Shares of the struggling vaccine developer Novavax (NVAX 2.02%) bounded 98.7% higher on Friday, May 10. The market was responding to terrific news from Sanofi (SNY 0.09%), a global pharmaceutical giant that wants to market Novavax's COVID-19 and influenza vaccines.
The recent Novavax stock rally continued after the weekend and investors are right to wonder if it has more fuel to climb higher. Here's a look at Novavax's deal with Sanofi to see if buying this stock now could be a smart move.
NASDAQ: NVAX
Key Data Points
Why does Sanofi want the Novavax COVID vaccine?
The Novavax COVID-19 vaccine, which is called Nuvaxovid outside of the U.S., isn't like the mRNA vaccines from Moderna and Pfizer. Instead of goading your body's cellular machinery to make a protein that resembles the surface of the SARS-CoV-2 virus, Nuvaxovid is an injection of a similar protein already manufactured by moth cells.
A more traditional approach to vaccine manufacturing suits Sanofi. It was the first to supply the world with injectable vaccines that protect against polio, influenza, and rabies.
In addition to a well-understood manufacturing process, Nuvaxovid is significantly more stable than the RNA vaccines it competes against. This means it can be stored in a standard refrigerator for up to nine months.
Risks ahead of Novavax
Comirnaty from Pfizer and Spikevax from Moderna have both earned full approval from the U.S. Food and Drug Administration (FDA). Nuvaxovid is fully approved for marketing throughout the European Union but it's only available under an Emergency Use Authorization in America.
Product sales rose to $90 million in Europe during the first quarter. Without approval from the FDA, though, Novavax recorded negative product sales in North America.
There could be heaps of potential vaccine recipients who don't want one of the mRNA vaccines, which are associated with rare cases of heart inflammation or myocarditis. Unfortunately, a perceived lack of myocarditis danger probably wasn't what attracted Sanofi. According to the Centers for Disease Control and Prevention (CDC), available data suggests an increased risk of myocarditis with the Novavax COVID-19 vaccine.
A big deal for Novavax
Sanofi offered Novavax a huge $500 million upfront payment for a co-exclusive license to co-commercialize the standalone COVID-19 vaccine from Novavax. The Maryland-based vaccine developer is also eligible to receive royalties and up to $700 million in milestone revenue if Nuvaxovid, an influenza vaccine in development, and a combination flu and COVID-19 shot earn regulatory approvals and achieve commercial success.
Novavax's Matrix-M product is an adjuvant that can boost a vaccine's efficacy. Matrix-M is present in Nuvaxovid and it's part of a promising malaria candidate. If the proprietary technology becomes a component of a new Sanofi product, Novavax could earn an additional $200 million.
Sanofi's offer is exactly what Novavax needed. The company finished March with just $481 million in cash after burning through $148 million during the first three months of 2024. The company's financial position was so grim that it warned investors in February that there was substantial doubt about its ability to continue a going concern in the year ahead.
Now, Novavax expects to receive $568.8 million in cash proceeds from Sanofi during the second quarter. That's enough to alleviate liquidity concerns, for at least a few more years.
A good stock to buy now?
After more than doubling over a couple of trading sessions, Novavax's market cap has swelled up to $1.45 billion. Biotech stocks generally trade at mid-single-digit multiples of their product sales and at recent prices, this one is a textbook example. In Europe, Nuvaxovid sales shot up to $90.4 million during the first quarter, which is already high enough to justify the present valuation of Novavax stock.
Sanofi expects to begin recording Nuvaxovid sales in 2025. With support from Sanofi's army of regulatory process experts and a global sales team with heaps of vaccine sales experience, Novavax could achieve roughly $1 billion in annual revenue by 2030. In other words, there's a pretty good chance that investors who buy Novavax at recent prices can receive market-beating gains over the long run.
Novavax is still a biotech stock that's losing heaps of money. This alone makes it an inappropriate investment for folks who can't afford to take risks. For most growth-seeking investors, however, the stock looks like a smart buy now.
