Vaccine maker Novavax (NVAX 4.31%) isn't dead in the water after all. Though the past 18 months have been tough -- and management warned investors that the business might sink soon -- Novavax reported positive developments in its latest quarterly update that doubled its share price in just one day. The biotech has come a long way since its not-so-successful attempt at dominating the coronavirus vaccine market. But do more recent developments make Novavax's stock a buy?
Good news and more good news
Novavax has struggled to generate enough sales from its COVID-19 vaccine -- called Nuvaxovid outside the U.S. -- to make the stock attractive. Given the uncertainty of this market and the fact that the biotech's next product wouldn't be launched for at least two years, Novavax looked like far too risky an investment. Enter Sanofi (SNY 1.13%), a France-based biotech with a growing vaccine portfolio.
Sanofi will pay $500 million up front to Novavax for the right to co-commercialize Nuvaxovid worldwide (except in a few select countries). The vaccine is authorized in the U.S. but hasn't yet received full approval, although Novavax has submitted an application to the U.S. Food and Drug Administration along those lines.
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But that's not all. Novavax is granting an exclusive license to its proprietary Matrix-M adjuvant technology -- designed to boost the efficacy of vaccines -- to Sanofi for use in its flu vaccines. The agreement also features a non-exclusive license to Novavax's adjuvant technology for Sanofi's non-flu vaccines. Finally, Sanofi made a $70 million investment and acquired a 4.9% stake in Novavax.
Plus, the cash should keep rolling in for Novavax. It is entitled to up to $700 million related to various clinical and regulatory milestones for vaccines developed by Sanofi using the Matrix-M adjuvant technology, plus royalties on approved products. Novavax is still developing a COVID-19/flu combination vaccine. It plans to start a phase 3 trial in the second half of the year, with a potential launch in 2026.
Elsewhere, the biotech has strived to reduce expenses and costs, efforts that are bearing fruit. Novavax said it is removing its going concern notice. Translation: Management no longer thinks the business is at risk of going under.
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Is Novavax's stock a buy?
This string of good news follows Novavax's announcement about three months ago that it had settled a dispute with Gavi, the Vaccine Alliance, regarding canceled advanced purchase agreements, which was a significant risk weighing on the company. In other words, Novavax has become a far more attractive stock in the past few months, but is that enough to make it a buy? My view is that the biotech remains a high-risk, high-reward play.
The company's new strategy has many moving parts, many of which could go wrong, and if they do, the stock will sink. Novavax is pursuing full approval for Nuvaxovid in the U.S. It will likely earn the nod, but how much sales will the product generate? Moderna and Pfizer continue to dominate this shrinking market, leaving little space for Novavax.
Elsewhere, though the company's combination COVID/flu vaccine does look exciting, if it fails to deliver positive results in its upcoming late-stage clinical trial, that would be a blow to Novavax's prospects. But what if it succeeds? Moderna, Pfizer, and now Sanofi are developing competing combination vaccines; the former two have a lead on Novavax.
That doesn't mean Novavax can't be successful in this market, but it's still a long shot considering it hasn't even started its phase 3 study. And while Sanofi is using its technology to develop vaccines, milestones and royalties will depend on positive clinical and regulatory developments. If everything goes right for Novavax, the stock will deliver excellent returns.
However, it wouldn't take much for the biotech to lose significant value. There is the possibility that Sanofi will acquire Novavax. The France-based biotech giant has been making a conscientious effort to ramp up its vaccine business. It acquired Provention Bio, which developed a product to delay the onset of type 1 diabetes called Tzield, last year after initially making an equity investment in the company.
Will Sanofi do the same with Novavax? Only time will tell, but I wouldn't invest in the smaller biotech expecting this outcome. Bottom line: Though Novavax has improved its prospects, conservative long-term investors should still steer clear of the company.
