Is Novavax Stock Overvalued?

Novavax, Inc (NASDAQ:NVAX) skyrocketed in the aftermath of the coronavirus pandemic, thanks to its investigational COVID-19 vaccine candidate NVX-CoV2373.

However, the increased stock prices led to an uneasy fall 2020, as executives offloaded $24 million worth of stock ahead of clinical trial results being announced led to unease. It makes some wonder – is Novavax stock overvalued?

This Maryland-based vaccine maker also has a flu vaccine in Phase 3 clinical trials, along with a pipeline that includes vaccine candidates for Ebola, respiratory syncytial virus (RSV), and the Zika virus.

Unfortunately, late-stage clinical testing of ResVax, its RSV vaccine, failed in 2019 for the second time, which triggered a reverse stock split and tumbling market confidence in the company.

But then the coronavirus breathed a second life into the company. Let’s explore if investors in this round of vaccine research are setting themselves up for major disappointment.

Why Novavax Stock Went Up

The coronavirus sparked renewed interest in Novavax in 2020. It already received an $89 million research grant from the Bill and Melinda Gates Foundation for vaccine development in 2018.

When the SARS-CoV-2 outbreak hit, Novavax received an additional $384 million from the Coalition for Epidemic Preparedness Innovations (CEPI) in May 2020.

Its vaccine is based on the virus’s spike protein much like higher-profile treatments from larger pharmaceutical companies.

In addition, Novavax was fast-tracked by the FDA for its Phase III clinical trials for NanoFlu, a proposed influenza vaccine.

By July, the company announced it would receive $1.6 billion from Operation Warp Speed, the U.S. government’s grant programs to produce a coronavirus vaccine as fast as possible.

OWS is a joint operation from the Department of Health and Human Services and Department of Defense.

Because it was able to ride the drift of interest in coronavirus, the stock shot up in 2020 after nearly being delisted from NASDAQ in 2019.

It appears like the company was drowning and received one last chance to stay alive. Its financial statements will explain more about whether it’s a potential acquisition for a bigger company.

Novavax Financials Had Been Declining But…

Novavax reported a net loss for 2019 of $132.7 million, or $5.51 per share. It also reported a net loss of $184.7 million for 2018.

Heading into 2020, the stock was trading for under $4 based on dwindling investor confidence following the reverse stock split.

The investment was considered toxic by many until the coronavirus landed the company nearly $2 billion to continue its COVID-19 vaccine research.

This brought its net loss in the second quarter of 2020 to only $17.5 million, or $0.30 per share. Its second quarter 2020 revenue was suddenly $35.5 million, compared to $3.4 million for the same period in 2020. All of this was entirely due to the grant money given to NVX-CoV2373, the company’s proposed COVID-19 vaccination.

It also increased operational expenses by 84 percent to $17.7 million. This gave the company $609.5 million in cash as of June 30, a huge influx from the $82.2 million it was holding at the end of 2019.

Because OWS and CEPI funding is entirely responsible for carrying Novavax through the end of January when results are due, let’s discuss how those grants work, benchmarks needed to secure full funding, and what will happen to the stock price if it succeeds or fails.

Is Novavax Valuation Too High?

Novavax experienced about a 4,000% increase in market value in 2020, jumping from $4 per share to $189.40 at its peak.

This is when the company’s c-suite offloaded noticeable portions of their holdings, dropping the value to the $100-$110 range (still more than a 2,500 percent increase from the start of the year).

The company’s IPO price in 1995 was $70, and those who invested early experienced highs and lows that were cut drastically in the late 2010s as interest soured.

After several failed clinical trials, the company has everything riding on two treatments: NVX-CoV2373 and NanoFlu.

The latter showed promise in March 2020 and is competing with a similar treatment from Sanofi. The influenza market is estimated to be worth $7.60 billion by 2027, which gives both players a chance to generate revenue once they receive FDA approval.

However, October hit with nothing else being heard from the company besides two months of trading by insiders. This has many wondering if the stock will drop below $100 again.

Will Novavax Stock Drop?

Although both NanoFlu and NVX-CoV2373 show early promise, the road won’t be easy. The OWS agreement guarantees 100 million COVID-19 vaccine doses to the federal government.

It also must get positive results by the end of January 2021 to get the full payout. It’s only one piece of the portfolio that includes candidates from Regeneron, Pfizer, Sanofi/GlaxoSmithKline, AstraZeneca/Oxford, Moderna, and Johnson and Johnson.

These partnerships highlight a weakness in traditional pharma that may hint at a buyout of Novavax.

Major players like Roche and Novartis lack a solid vaccine candidate. It’s possible one of them could offer to simply buy Novavax for a deal involving cash and equity.

This exit strategy seems the safest bet for investors, as the NanoFlu vaccine itself can’t scale the company, and the coronavirus vaccine market will be flooded by the time (or even if) Novavax’s candidate is approved.

Is Novavax Stock Overvalued? The Bottom Line

Novavax is a turbulent stock for investors. Its value can be anywhere from $4 to $200 at any given moment, making it highly volatile.

It had several failed attempts at antiviral vaccines, which is the focus of its research that has largely been funded by grants from charities like the Bill and Melinda Gates Foundation.

Still, the company secured another $2 billion in grants in 2020 and has two promising vaccines in late-stage clinical trials for the flu and coronavirus.

Should these vaccines prove successful, they could generate a lot of profits. But the company will need partnerships to make it happen, and it’s a potential buyout candidate for pharmaceutical companies lacking in vaccines. Buying in at over $100 per share is risky, and this stock is likely best for day traders.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.