Investing In One-Hit Wonders – NVAX

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Biotech is one of the most volatile sectors in the market. After all, stats show that less than 10% of Phase 1 drugs ever get FDA approval. 

In other words, these companies can work years and years to develop a treatment, hit a snag, and potentially kill the stock. 

However, if a company is fortunate enough to approve its drugs, it can mean massive shareholder returns. 

Investors who bought Moderna (MRNA) shares on its IPO day in March 2020, are sitting on 8x gains. A $10K investment would be worth $80K today. And that’s with the stock down 34% YTD. At its 52-week highs, that $10K stake was worth $187K. 

All thanks to the company’s ability to quickly develop a COVID-19 vaccine.

Recently, searches for Novavax (NVAX) surged as the company’s vaccine hit the market, moving it from well out of the top 10 biotech stock searches by financial pros to #7.

This month, it was announced that its drug, Nuvaxovid™ COVID-19 vaccine, was conditionally authorized in the European Union for adolescents aged 12 through 17. 

Furthermore, the CDC recommends Novavax’s covid vaccine for adults 18 or older, 

Now, with shares down nearly 60% YTD, is this a classic “buy the dip” opportunity? 

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Novavax’s Business 

Novavax (NVAX) is a clinical-stage vaccine company focused on developing treatments to prevent various infectious diseases. The company has a robust vaccine pipeline to treat COVID-19, influenza, and respiratory syncytial virus(RSV). 

Its COVID-19 vaccine is authorized in 41 countries, with the potential to reach 170 total countries. NVAX delivered 42 million doses globally through Q1 2022. 

And because of it, NVAX achieved its first profitable quarter with commercial product sales.

The company generated $605 million in revenue during Q1 2022, of which $586 million came from the sale of NVX-CoV2373, with the remainder from royalties and adjuvant sales to its license partners. 

Furthermore, management committed to approximately 2 billion doses of NVX-CoV2373. And believes it can grow revenues in the areas of primary vaccination, booster vaccination, and pediatric vaccination. 

Financials

As you can see from the revenue chart above, all it takes is one drug’s success to change a company’s fate. In Q1 2020, the firm made $3.38 million in revenue. In Q1 2022, it did $704 million. 

Despite its breakthrough success with its COVID vaccine, NVAX has a lot of catching up to do from a balance sheet perspective. 

The company has a negative gross profit margin, negative net income margin, negative cash from operations, and a negative EBITDA. 

NVAX has total debt of $538 million and cash of upwards of $1.5 billion, with a market cap of $4.25 billion. 

The firm has a current ratio of 1.04x, implying that its current assets are enough to cover its current liabilities. 

It’s also worth noting that the company doesn’t have a huge pipeline.

Outside of it’s Covid vaccines, there are just two drugs in Phase 3.

Valuation

NVAX has negative earnings per share, and, therefore no P/E ratio currently, though it does show a Non-GAAP forward P/E of 2.33x and forward GAAP P/E of 2.08x. 

However, it’s worth noting, NVAX has a strong price-to-sales ratio of 2.79x, which is better than MRNA 2.92x, and PFE 3.08x. 

Growth 

Despite growing revenues by an astounding 52.5% (YoY), it was not as strong as its competitors, MRNA at 727.2%, PFE at 100.5%, and BNTX at 831.0%. 

To make matters worse, NVAX significantly underperforms in the profitability department. 

It’s a tough sight to look at, with a negative return on equity and assets. Not to mention a negative gross profit margin and net income margin. 

Our Opinion 4/10

NVAX has been around for decades but recently came alive thanks to its COVID-19 vaccine. And while it appears that the company will continue to succeed with its vaccine. 

We believe that NVAX is too dependent on its vaccine to generate revenues, which makes it a risky investment given its light pipeline.

That’s why we can’t recommend the stock at these levels.