The vaccine success story of biotech companies Moderna and BioNTech continues -- but it truly took center stage last year. That's when they rolled out their coronavirus vaccines worldwide. Investors initially expected another biotech vaccine maker to enter the market at the same time and win big. That player is Novavax (NVAX 4.18%). But the company struggled to ramp up manufacturing and fell behind on regulatory submissions. As a result, Novavax's stock performance lagged behind that of its biotech rivals.
Fast forward to right now. Novavax has resolved manufacturing issues and gained authorization in more than 30 countries. It aims to complete its regulatory filing in the U.S. in the coming weeks. Novavax may be on its way to generating billions of dollars in revenue. With all of this good news, could Novavax stock go parabolic?
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A year behind leaders
Let's take a look at the arguments for and against. First, let's start with the negative. Novavax is entering the market more than a year after vaccine leaders. And 62% of the U.S. population and 70% of the European Union population have been fully vaccinated. So Novavax can't count on delivering a primary series to most of the people in the U.S. and Europe.
There also is the idea that the pandemic may soon evolve into an endemic situation. And at that point, governments may focus on vaccinating only high-risk people rather than the entire population.
These elements could limit revenue -- and share performance.
Now, let's move on to arguments supporting potential share gains. Sure, Novavax isn't likely to deliver a huge number of primary series vaccinations in high-income areas such as the U.S. and Europe. But that doesn't mean the company won't play a significant role in these regions. Here's why. Health officials have authorized the mixing and matching of coronavirus vaccines. This means a person who's gotten a Moderna primary series can opt for a Novavax jab as a booster.
Why would a person specifically choose Novavax? The company's vaccine uses a technology already used in other commercialized vaccines. It's a protein subunit vaccine: This means it includes part of a viral protein along with an adjuvant to strengthen immune response. Some people have shied away from the brand-new mRNA technology used by the Moderna and Pfizer/BioNTech vaccines. And some people can't take mRNA vaccines -- for example, if they have an allergy to an ingredient. Novavax represents another option. So, Novavax may play a big role in the booster market.
Potential for leadership
And, of course, there are many countries where it's been difficult to gain access to vaccines. In those markets, Novavax could take leadership. Even if these countries pay less for vaccine doses than higher-income countries, this still represents revenue. And any product revenue is a step forward considering the vaccine is Novavax's first commercialized product.
Moving on to the idea of a transition from pandemic to endemic... It's too early to predict what percentage of the population will continue on with annual boosters.
But here are three important points. First, it's likely governments will continue securing doses for this year and possibly 2023. Considering the length and depth of the pandemic, countries probably will move forward with caution.
Second, it's not clear whether Novavax and rivals will keep pricing the same or increase it next year and beyond. A higher price could partially compensate for lower volume. And finally, Novavax is working on another vaccine candidate that may translate into more people getting an annual shot down the road. The company just completed enrollment in a phase 1/2 trial of a combined coronavirus/flu vaccine candidate.
Moderna is working on such a program, too, but it's only in preclinical development. I'm favoring Novavax here because Novavax has a particular expertise: It's already developed a flu vaccine candidate that met all primary endpoints in a pivotal trial. Novavax's new candidate involves the combination of two elements -- the flu vaccine candidate and the investigational coronavirus vaccine -- that have demonstrated efficacy and safety on their own through clinical trials.
About half of the U.S. adult population generally gets a flu shot. So, it's easy to imagine this population opting for a combined jab if and when it reaches the market. This could be a significant potential product for Novavax because it may generate a steady level of annual sales.
$100 below some expectations
Now, let's have a look at Novavax stock. It's trading about $100 below the very lowest Wall Street 12-month share price forecast. The stock advanced 28% last year -- but that was due to a huge spike early in the first quarter. That's when hopes were high Novavax's vaccine would soon make it to market.
So far this year, Novavax has slipped more than 20%. That's in spite of recent authorizations in various countries and initial shipments of the vaccine to Europe. And it leaves Novavax trading at less than five times forward earnings estimates.
Could Novavax go parabolic from this point? It's possible. One long-awaited catalyst such as potential U.S. authorization could spur such a move. But if it doesn't, that's OK. Booster potential, a possible combined vaccine, and Novavax's low valuation offer plenty of fuel to drive the shares higher over the long term. And that may be even better than a parabolic move.
