Novavax (NVAX -2.51%) is a pandemic stock. That's why it soared in 2020-21 when the world faced the worst pandemic since the influenza outbreak of 1918. When COVID-19 hit, this vaccine biotech made an almost impossible run, from a low of $4 a share all the way to $330.
Now it's down to $50, and the company's market cap is under $4 billion. Is it a buy at these prices? Here are three arguments for buying Novavax stock and one reason for why you might want to avoid these shares.
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Green Flag #1: Huge revenue in 2022 plus profits!
In the first quarter, Novavax reported its first profitable quarter as a public company, with $200 million in profits off of $700 million in sales. That's a huge step up for a biotech, which has been unprofitable since it hit the public markets way back in the 20th century (1995 to be exact).
Novavax is a scrappy underdog that has survived for almost three decades without making any money. When Stan Erck arrived at the CEO slot in 2011, the company turned its focus toward vaccines to thwart pandemics. So if you're worried about severe acute respiratory syndrome (SARS), Novavax has discovered a potential vaccine for that. The biotech also has vaccine candidates in its pipeline for Ebola, malaria, Middle East respiratory syndrome (MERS), and influenza.
None of those drugs have been approved yet (Novavax is still waiting for its first FDA approval), but all of this scientific research gave the small biotech a big advantage when it came to combating the new coronavirus that hit the world two years ago. Based on its research, Novavax was awarded a massive $399 million check from the Bill Gates-funded Coalition for Epidemic Preparedness Innovations (CEPI). It's still the largest grant CEPI has ever made.
Novavax got an even bigger check from the U.S. government when Operation Warp Speed (OWS) pre-ordered 100 million doses of the company's COVID-19 vaccine and paid $1.6 billion in advance. Multiple governments around the world followed suit. So far, Novavax has received orders for 2 billion doses of its COVID-19 vaccine. Management estimates it will make over $4 billion in revenue in 2022 and maybe as much as $5 billion.
Green Flag #2: The stock is cheap, and the opportunity massive
At the end of Q1, Novavax reported $1.6 billion in cash. So right now, the stock is trading at less than three times cash. Its forward price-to-earnings (P/E) ratio is 1.6, and its price-to-sales (P/S) ratio is 1.8. This is incredibly cheap given how fast revenue is escalating. In Q1, the biotech delivered 42 million doses of the COVID vaccine to the European Union (EU), Canada, South Korea, Australia, New Zealand, and Indonesia.
While 42 million is a lot, Novavax's massive roll-out has just begun. The company anticipates an Emergency Use Authorization (EUA) from American regulators this month. A few weeks ago, the FDA's advisory committee voted 21-0 that Novavax's vaccine should be available to the people of the United States. If and when the FDA follows the advice of its advisory committee, Novavax will be allowed to start shipping 110 million doses of vaccine in the U.S.
While the stock market is waiting for the FDA's decision, most of Novavax's market opportunity is actually abroad. The company has already received authorizations to ship its vaccines to over 170 countries. This is huge for Novavax as the biotech has advance-purchase agreements for up to 430 million doses, or 10 times what it delivered in Q1.
Green Flag #3: At least $7 billion in near-term revenue
If 42 million doses brought in $700 million in Q1, what will 430 million doses bring in? And note that these contracts are in many of the same places that were responsible for the Q1 revenue (EU, Canada, Australia, and New Zealand).
While Novavax keeps its pricing data secret, these deals were made when the pandemic was at its worst. If the price points are similar, the company might pull in $7 billion from these contracts alone (some of this revenue will likely spill over into 2023). So management's estimate of $4 billion to $5 billion in revenues for 2022 seems very doable.
What's remarkable is that this $7 billion does not include any revenue from the 110 million doses in the U.S.; nor does it include the 1.1 billion doses that Novavax is distributing to COVID-19 Vaccines Global Access (COVAX) as part of its CEPI obligations, nor another 400 million doses the company is distributing as part of licensing agreements in Asia. So to my mind, this back-of-the-envelope $7 billion calculation is a floor -- not a ceiling.
Red Flag: Can Novavax deliver 2 billion doses?
The big question for Novavax is not in regard to its science -- some observers call its vaccine best-in-class -- but rather the manufacturing issues which have dogged the tiny biotech. Novavax has signed multiple contracts with third-party sites to manufacture its COVID vaccine. So far, however, the only site that has been approved by regulators is the Serum Institute of India (the largest vaccine manufacturer in the world by volume). Some of the other manufacturing sites have been hampered by purity issues.
It's these manufacturing difficulties that have caused a year-long delay in getting this vaccine to market in the U.S. Novavax's share price hit $330 in the days after the company released its amazing phase 3 data for its COVID vaccine in early 2021. But after all the delays, the stock has seen a massive price drop to $50 a share, while Pfizer and Moderna have vaccinated most of the country.
Nonetheless, I'm very bullish that Novavax will solve its manufacturing issues. The Serum Institute can and will produce a billion doses of the vaccine. (That's the manufacturer Novavax has relied on to get its EUAs around the world). And now additional manufacturing sites are approaching readiness. In April, the biotech submitted data from another highly regarded manufacturer, SK Bioscience, to European health authorities. And in Q2, Novavax will file data from its own manufacturing site in the Czech Republic. That state-of-the-art facility will ultimately manufacture another one billion doses a year for Novavax.
What is the future for Novavax?
The market, with its short-term dynamics, seems to think that COVID-19 is over. While I wish this were the case, I'm afraid it's highly unlikely. Since COVID mutates like flu viruses, many of us may well need to be vaccinated annually. COVID hospitalizations spiked dramatically in the winters of 2020 and 2021, so that is likely to happen this year too. Like the flu, the worst cases of COVID seem to be seasonal.
In that regard, Novavax is in the lead in finding a flu/COVID combo vaccine. The company has already started clinical trials and will advance its candidate into a phase 2 trial later this year. Over the next year or two, I expect Novavax revenue to spike a lot higher. But the real gains will happen if and when Novavax is first to market with its COVID/flu combo shot.
