It's easy to see why investors might be wondering whether it's too late to buy shares of Novavax (NVAX 0.77%). After all, the vaccine manufacturer's Nuvaxovid jab is already cleared for sale in many countries around the world and endorsed by the World Health Organization (WHO). So the biggest share price catalysts in the company's history, born from getting regulatory approvals, could already be in the rearview mirror.
But the biotech's growth story is far from being over. If it can successfully compete in a few key coronavirus vaccine segments over the next few years, it could well provide robust returns for people who buy shares of it today. Let's evaluate what would need to happen for the stock to be a good investment.
Near-term catalysts are hard to come by
In the last three years, Novavax's stock exploded by more than 1,150%. If you're looking for growth like that to happen in the next three years, you're definitely too late as there (hopefully) won't be another global pandemic requiring rapid vaccine development. Still, the company's role in responding to the current pandemic is going to lead to some returns for shareholders over the next few years. The only questions are how it will generate those returns, and how much to expect.
Typically, biotechs experience upward bursts in their share prices when their clinical trials report favorable interim data or conclude by meeting the specified endpoints. Regulatory catalysts, such as receiving fast-track designations, Emergency Use Authorizations (EUAs), and final approvals for commercialization are also major upside events. People who buy shares of a biotech after these catalysts might still have exposure to additional ones in the future, but investors make the most money when buying before the outcome of a catalyst event is known as that's where there's the highest risk.
For Novavax, major regulatory catalysts have had the opposite effect on its stock price from what one might expect. Since the Food and Drug Administration (FDA) granted the company's EUA request on July 13, its shares are down by more than 16%. In one sense, that might be a sign that it's too late to buy the stock as there isn't any similarly important catalyst on the horizon.
But there are several lesser catalysts. It's developing an omicron-specific version of its coronavirus vaccine that is in phase 3 clinical trials. It's also working on a few other mid- to late-stage vaccine programs for non-pandemic infectious illnesses. Getting those projects out the door will likely be positive for its share price and lead to more revenue, but probably not by enough to justify a purchase.
Only its coronavirus vaccine booster projects have any chance of making anywhere near the same amount of money as its currently commercialized jab, which it expects to sell between $4 billion and $5 billion worth of this year. Plus, it'll be facing plenty of competition from the likes of Moderna, Pfizer, and other vaccine developers in the booster market. But if its product is more effective at preventing transmission -- which is where the mRNA vaccines are weak -- it'll have a competitive advantage, at least for a while.
Its future might not be as bright as its past
The other way that Novavax could deliver returns to its shareholders is by becoming profitable and growing its earnings. That avenue seems to be within reach, because its manufacturing costs should be dropping as it scales up output for different versions of its jab. But it'll likely need to outperform earnings expectations to nail a significant increase in its stock value.
At the moment, analysts are predicting earnings per share (EPS) of $26.63 for this year and then only $10.56 next year, likely as a result of falling demand for coronavirus vaccines. There's no guarantee that the analyst estimates are correct, but they do suggest a bit of pessimism about Novavax. So buying shares today entails the risk of holding them through a period where earnings are expected to drop.
And with that in mind, it's probably best to avoid buying shares of Novavax for the moment. Even if there are a few pathways for it to gain in value in the near term and also in the long term, buying in the face of the market's low expectations is quite risky. But for investors who fashion themselves as contrarians or bargain hunters, Novavax may be appealing as there's always the chance that things aren't as bad as analysts expect.
