It does not surprise me that a small capital biotech company like Novavax (NASDAQ: NVAX) skyrocketed when the COVID-19 pandemic began. Millions of people will have to be vaccinated against the virus this year and next. The opportunity in the market is both extensive and risky (as biotech investing is often). Even after the vaccine candidate completes clinical trials, there is always a chance that the US Food and Drug Administration (FDA) will reject Novavax’s vaccination approach.
Novavax has grown from about a $ 120 million market cap in January to nearly a $ 9 billion market cap today. For many investors, the enormous uptick over a short period of time suggests that Novavax has been doomed to slip. That can still happen – short-term price movements are impossible to predict and can be serious. And yet, on top of the huge boom the company has experienced, it is possible that Novavax will become even more valuable. So let’s take a look at the product potential of Novavax, that unprofitable fax developer that jumped 3,200% in 2020.
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The Novavax fax is easier to set up a price
Novavax’s latest P / E ratio has received some attention, and with good reason. Analysts suggest that investors should pay up to 76 times the company’s earnings if its candidate for coronavirus vaccine can capitalize on its market. We need to take this hefty estimate with a grain of salt, because the FDA has yet to approve one of its nine pipeline drugs. But regardless of what happens to Novavax’s candidate for coronavirus vaccine, I think there’s a high chance that its potential flu vaccine, NanoFlu, will be approved by the FDA.
NanoFlu is a seasonal influenza treatment that could be used to prevent flu in adults 65 years and older. NanoFlu differs from the conventional flu vaccine in several ways, including that it is not an egg-based therapy. Egg-based vaccines are common, but too often lead to ‘adjectives’ and subsequent poor performance, according to Novavax CEO Stanley C. Erck. NanoFlu reached all of its primary endpoints in a Phase 3 clinical trial that ended in late March, and protected against influenza like the standard vaccine.
Novavax was able to generate nearly $ 1.4 billion in revenue from this vaccine each year only if it captured even a third of its potential market in the US and Europe. Novavax is confident that the drug could be licensed through its current accelerated approval path as soon as November and that it may be better than the currently accepted flu vaccine.
Can coronavirus money allocation give us an indication about valuation?
Last month, the US government’s program to quickly track a coronavirus vaccine, Operation Warp Speed (OWS), awarded Novavax $ 1.6 billion to speed up candidate NVX-CoV2373’s production. Is this validation of the science of the company? It’s obviously not the same as FDA approval, but many investors see this enormous subsidy as a sign that Novavax is on the right track.
Novavax is set to deliver 100 million doses of its COVID-19 vaccine to the US government by 2021. The company also recently announced that it has pre-sold 60 million doses of its vaccine to the United Kingdom. This presale would be considered an unusual pre-pandemic. Today, it is reasonable for governments to cancel potential treatments because they want to curb new cases and reopen warring economies as soon as possible.
Novavax received $ 1.6 billion up-front from US government bulk order. That number helps us estimate the price of a dose of NVX-CoV2373. If we divide $ 1.6 billion by 100 million, we get a value of $ 16 per dose.
Investors may or may not choose to multiply that $ 16 by 2.75 billion. That is the current measure of Novavax’s production capacity. Of course, the preparation on making 2.75 billion doses does not guarantee that there will be next demand for 2.75 billion doses. It will be important to invest in vaccine companies that can strike the right balance between supply and demand for their treatment. A cost of $ 16 per dose is comparable to prices for flu vaccines in the private market, which run between $ 16 and $ 25. However, other vaccines that are widely administered are much more expensive. For example, the vaccine for measles, mumps, and rubella (MMR) costs more than $ 200 per dose. If Novavax hopes to charge more than $ 16 in the future, demand for the vaccine should be met to justify the higher price tag.
Do we still have a value for NVX-CoV2373?
Conservative answer: No. There are still too many variables that stand between Novavax and its approval of the coronavirus vaccine candidate. Not to mention, heavy pharmaceutical heaters included Pfizer en AstraZeneca are also competing in the race to create a safe and effective vaccine for coronavirus. Novavax investors could have NanoFlu as a nice rock to stand on, however, even if their COVID-19 program fails. We should have more answers on the possibility that both of these vaccine candidates will hit the market at the end of November.
However, the headline for the COVID-19 vaccine is massive, and the company has seven other vaccines in its pipeline that can treat diseases, including respiratory syncytial virus (RSV), Middle East Respiratory Syndrome (MERS), Severe Acute Respiratory Syndrome (SARS), and Ebola. Novavax investors may maintain their cautious optimism, but should refrain from valuing the company purely on the basis of one potential vaccine.
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