I usually don't cover healthcare or biotech stocks... not really up my alley. But, this one caught my attention... well, because, COVID. And I saw it trending on socials so why not? I need to up my content game, and have been slow due to travel. But, for now, I'm somewhat settled in Dubai. Follow me on TikTok for more up to date stuff (if you care that is). I know you do.
Alright, so let's dive right into the big news... the FDA approved a fourth COVID vaccine, which means big bucks for the manufacturer and a pump for the stock. But, this one's a bit more interesting because it can potentially win over the anti-vaxxers. Without going into the technical or medical details (which btw I am no expert in), we'll start with a quick 101. Then, of course, analyze whether we an buy this stock or pass on it.
Why do we give a sh*t about Novavax vaccine?
Well, you don't have to... just sayin'. But, apparently, it's more of a traditional vaccine versus the Moderna and Pfizer/BioNTech mRNA vaccinces. The J&J vaccine though not an mRNA, but rather a adenovirus vector, has also never been used on humans before. That's why there was so much controversy with regards to the vaccines. The vaccines one way or another, relied on the vaccinated patient’s cells to make the viral antigen Spike protein that set off the immune response. But the Novavax vaccine is a direct injection of that Spike protein itself – which is more akin to traditional vaccines.
Therefore, it's safe to assume that more people would have taken the Novavax and considered it safe. It makes logical sense (to me). So why wasn't this used before? Well the issue is there was a lot of trial and research and delays which basically caused Novavax to miss out on peak COVID and vaccines.
So, why should we care now? Well there's still about 20% of the US non-vaccinated and 40% not considered "fully" vaccinated (which I believe is two doses). Now there are people taking one or more booster shots, and there is some suggesting a mix-and-match approach may be good. And can prevent other variations or mutations of the virus. There's also a chance, which I mentioned, that anti-vaxxers will take this jab. But, I probably won't count on it at this point because they're probably just counting on herd immunity. And, there's also unvaccinated children which can be potential patients.
At the end of the day, I'm not going to go in-depth on the vaccine and medical issues... that's not what I'm about, and I'm sure that's not why you're reading this... so let's get to the numbers!
Will NVAX make me money?
Novavax's vaccine COVOVAX / NUVAXOVID has been approved in many countries internationally, so it is much bigger than just the USA. Countries like Canada, UAE, Australia, UK, and more.
I know I said I wouldn't go into medical details, but it's worth noting that the vaccine has 90% efficacy and also maintained significant protection for a longer period of time.
They started delivering these in 2022 and as per the first quarter they delivered over 42 million doses, which generated them $586M or about 97% of their revenues. So what can we expect them to deliver going forward, and at what margins?
Financial Projections & Analysis
Novavax has outstanding orders for about 1.1 billion doses. That's a lot, considering they've only delivered 42m so far. 110 million is to go to the U.S. There are questions and risks that should be considered on delivering these... which I'll get to later. For now, let's assume this will all be delivered and they'll make their 2022 guidance, which is for $4-5bn.
Based on their current revenue, and estimated revenue per vaccine (more or less) at $17, they'd need to deliver 300m vaccines in the next twelve months to achieve $5bn in sales.
I found it interesting that they expect further margin compression after 2022 due to their accounting policy, which is quite low compared to Moderna (but I'd have to look into that separately). In any case, I'm limiting my analysis to 2022, because I'd only view this as a short-term trade personally.
Based on the current margins, we'd expect somewhere around $16 EPS over the next twelve months. So, if we assume a forward PE of 4, which is consistent with Moderna. I like that benchmark since the majority of their current sales are from the vax as well, and trading at a forward PE of 5. By that logic, I think there's a near 40% upside to Novavax.
But, there's risks to the above... which is making two huge assumptions: (1) manufacturing/deliveries can take place without issue; and (2) vaccine demand continues to grow.
In terms of the deliveries, Novavax partnered with the Serum Institute of India (SII), who is a large manufacturer and also produced for AstraZeneca. But, to-date, they've only delivered about 106 million, mostly for Netherlands. Can they scale without issues? The risk is probably not with SII, but rather with Novavax who lacks experience with production.
Vaccine demand might also be slowing, since SII had to shut down in December due to stockpiles of 200m vaccines and US alone threw out 82m doses because of expiry and/or poor storage. The peak pandemic is clearly behind us, so Novavax is late to the game on capitalizing on this. Nonetheless, we are seeing Moderna raise 2022 guidance with stronger than expected demand. So there's that.
Finally, I think this stock has taken investors for a wild ride, and there are a lot of people who are fed up with it after gambling at the tops. They present a downwards pressure on the stock, as they likely have run out of patience and are looking to sell on any rally.
Overall, I think this is an interesting play... which is why I looked at it. However, it is definitely not up my alley, and therefore wouldn't play with a large position. It's a very calculated gamble imo. The 40% upside in one year sounds enticing, and maybe worth taking with a small position only. I have yet to decide what I'll do.
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