the bill.
Novavax (NVAX -0.95%) and Vaxart (VXRT -4.79%) are both biotechs which rose to prominence as a result of their efforts to develop and commercialize a coronavirus vaccine. Only Novavax has largely accomplished that goal so far, though its product isn't yet approved for sale in the U.S. But do its recent successes make it a better buy?
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The case for Novavax
The argument for buying Novavax is that in the near term it'll be raking in global sales of its coronavirus vaccine, which will continue to get approved for use in more and more jurisdictions. As time passes, it'll update its jab to remain relevant against the latest viral variants; it's also likely to pursue combination vaccines to protect against multiple illnesses at once, starting with a program utilizing its NanoFlu influenza jab in conjunction with its coronavirus vaccine.
Then, in the long term, the company will develop and commercialize new vaccines while licensing out its Matrix-M technology to other developers. In short, this investment thesis largely rests on the assumption that there's enough global demand for coronavirus vaccine doses that even a company as late to the market as Novavax can find a profitable set of customers.
There are several problems with this story, starting with the fact that starting to sell doses of its vaccine at larger and larger scales hasn't helped its share price much. In Q1, it brought in more than $604.6 million in revenue and delivered 42 million doses -- a huge jump over the prior quarter's sales of $222.2 million -- but its shares have tumbled by around 63% this year.
While management holds that sales will pick up in Q2, another issue is that larger and more powerful competitors like Johnson & Johnson are already expecting demand for doses to ebb. Finally, Novavax hasn't reached profitability yet, and its trailing 12-month net losses total more than $1.3 billion. If vaccine sales do pick up but earnings don't follow revenue, that will be a major problem.
The case for Vaxart
Like Novavax, Vaxart is a coronavirus vaccine stock. But it's significantly further away from commercializing its first programs compared to the other biotech, so it has no recurring revenue to speak of, and there's also an important twist.
Rather than developing shots, it's developing oral vaccine pills. And if its technology platform works as advertised, it'll be able to make a bunch of different inoculations into shelf-stable and easy-to-administer pills. So the investment thesis for Vaxart is very similar to the one for Novavax as it could potentially realize revenue from sales of its coronavirus vaccine pill in the medium term, and then license out its pill technology to biopharma companies while also working on other programs.
Critically, its pills may be able to generate enough immunity to prevent transmission of the coronavirus from exposures to the mouth and nose -- unlike the injectable vaccines made by its competitors. While more research needs to be done to confirm this property, the implications are enormous. A pill-based vaccine that stops viral transmission would be a game changer, and it could enable Vaxart to gain a large market share, even if demand for the existing set of vaccines on the market is slackening.
For now, its coronavirus candidate is in phase 2 clinical trials, so there'll be some time before it hits the market, assuming it ever does.
The risks and rewards differ
Vaxart's best-case scenario of commercializing a logistically convenient vaccine that stops transmission of the coronavirus is much better than Novavax's. The major complication is that it doesn't yet have any product on the market, and there's no guarantee that its candidate will get regulatory approval.
Though licensing out its pill technology might bring in some revenue, it's hard to imagine eclipsing the sums made from sales of Novavax's jabs. But even realizing a small amount of revenue would represent major growth for the company's top line. Therefore, Vaxart is the better buy for investors who are highly risk-tolerant as its growth potential is high.
In contrast, Novavax is probably the better option for investors with middle-of-the-road risk tolerance. While it faces a few headwinds like showing up to the market quite late and the falling demand for doses, the biotech has succeeded in commercializing its vaccine, and its early progress on combination shots could prove to be quite valuable over the next few years. And if there are indications that its shots are capable of performing better than other products, that'll be a bonus for investors.
