Investing basics tell us to "buy low" and invest in a stock when there looks to be significant upside potential. That can often be after a company gets put through the wringer and the stock declines substantially. However, sometimes it's not worth investing in a company no matter how much its shares fall.
Case in point: Novavax (NVAX 3.54%) is a biotech stock down by 97% over the past three years, yet the stock still doesn't look attractive. Read on to find out why.
NVAX Total Return Level data by YCharts.
Novavax's coronavirus efforts fell short
Novavax deserves some praise. Among the many biotechs that attempted to develop and market effective coronavirus vaccines, it is one of the few that succeeded. However, there is much more to the story. Novavax's drug candidate earned authorization where it arguably matters most, in the U.S., in mid-2022. But it encountered manufacturing problems that significantly delayed the launch of its product.
By 2023, even the most successful companies in this market, such as Pfizer and Moderna, were losing steam due to the predicted decline in the COVID-19 vaccine market. Novavax encountered the same fate. Further, the company faced some legal issues with the Vaccine Alliance (Gavi, an international organization that works to improve access to vaccines), which had ordered a number of doses -- $700 million worth, to be exact, paid in advance -- of Novavax's COVID-19 vaccine.
However, Novavax later canceled the agreement, arguing that Gavi had failed to obtain the vaccines as the two parties had agreed upon. Gavi felt it was entitled to a refund and pursued the matter in court. Fortunately, the two parties recently reached a settlement. Novavax issued an initial refund of $75 million and will pay up to $400 million to Gavi in annual, quarterly installments amounting to $80 million per year through 2028.
Though this resolution helps Novavax's prospects by removing the uncertainty linked with this legal problem, it hardly makes the biotech an attractive stock.
Consider the company's financial results last year. Novavax generated revenue of about $1 billion, half of what it reported in 2022. On the bright side, the company was able to improve on the bottom line thanks to aggressive cost-cutting measures. Its net loss per share of $5.41 in 2023 was much better than the loss per share of $8.42 recorded in 2022.
Still, the company's prospects don't look exciting. Novavax expects revenue of $800 million to $1 billion in 2024. So, at best, management thinks the top line will remain flat compared to 2023. And it is worth noting that these estimates are hard to trust fully. The transition to a commercial market for COVID-19 vaccines makes things difficult to predict. This much uncertainty makes Novavax's prospects shaky. That's not an attractive quality for a company.
There is very little hope in other markets
Novavax has no other approved products right now. The biotech does have a somewhat promising candidate that should enter late-stage studies in the second half of this year -- a combined coronavirus/flu vaccine. However, the biotech is still some ways away from launching this product on the market. It would take at least two years, and that's optimistic.
Further, Novavax isn't the only company on this trail. Pfizer and Moderna are also developing combined COVID/flu vaccines. Pfizer's is already in late-stage studies, as is Moderna's. Even if Novavax were to be successful in this endeavor, it would run into a familiar problem. Its combo vaccine would likely somewhat cannibalize sales of its stand-alone COVID-19 vaccine.
True, those seeking to get protection against the flu would help increase sales of this investigational product, but given the stiff competition Novavax will likely face in both markets, it's not clear that its most advanced pipeline candidate can help it reverse its recent misfortunes, even if it crosses the clinical and regulatory obstacles that still lay ahead. So, Novavax is unlikely to turn things around anytime soon.
Some biotechs that rose to prominence due to their coronavirus-related work have become completely irrelevant. There is a good chance the same might happen to Novavax. Investors should stay away; there are much better biotech stocks to invest in today.
