As the calendar has ticked into 2021, investors are sorting through last year’s Covid-19 stocks to determine which ones are still appealing and which to unload. Novavax (NASDAQ:NVAX) stock seems to be in a gray area.
Novavax’s novel-coronavirus vaccine appears to be successful and is likely to generate significant commercial sales. On the other hand, it doesn’t seem likely to be the market leader.
Regulators have already approved several vaccines, and it appears more will be approved going forward. Vaccines are not a winner-take-all market. Yet it seems that traders might have driven Novavax and a few of the other smaller vaccine makers too high.
InvestorPlace columnist Todd Shriber summed the situation up well. Since two Covid-19 vaccines have already been approved and two more will likely be given the nod shortly, Novavax’s shot will have to be something special to become the leading vaccine, he wrote.
Insider Sales of NVAX Stock
Another reason to be cautious about NVAX stock is that the company’s leaders have sold a fair bit of their shares already. Traders who have rode the Novavax story up until now may want to consider selling their shares as well.
A recent report from Reuters found that Novavax’s insiders had sold a hefty $46 million of their own stock last year.
Since Novavax’s market capitalization is $8 billion, $46 million might not seem like a lot of money. Consider, however, that even in the third quarter, with its business ramping up, Novavax generated just $157 million of revenues and lost $193 million overall.
And prior to developing its Covid-19 vaccine, Novavax had operated for a long period of time without reporting meaningful revenues, while it generated sizable operating losses. Notably, Novavax had a market cap of just $250 million prior to the coronavirus crisis.
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As a result, perhaps it’s not surprising that Novavax insiders have been rushing to sell the stock. With the shares up this much, why wouldn’t they lock in their profits? A Novavax spokesperson told Reuters that:
“Our leaders remain confident in the value and potential of our vaccines and are passionately committed to contributing to ending the COVID-19 pandemic and improving public health around the world […] They continue to hold substantial personal and professional interest in Novavax’ success as well as a financial one.”
According to Reuters‘ investigation, however, CEO Stanley Erck sold more than 20% of his vested NVAX stock.
Clinical Success Is One Thing, Commercial Success Is Another
So, up until now, Novavax has not generated substantial profits. Perhaps the company’s vaccine will pay off big time for shareholders. Still, to put things in perspective, consider that Vamil Divan of Mizuho Securities estimates that Pfizer’s (NYSE:PFE) vaccine will bring in around $8 billion of revenues in 2021. And Pfizer’s shot was the first to market, while the company received large orders from major world governments.
In light of that, Novavax’s valuation looks pretty full. If Pfizer only pulls in $8 billion of revenues from its shot in 2021, I have to wonder how things will go for the vaccines that arrive later.
Sure, we don’t know quite how long vaccines will keep generating revenues; there will probably be decent sales of the shots into 2022 and 2023.
If the virus mutates, creating a need for new vaccinations, that could change the equation, too. For now, though, Novavax’s valuation seems steep, given the likely size of the coronavirus vaccine market.
Also worth noting is that Pfizer’s market capitalization has changed little since the Covid-19 pandemic started. The market is giving Pfizer’s vaccine no value whatsoever. That’s probably incorrect, too, as Pfizer will surely make some profits from its shot. But the people who think that Novavax is going to generate massive profits are probably too optimistic.
The Verdict on NVAX Stock
It’s highly unlikely that Novavax will be able to justify anything close to its current valuation based on its Covid-19 vaccine alone. So at this point, those who buy the shares are betting not only on the current vaccine, but also on whatever the company does next.
Maybe its future products will work out. But it’s impossible to know if that will be the case. Clinical biotech is a difficult business, and with NVAX stock up several thousand percent already, it’s very expensive now. Insiders are selling Novavax’s shares in large quantities. Perhaps the other owners of the stock should follow their lead.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.