The race for a vaccine for the novel coronavirus has been a hot topic among investors for good reason. Investors who pick winners early will likely become millionaires overnight. That’s the only reason Novavax (NASDAQ: NVAX) is on traders’ radar right now. Over the past year, NVAX stock has hit $189 per share, but it’s also traded at $3.52. The stock is currently trading at $106, which would be a bargain if the firm’s vaccine wins the race.
But buying Novavax — and most of the small-name vaccine makers for that matter — is a little bit like playing blackjack. Players can make an educated guess about what to do, but ultimately the luck of the draw will determine whether or not they’re going to make money.
NVAX Stock Isn’t in the Lead
There are nine companies with coronavirus vaccines in Phase 3 trials right now, and Novavax isn’t one of them. That doesn’t necessarily mean that Novavax is out of the running, but it does put the firm at a distinct disadvantage.
When it comes to coronavirus vaccines, safety will be a huge factor. But assuming that the winning drug indisputably proves to be safe during the required trials, speed will be a crucial factor in determining the winners.
Considering nine companies’ vaccine candidates are currently in Phase 3 and 26 others are at various other stages of development, there will be a lot of losers, and I don’t particularly love Novavax’s odds.
Novavax Has Potential
That’s not to say that there isn’t a buy case for Novavax, which could be viewed as suitable for some investors with an appetite for risk. This week NVAX stock made its way markedly higher on news that the company had secured a manufacturing partnership with the Serum Institute of India. As a result of the deal, the company will have the capacity to produce 2 billion doses per year, putting it on a more level playing field with some of its bigger, better-funded rivals.
With heavyweights like Pfizer (NYSE:PFE) already in Phase 3 clinical trials, why bother with NVAX stock? While Pfizer’s head start certainly doesn’t bode well for Novavax, it also doesn’t mean the race is over. Pfizer’s trials have been going well so far and the firm is expecting to have efficacy data by the end of October. But that doesn’t necessarily mean that the firm’s vaccine will be a winner.
As we saw with AstraZeneca (NYSE:AZN) earlier this month, a promising vaccine can be stopped dead in its tracks, at least for awhile, over safety concerns. This is the first time in history that the public has given much thought to drug trials, let alone paid such close attention to them. So it’s important to consider that the process is long and comes with several twists and turns along the way.
Unlike AstraZeneca or Pfizer, NovaVax is dependent on its coronavirus vaccine. While that adds a layer of risk, it also promises huge rewards. Winning the vaccine race would be great news for a big drug maker, but it wouldn’t move the needle as much for such a company as it would for a smaller name like Novavax.
Notably, the reason that investors are buying NVAX stock is the same reason I’d argue against it. You don’t know what you don’t know, and in the case of vaccine development, a great deal is unclear. The vast majority of investors have never followed the development of a drug before, so judging how close or far away each drug maker is from the finish line is inherently risky.
Not to mention the fact that betting on NVAX stock now means investors could have big losses ahead if the firm’s vaccine doesn’t get through the pipeline.
The Bottom Line
I have no doubt that Novavax will be volatile over the next few weeks. Vaccine makers’ stocks fluctuate a great deal, with each tidbit of news causing wild swings in their shares. If you’ve got the stomach for that kind of risk, then Novavax could be a great bet.
But for long-term investors who like the safety of buy-and-hold investments, picking up NVAX stock is a big risk. There are plenty of other undervalued stocks on the market today that are worth your attention and don’t have the same downside risk as Novavax.
On the date of publication, Laura Hoy did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.