After losing more than 90% of its value from a peak back in 2021, Novavax (NVAX -1.44%) stock has finally taken off. The biotech soared 190% in two trading sessions after announcing a $1.2 billion vaccine-licensing deal with French pharmaceutical giant Sanofi. The agreement removed one huge worry that's been weighing on the stock: Novavax's ability to continue operations. The vaccine maker issued a going concern early last year, warning that if uncertainties deepened, the company would be forced to shut its doors.
The Sanofi agreement allowed Novavax to lift this going concern, as it represents a huge change for the company's financial situation. And it also offers Novavax the opportunity to benefit from the pharma giant's massive commercial infrastructure -- something that should help the Novavax vaccine and possibly future products gain ground in the market. So, it's no surprise that such news prompted some investors to pile into the stock. But does this rapid gain mean it's too late to buy Novavax shares now? Let's find out.
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Novavax falls behind
First, a quick summary of Novavax's story so far. The vaccine maker's shares soared early in the COVID-19 vaccine race, skyrocketing more than 2,000% in 2020 as investors bet on its vaccine candidate. But when Novavax's program fell behind, the stock tumbled, and even though the vaccine eventually reached commercialization, the company missed out on the biggest revenue opportunity.
That and other challenges led Novavax to issue a going concern, and the possibility of the company actually ending operations made the stock a risky bet for investors. Meanwhile, coronavirus vaccine demand continued to decline. Considering the vaccine is Novavax's only product, this too weighed on appetite for the stock.
The picture may seem pretty grim, but Novavax also offered investors some positive elements -- ones that Sanofi clearly noticed too. Novavax launched a cost-cutting plan and made significant progress in reducing research and development and general expenses by more than $500 million last year compared with the prior year.
The company also announced positive clinical-trial data for its combined flu/coronavirus vaccine candidate and aims to launch a phase 3 trial in the second half of this year. Finally, Novavax holds a key asset, one that could brighten the earnings picture. I'm talking about the company's Matrix-M adjuvant technology -- an ingredient that boosts the immune system's response to a particular vaccine. Novavax uses Matrix-M in its vaccine and candidates, but this adjuvant, when licensed to others, represents another revenue source.
Sanofi and Novavax
Sanofi, maker of the world's top-selling flu vaccines, proposed a deal that allows it to benefit from Novavax's innovations, and offers the biotech the resources it needs to gain share in the coronavirus vaccine market and develop new products.
As part of the deal, Sanofi will co-commercialize Novavax's current coronavirus vaccine worldwide and gains a license to combine Novavax's coronavirus vaccine with Sanofi's flu vaccines. Sanofi also gains non-exclusive licenses to use Novavax's coronavirus vaccine with non-flu vaccines and to use Novavax's Matrix-M adjuvant in Sanofi vaccines.
The big pharma company is making an upfront payment of $500 million to Novavax and taking a nearly 5% stake in the biotech. Novavax also is eligible for as much as $700 million in development, launch, and regulatory-milestone payments as well as tiered royalties. Finally, Novavax is eligible for additional milestone and royalty opportunities from each Sanofi product that includes Matrix-M.
This is a major deal for Novavax as it allows the company to immediately remove the going concern -- the biggest risk Novavax and its investors faced in recent times. So, we might say this partnership with Sanofi came to the rescue at a key moment, but it also represents a game-changing, long-term move. For two reasons.
Carving out share in the coronavirus market
First, Sanofi, as a flu vaccine leader, has much experience when it comes to commercializing these vaccines, and that should benefit Novavax as it aims to carve out market share in the coronavirus market and eventually launch its own flu vaccine. Today, Pfizer and Moderna dominate the coronavirus vaccine market, making it difficult for a smaller player to gain much share, but an alliance with a major vaccine company like Sanofi could increase Novavax's chances of success.
Second, this agreement offers Novavax the opportunity to generate revenue from its Matrix-M technology. Considering Sanofi's focus on vaccine development, this could result in major growth for Matrix-M over time.
Now let's get back to our question: Is it too late to buy Novavax after the stock's meteoric rise? Novavax may not continue to double and triple overnight, so those looking for a short-term gain may be disappointed.
But for the long-term investor, the picture is much different. Novavax's biggest risk has been removed; the Sanofi deal offers the company immediate cash to help it along the path to recovery; and importantly, the agreement may lift revenue over time.
All of this means that right now, following this game-changing event, is a great time to buy Novavax -- and potentially benefit over the long haul.
