Novavax (NASDAQ: NVAX) is currently a biotech at the center stage of the investment world as it works to create a vaccine against SARS-CoV-2. This is without a doubt a colossal undertaking; a successful vaccine could save countless lives and safely rebuild economies around the world.
With so much interest, investors may currently feel uncomfortable buying Novavax shares, for fear the company’s growth outlook is already part of their share price. However, there are at least three reasons why Novavax’s momentum is likely to continue.
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1. The science
In its Phase 1 data release, Novavax announced that 100% of healthy volunteers who received up to two doses of their recombinant (DNA-encoded) COVID-19 vaccine, NVX-CoV2373, developed neutralizing antibodies, which are small proteins that recognize certain components of a pathogen and prevent healthy cells from invading. The data is awaiting peer review.
In addition, participants demonstrated a robust T-cell response. T cells recognize virus-infected cells and tell them to self-destruct, preventing the virus from spreading throughout the body. Unlike antibodies, which can disappear just weeks after dosing, T cells can form memories of pathogens for months or years.
The financial
The science is encouraging, and Novavax plans to go through Phase 2 for its vaccine candidate by the end of August. To date, the company has secured $ 2 billion in funding for the US government’s NVX-CoV2373, including as part of Operation Warp Speed. Also, on 14 August, the UK government placed an order for 60 million doses of the company’s vaccine candidate.
Novavax has also secured the commercialization aspect of business. The company expects to produce 1.25 billion doses of its COVID-19 vaccine next year, pending the success of clinical trials. Assuming each dose sells for $ 20, that means the company could generate $ 25 billion in gross revenue to split between itself and commercialization partners. Not bad.
Currently, Novavax is in a great financial position due to its government funding. In Q2 2020, the company recorded development revenue amounting to $ 35.5 million, which helped limit its net loss from $ 39.6 million in Q2 2019 to $ 17.5 million. Furthermore, the company has approximately $ 609 million in cash and equivalents on its balance sheet.
At the current cash run rate, the company will no longer have to sell stock to raise cash until the end of Phase 2 for NVX-CoV2373. This is good news, because it can prevent investors from earning stock.
3. The market opportunity
If a successful vaccine requires multiple doses, the demand for coronavirus vaccines could far exceed the current world population of 7.8 billion. We also do not know how long the protection of a vaccine will last, setting up the possibility for manufacturers to generate recurring cash flows through revaccination. This would make investors realize that it is perfectly viable for many biotechs to compete in this gigantic market, even though they enjoy billions of dollars in revenue.
That said, the Novavax vaccine is certainly at the forefront of the race, as only 29 candidates out of 167 have made it to the human testing phase, and far fewer have clinical trial data. A market cap of $ 8.85 billion is quite small for a company that would bring in more than $ 1 billion if its vaccine candidate succeeds in clinical trials and gets approval next year.
To date, the company’s shares have risen 1,750% since January, turning a modest investment of $ 10,000 at the beginning of the year into just eight months. I think Novavax remains an excellent buy for investors interested in the biotech sector.
