Investors may almost forgive Novavax (NASDAQ:NVAX) for seeking approval for its coronavirus vaccine late. Traders are happy that NVAX stock rose alongside that of Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), and BioNTech (NASDAQ:BNTX) in 2020 through 2021
This year, shares of those companies slumped.
After Novavax gets approval from health regulators worldwide for its vaccine, it may become the next major player in the market. Despite Moderna and Pfizer receiving billions in revenue in the last two years, the pandemic market is still open for new entrants.
NVAX Stock Peaked at $250
In the last year, Novavax stock spiked to over $250 a share. Each time, profit-takers sold, sending the stock lower. Markets are trying to anticipate the size of the vaccine market for Covid in light of the Omicron. As the dominant strain, Omicron is not as severe as its predecessors like the delta variant. Furthermore, Omicron subvariant BA.2 is 33% more infectious but is not more severe than the original.
People are less fearful of the omicron variants. Those who are infected will have severe flu symptoms but are highly unlikely to require hospitalization. The widespread of this variant will not threaten the medical system Novavax investors cannot ignore the lower perceived risk ahead. People may decide not to take a booster shot so soon.
Novavax is trading at the lowest multiples in a year.
Health regulators are assessing the population data for countries with high rates of infection. They will need to devise a vaccination schedule that maximizes a person’s immunity against future, more dangerous variants.
Opportunity
Novavax is in a unique position among the vaccine suppliers. It has a combination vaccine for Covid-19 and seasonal influence. The firm started enrolling participants in Phase 1 clinical trial of combination NanoFlu in September.
People had annual influenza vaccinations before the pandemic. This opens a market for Novavax to become the main vaccine supplier for that disease and for protecting against Covid.
This is not a good year for Novavax or other vaccine stocks. Investors who paid double the stock price are sitting on a paper loss. Fortunately for investors, vaccination against the virus is under ongoing review. Governments want Covid to move from a pandemic to an endemic. As more countries order the Novavax vaccine, they are taking action to limit the virus’s spread.
Fair Value
Few Wall Street analysts offer coverage on Novavax. The average price target is over $240, according to Tipranks. For NVAX stock to double, Novavax needs to achieve profitability sooner than its competitors did. Estimated earnings per share in the next quarter is a 36-cent loss.
In the third quarter, Novavax posted revenue of $179 million. This is related to development activities for NVX-CoV2373. Most importantly, the company ended the quarter with $1.9 billion in cash. It has plenty of capital to launch the vaccine commercially.
Novavax does not have a high bar to cross. It lost $322 million in the third quarter. It may easily book revenue above operating costs. In this scenario, this biotechnology company will report profits within two quarters. For example, Novavax will start at the end of last year with an order of 27 million units. In Europe, countries increased their order, asking for another 42 million doses. In 2022, the company will cover 27 European countries.
Investors may assume a low price of $10 per dose. That would result in $690 million in revenue from sales this year for starters. Novavax also has orders from Japan and Israel to consider.
Other Catalysts
Novavax’s positive results for the Prevent trial are a positive catalyst. The Prefusion Protein Subunit Vaccine Efficacy Novavax Trial–COVID-19 is potentially the next phase of protecting a population. Adolescent participants 12 to 17 years of age may need vaccination. Social distancing is inconvenient in schools. This suggests that Novavax will have a market for vaccinating the younger population.
The Biomedical Advanced Research and Development Authority (BARDA) provided up to $1.75 billion under a Department of Defense agreement for the Prevent-19 trial.
Risks
Novavax is in the initial phases are supplying the vaccine to the world. It risks falling short of vaccine deliveries. It might need to work through delivery logistics. It may have vaccine production limitations. After producing the product, it could face distribution warehousing issues. For example, it may delay shipments as it awaits regulatory clearances.
Investors should expect any operational risks will not disrupt sales for very long. The company is capable of solving temporary distribution issues.
Omicron’s prevalence may hurt the overall demand for the vaccine. People may decide they do not want a booster shot more than once a year. Previously, the twice-yearly booster lifted Moderna and Pfizer’s quarterly sales. With severe strains absent, governments may adopt a conservative booster policy. This will lower the addressable market size for Covid vaccines.
Your Takeaway
Novavax shares are trading sharply below 52-week highs. The stock priced most of the downside risks already. Investors who did not get caught up in the vaccine rally last year are well-positioned. They may buy NVAX stock at a discounted price. As countries potentially adopt a once yearly vaccination booster schedule, Novavax will report steady earnings.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.