Last year's downturn impacted a lot of companies otherwise performing relatively well. On the other hand, struggling or somewhat unproven corporations were hammered, probably much more so than the average. That opens up potentially lucrative opportunities for investors.
Those stocks that can recover and deliver solid returns over the long run might be worth buying at current levels. Let's consider two such companies: Novavax (NVAX -4.82%) and Provention Bio (PRVB). Despite their recent issues, there is plenty to love about these two small-cap biotechs. Let's dig in.
1. Novavax
Novavax has had a rough go of it lately. Its market capitalization currently stands at about $865 million after the shares dropped by 87% in the past year.
That is somewhat understandable. Novavax has lagged behind its competitors in the coronavirus vaccine market. Although its vaccine, Nuvaxovid, has earned authorization or approval in many countries, with the pandemic increasingly receding and the shift toward a private market for COVID-19 vaccines, things could get even more challenging for the biotech.
Even so, there are reasons to be optimistic. COVID-19 isn't going anywhere. A panel of experts convened by the U.S. Food and Drug Administration (FDA) recently unanimously voted to move toward using the same vaccine strain composition for the primary and booster series.
Currently, those who have yet to take any dose of a coronavirus vaccine would seek and receive a shot that protects them from the original strain of the coronavirus. This creates several problems.
First, this original strain is no longer in circulation as more contagious variants have taken over. That's why there are now booster vaccines, called bivalent boosters, that target the original strain and a more recent subvariant of omicron. Second, the primary series and booster shot distinction opens the door to potential mistakes and confusion among patients and healthcare providers. Perhaps that's partly why only 18.2% of adults in the U.S. have taken a bivalent booster.
Moving toward a simpler vaccination series, where anyone receiving a first or a third shot would receive the same vaccine that would inoculate them against the original strain and a current highly prevalent variant, could help improve booster coverage. That's assuming the FDA goes along with the recommendation of its panel of experts, which it almost always does.
For its part, Novavax plans on having a vaccine on the market that follows the guidance set forth by the FDA. The company estimates a coronavirus vaccine market worth $18 billion in 2025. At Novavax's levels, grabbing even half a percent of this total -- or about $900 million -- would be a win.
Further, the company has other exciting candidates. It has a potential malaria vaccine in phase 2 studies. Perhaps its most promising program is the vaccine that targets COVID-19 and the flu and could be extremely successful if it earns approval.
Given its current market cap and low share price, Novavax may be worth investing in, considering its decent prospects in the coronavirus vaccine space and the other candidates it is working on.
2. Provention Bio
Provention Bio is a biotech that focuses on developing medicines that can delay or prevent the onset of various autoimmune diseases in at-risk patients. The company achieved a major milestone in November when it earned approval for TZIELD, a therapy now indicated to prevent type 1 diabetes (T1D) in patients at the second stage of the disease, when physicians can detect abnormal levels of blood sugar.
Patients typically still do not display symptoms at this stage. TZIELD is the first approved therapy to delay the onset of stage 3 T1D (when diagnosis happens), which it did by a median of 25 months in a clinical study compared to a placebo.
Since crossing the regulatory barrier with TZIELD, Provention Bio has had more good news. The biotech has attracted a partnership -- and a $35 million investment -- from France-based pharma giant Sanofi. This matters quite a bit.
Provention Bio already had $186.5 million in cash, equivalents, and marketable securities as of Sept. 30. But just as important, Sanofi is one of the worldwide leaders in the development and marketing of diabetes-related medicines. It has the infrastructure, personnel, and funds to significantly accelerate the launch of a therapy like TZIELD -- an advantage over Provention Bio going it alone. So the company's path to launching this medicine should be a lot easier.
Provention Bio estimates that about 30,000 patients could benefit from TZIELD. The biotech is also working on other programs. The company expects top-line data from a phase 3 study for TZIELD in treating newly diagnosed T1D patients in the second half of the year. Provention Bio could target a market of 64,000 patients in the U.S. in this indication. That's in addition to a couple of more candidates in Provention Bio's pipeline.
The company carries risks, including the potential to run into clinical or regulatory headwinds, a danger that plagues small-cap biotech companies. That's largely why Provention Bio's market cap is only $841 million. But a successful launch for TZIELD and several more clinical and regulatory wins would make Provention Bio look relatively cheap at the moment.
Read the fine print
Novavax and Provention Bio carry substantial upside potential, but both companies' shares could drop if they run into significant issues. For Novavax, it will be important that its combined coronavirus/flu vaccine impresses as it moves forward in its development process. Provention Bio will need similar success with TZIELD in targeting other indications.
Investors should consider these factors before initiating a position, especially with Provention Bio, which, in my view, looks like a more uncertain prospect. At least Novavax is already generating hundreds of millions of dollars with Nuvaxovid. That said, a reasonable degree of success could result in a massive payout for investors who are patient with these biotech companies.
