Novavax (NASDAQ:NVAX) has had an amazing run. At the market open on Jan. 2, 2020, the stock traded hands at $3.98 a share. Now, more than halfway through February 2021, it's almost $270 a share. It's been a happy ride, though, with lots of upside. People made a lot of money, even if it was scary all the way.

When I first advocated that people ought to buy Novavax, I thought it was a risky purchase. The stock was 99% off its highs, the company had very little cash, and its future was uncertain. Now that the stock has run up nearly 6,800%, y'know what? It's still a risky purchase.

Novavax has pulled off a magnificent turnaround, but now we have valuation risk. Is the stock a buy at its new $18 billion market cap? There are three green flags and one red one.

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Green Flag No. 1: Novavax will make over $5 billion from its COVID-19 vaccine in the first year

Novavax has a contract to supply the U.S. with 100 million doses of its vaccine once approved for a price of $1.6 billion. This unusual deal was struck before Novavax had any human data at all, and it set the price per dose at $16.

Since then, Novavax has signed additional deals with the U.K. (60 million doses), Canada (76 million), Australia (51 million), Korea (40 million), New Zealand (10.7 million), and Switzerland (6 million). That's 343 million doses under contract. The financial terms in the foreign deals are undisclosed, but if we pencil in $16 a dose (what the U.S. paid), Novavax will make a cool $5.4 billion from all these deals. And that's just initial orders.

It's entirely possible -- maybe even likely -- that the price per dose has gone up since the original U.S. deal. After all, we have human data now. We know Novavax's vaccine is 95.6% effective against the original strain of COVID-19 and 85.6% effective against the U.K. mutation.

Right now, Novavax and the European Union are negotiating for the purchase of up to 200 million doses. The company also has collaborative deals in place in India (1 billion doses) and Japan (250 million).

Novavax has acquired enough manufacturing capacity to produce over 2 billion doses, so there shouldn't be any supply issues. And the company's vaccine has a shelf life of six months, which is vastly superior to the mRNA drugs from Moderna and Pfizer, which go bad after 30 days. If you're a skeptic of our government's ability to distribute vaccines quickly and efficiently within a 30-day window, Novavax is looking very good right now.

Green flag No. 2: Nano-Flu will add another $1 billion

With all the focus on COVID-19, people forget that influenza has been killing people for centuries. The World Health Organization (WHO) estimates that the flu kills hundreds of thousands of people every year. Novavax's flu vaccine beat the market-leading vaccines from Sanofi in head-to-head clinical trials, including a recent phase 3 win. Right now flu vaccines bring in about $4 billion a year worldwide.

The Centers for Disease Control (CDC) reported that 49% of Americans got the flu shot in 2019. The flu mutates every year, and strains in some years are a lot more dangerous than others.

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Many of us now know someone who has died from COVID-19. Because of this new pandemic, vaccination rates are likely to increase across the board. And with COVID-19 mutating in the U.K. and another COVID variant in South Africa, it's looking more and more likely that we'll need to vaccinate people more than once. And since these COVID-19 vaccines have such high rates of safety, many people might elect to vaccinate annually, like they do for the flu.

The push for COVID-19 vaccination might increase vaccination rates for the flu. If you're going to the doctor for one shot, you might as well take the other shot while you're there. The two vaccine programs should reinforce the importance of each and expand the market opportunity for vaccines. Access to this uptick in vaccinations is particularly likely if Novavax introduces a flu/COVID combo vaccine in one shot. The company is already exploring this possibility.

Green flag No. 3: Future catalysts will drive the stock higher in 2021

Novavax has submitted its COVID-19 vaccine in a "rolling admissions" process to regulatory bodies in the U.S., U.K., EU, and Canada. As more and more data comes in, the case for an emergency use authorization (EUA) grows stronger and stronger.

Some market players expect the U.S. Food and Drug Administration (FDA) to hold off any approval until Novavax completes its phase 3 trial in the U.S. later this spring. This seems unlikely to me, as we actually have phase 3 data in the U.K. proving that Novavax's vaccine stops the original strain (96% efficacy) and the U.K. variant (85% efficacy). No other company has clinical data against the U.K. mutation.

In an emergency pandemic situation, the FDA is likely to authorize this vaccine as soon as possible. I expect an EUA will be granted based on the UK data. And if the market is surprised by this, Novavax stock will jump yet again.

Here's another surprise I'm expecting: The U.S. government could order more doses of the Novavax vaccine when all the distribution issues with the mRNA vaccines become obvious. Right now, distribution is an absolute mess, with limited supply and a huge demand. Add to this a 30-day ticking-clock scenario with mRNA vaccines (plus trying to keep the Pfizer vaccine at negative 94% Fahrenheit), and the case is strong that the U.S. will make an additional vaccine order from Novavax.

Even if the U.S. somehow manages to distribute all the mRNA vaccines before the clock runs out, sources say that the EU will purchase 100 million doses from Novavax, with an option to buy 100 million more. Pencil in another $3 billion in revenues if that happens.

Red flag for Novavax

The red flag for Novavax is that all the vaccines might fully and completely eliminate COVID-19 as a threat to humanity, and I'm hoping this happens. At a minimum, it would be wonderful if vaccinations dramatically reduce the death count. But while I think that the threat will be substantially reduced, I also think that COVID mutations will keep scientists at Novavax and other pharma and biotech companies busy for the foreseeable future.

I don't think one-and-done is going to happen. But if it does, expect the vaccine sector to take a hit.

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