Five years ago, Novavax(NASDAQ: NVAX) was a little-known clinical-stage biotech whose leading pipeline candidate was an influenza vaccine. Then came the pandemic. The company quickly grew in prominence, largely thanks to its work in the coronavirus vaccine market, where it was reasonably successful -- or at least, more so than most other small biotechs that tried to make a name for themselves. Over the past five years, Novavax has delivered strong stock market performance.
However, a lot has changed. The pandemic is receding, Novavax's financial results haven't been impressive, and the biotech has significantly lagged the market lately, even with a strong run since the current year started. How will things develop over the next half-decade?
NVAX Total Return Level data by YCharts.
The best-case scenario
Novavax was close to going under. In early 2023, it warned investors that it might not have enough funds to finish the year.
However, the biotech has made significant changes over the past 18 months. Here are the three most important.
First, it implemented radical cost-cutting measures, which helped extend its cash runway. Second, it settled a lawsuit with Gavi, the Vaccine Alliance, an international organization aiming to increase vaccine access in developing countries. Gavi held that Novavax owed it money for canceled COVID-19 vaccine advanced-purchase agreements, but the two entities came to an agreement.
Third, Novavax signed a lucrative partnership with Sanofi. The France-based biotech giant will now be responsible for commercializing Novavax's COVID-19 vaccine worldwide. Sanofi also obtained the rights to use Novavax's adjuvant technology and a 4.9% stake in the small-cap biotech, all for an upfront payment of about $570 million. The agreement included potential milestone payments and royalties related to sales of Novavax's coronavirus vaccines and other vaccines Sanofi plans to develop with Novavax's adjuvant technology.
With that out of the way, how could things evolve for Novavax in the next five years?
The company is still working on developing its own vaccines. Its most promising candidate, a combined coronavirus/flu vaccine, is close to starting phase 3 studies. The biotech plans to kick it off before the end of the year. If everything goes according to plan, it could launch by 2026.
Novavax also has another candidate, a stand-alone flu vaccine, which it hopes will also hit the market by 2026. So the biotech could have two brand-new products within the next five years that will generate steady revenue.
The biotech company could also continue to benefit from its partnership with Sanofi if the latter successfully advances vaccine programs that use the former's adjuvant technology. While Novavax might go through a period of declining revenue next year (it will be a hard year-over-year comparison, considering its recent windfall from its partnership with Sanofi), if it benefits from strong clinical and regulatory progress, things should bounce back for the biotech. It could deliver solid returns in the next half-decade.
Hedge your bets
Novavax will face significant risks investors should keep in mind. Consider the company's two key pipeline candidates. Many companies are trying to develop more effective influenza vaccines (current ones are only about 40% to 60% effective). Ditto for combined coronavirus/flu vaccines.
Moderna recently announced positive phase 3 results for a combination vaccine. Will Novavax's candidate be even better? No one knows at this point. The market's reaction could be brutal if the company fails to keep up, or worse, if its programs don't prove effective at all.
Novavax's current coronavirus vaccine is far behind the field's leaders in terms of sales -- and that's already a shrinking market. Although Novavax might experience significant upside, plenty of unknowns remain regarding its prospects. Investors could be left with worthless shares if its phase 2 candidates flop.
Novavax's shares look too risky for most investors, especially because there are other excellent biotech stocks to consider.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.
