In the early days of the pandemic, if there was one coronavirus vaccine stock investors were betting on, it was Novavax (NVAX 2.52%). The biotech stock soared more than 2,700% in 2020 as it developed its vaccine candidate. That beat the early performance of today's vaccine leaders, Pfizer and Moderna. In the same timeframe, Pfizer shares hardly budged. And Moderna climbed around 400%.
But Novavax's story has dramatically changed. The company's vaccine arrived on the market later than expected -- and now, demand for it isn't as great as Novavax had hoped. Investors have sanctioned the stock. It's lost a whopping 85% so far this year. Today, the big question is: Is there any hope for Novavax?
Progressively winning authorizations
First, let's take a look at where Novavax stands with its vaccine. About 40 countries -- including the U.S. -- have granted the product emergency use authorization. Novavax also is progressively winning authorizations for use in teens and for use as a booster. For example, it recently won the nod for teens in the United States. And the European Union authorized it for use as a booster in the adult population.
Novavax's product is different from those of Pfizer and Moderna. They use messenger RNA technology -- and their vaccines became the first mRNA products to be commercialized.
The Novavax product is a protein subunit vaccine. This technology has been used in other commercialized vaccines, such the hepatitis B vaccine. The idea was Novavax's product could appeal to individuals who preferred a traditional technology to a new one like mRNA.
But so far, that hasn't offered Novavax much of a boost in sales. Last month, Novavax cut its annual vaccine sales forecast to the range of $2 billion to $2.3 billion from earlier guidance of $4 billion to $5 billion. The company acknowledged its late arrival to market is part of the reason for this.
Of course, it's positive to see Novavax bring its first product to market -- and a product that may generate blockbuster revenue this year. But the recent trends in free cash flow and return on invested capital aren't encouraging right now.
NVAX Return on Invested Capital data by YCharts
Your investment horizon
Does this mean Novavax investors should throw in the towel? It depends on your investment horizon. I'm not convinced Novavax shares will recover in the near term.
As it stands, investors even have taken a step back from star vaccine maker Moderna. The company's revenue this year is set to beat that of last year -- but the stock doesn't reflect this. Moderna shares have lost 50% this year. So I don't think investors will flock to the troubled Novavax.
That said, Novavax's long-term potential remains intact. The company is farthest along in the development of a potential combined coronavirus-flu vaccine. It's set to launch a phase 3 trial next year. Moderna's combined candidate is in phase 1.
A combined candidate could be big. It could win over Americans who generally go for a flu shot. That's half of the adult population. So Novavax could become a leader in the long-term coronavirus vaccine market.
What should investors do now?
We don't have much visibility regarding Novavax's vaccine revenue over the next year or so. And the market has been particularly unforgiving toward Novavax in recent times. Any additional disappointments clearly could weigh on the shares.
I'm still optimistic about Novavax's prospects over the long term. So current investors may want to hold on. As mentioned above, a combined vaccine could lead to major rewards for the company and for shareholders.
But considering the near-term troubles, I wouldn't feel the need to hurry and buy Novavax shares right now. I'd like to see if Novavax can carve out a share of the booster market -- and keep revenue coming in at least at a steady level. If the company can do this -- and if news from the combined vaccine program is bright -- it may soon be time to buy this biotech stock again.
