Even as it becomes clear the company won’t have the Covid bump people had expected, the vaccine maker’s shares aren’t too far away from a six-month high. Unfortunately, the combination could turn out to be problematic.
As of September, by my calculation, the U.S. and Western Europe will have been suffering from the novel coronavirus for about 18 months.
Meanwhile, the vaccination rates and infections in the U.S., Western Europe and much of the rest of the world continue to increase, potentially bringing us to herd immunity sooner rather than later.
These points taken together suggest to me that the virus could begin to meaningfully weaken, both in terms of prevalence and virulence.
Such a development would likely make investors much less enthusiastic about Novavax and other vaccine stocks.
A Weakened-Form Virus Could Continue Circulating
According to multiple sources I’ve seen, many believe the 1968 flu actually never really disappeared in the U.S. Instead, it weakened greatly and is now considered one of the many types of influenza that Americans contract during flu season.
So I would not be surprised if the coronavirus acts similarly, i.e. becomes endemic in greatly weakened, recurring form in many nations.
In such a scenario, I think that the companies that have developed vaccines for the coronavirus, including Novavax, along with some government officials, could urge consumers to continue getting vaccines against the virus.
But even at this point, many government officials and experts appear to be reluctant to endorse booster shots. What’s more, many consumers, even very recently, are reluctant to get their first two vaccine shots.
So if the coronavirus weakens meaningfully, and experts are mixed on whether boosters are a good idea for most individuals, I don’t see a huge market there for NVAX. In that situation, I think that the vast majority of consumers could refuse to get boosters.
As a result, all vaccine makers, including Novavax, could have difficulty getting governments to buy their shots.
Novavax’s Specific Situation
Novavax has vaccine supply deals with multiple governments to supply many hundreds of millions of doses of its jab to them.
For example, the EU just recently signed up for 100 million doses of Novavax’s vaccine by the end of 2023. The company has a 100 million-dose deal with the U.S. and a 51-million-dose agreement with Australia. Novavax has also agreed to supply doses to poor countries.
Meanwhile, due to supply problems and other difficulties, Novavax has had to repeatedly delay actually fulfilling a number of its deals.
If the company can remedy its issues and start producing hundreds of millions of vaccines by spring 2022, I think many governments with whom it has deals will fulfill their contracts. At this point, however, that looks like a pretty big assumption.
Most of the government partners will not want to renege on their deals to avoid looking like unreliable partners.
The Bottom Line on NVAX Stock
Since bottoming in mid-May, the shares have nearly doubled and now aren’t too far away from their six-month high. I believe that the stock has rallied to such a great extent because many investors think that people will be taking coronavirus vaccines for many years or forever.
But the pandemic could disappear soon, and, if they extend much longer, Novavax’s supply issues could cause a number of its contracts to be canceled.
Given these points, I see NVAX stock as a risky gamble that’s not worth taking now, and I advise investors to sell its shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.