Novavax (NVAX -4.32%) stock has both soared and plummeted at times in recent years. Investors initially bet on the biotech company to be a winner in the coronavirus vaccine race, sending the stock to a 2,700% gain back in 2020. But when Novavax fell behind on the road to commercialization, the shares declined -- and even the eventual regulatory approval and market entry of that vaccine didn't much help.
In recent times, though, Novavax has taken steps to improve its profitability prospects. And in the wake of big news earlier this month, the shares surged again, giving investors hope that the company may be just at the beginning of a period of positive momentum. Is it time to buy? Before making any decisions, here are three things you need to know.
Image source: Getty Images.
1. Novavax's new partnership may supercharge its revenue growth, but don't expect pandemic-level sales
Novavax's vaccine didn't enter the market until after the inoculations developed by Moderna and Pfizer had already taken dominant market shares. This meant it missed out on the biggest revenue opportunity, and it had difficulty competing with these established leaders.
But its recent deal with Sanofi could supercharge its revenue growth. The pharmaceutical giant is the global leader in flu vaccines, and has the commercial infrastructure and experience to bring one to the attention of healthcare providers. That's why Sanofi's agreement to co-commercialize Novavax's vaccine as of next year is such positive news for the smaller company.
In addition, Sanofi acquired rights to use the Novavax vaccine as a component in multi-inoculation shots that combine a COVID-19 booster with flu vaccines or other vaccines. If Sanofi is able to generate strong sales of such combo vaccines, that would result in the biotech reaping significant royalty payments.
Of course, COVID-19 vaccine revenue is unlikely to reach the levels seen during the public health crisis. As the threat has receded, demand for COVID vaccines has declined, so this may be a steady revenue story rather than an explosive one.
2. Novavax already has taken key steps to recovery
Novavax, after bringing in lower-than-expected vaccine revenue, last year issued a "going concern" warning that closing its doors was a possibility. At the same time, the company launched a major cost-cutting plan.
The Sanofi agreement, including a $500 million upfront payment and up to $700 million in milestone payments, allowed Novavax to drop that warning, which significantly reassured investors.
And Novavax's own efforts are another reason to believe the company is progressing along the right path. It reduced its research and administrative expenses by 50% year over year in the first quarter, and is targeting expenses of $700 million to $750 million this year. The biotech also is ready to launch a new phase in its cost-reduction efforts next year with the goal of lowering annual expenses to $500 million.
So, Novavax on its own made considerable progress on the cost-cutting path. Between that and the Sanofi investment, the company's recovery story may be strengthening.
3. Combination vaccines could be a game-changer for Novavax
During the past vaccination season, people showed much greater interest in flu shots than in COVID jabs. About 29% of U.S. adults opted for a coronavirus vaccine or booster, while 47% got the annual flu shot, according to a Gallup survey.
And that's why Novavax's combination coronavirus and flu vaccine candidate may be so important. It could appeal to the population that already goes for annual flu shots, offering them the convenience of two shots in one.
Novavax may even multiply its combination vaccine successes thanks to the deal with Sanofi. First, Novavax is continuing to develop its own combined COVID/flu candidate, which is set to enter phase 3 trials in the second half of this year. Second, as mentioned above, Sanofi now has the rights to combine the Novavax coronavirus vaccine with its flu vaccines -- and if this produces a commercialized product, Sanofi would pay royalties to Novavax.
So, Novavax could generate revenue from more than one combination vaccine down the road.
Should you buy Novavax?
Novavax stock was a risky buy just a few months ago. But today, the situation looks much brighter. Of course, it will take time for Novavax to carve out market share in the coronavirus vaccine market, and sales from potential combined vaccines aren't right around the corner -- those candidates must successfully make it through clinical trials and win approval first.
But right now, Novavax is moving in the right direction and is doing so with a powerful partner. So if you're looking for a promising recovery story buy, Novavax may fit the bill.
