Pretty much everything seems to be going as hoped for Novavax (NVAX) these days. The company reported great interim results from a U.K. late-stage study of its COVID-19 vaccine NVX-CoV2373 in late January. It's also completed enrollment in the U.S. and Mexico pivotal study. Novavax appears to be on track to win emergency use authorizations in the U.K., U.S., and other countries over the next few months.
But there's a potential problem on the horizon. Adar Poonawalla, CEO of the Serum Institute of India (SII), the world's largest vaccine maker, issued a warning last week that could be bad news for Novavax.
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A stark warning
Poonawalla told members of a World Bank panel on March 4, 2021, that organizations face a shortage of the raw materials they need to manufacture COVID-19 vaccines. He specifically pointed to shortages in items such as bags and filters.
He wasn't alone in sounding the alarm. Soumya Swaminathan, chief scientist at the World Health Organization (WHO), also said that there was a global shortage of glass, plastic, stoppers, and vials used with COVID-19 vaccines.
What's causing these issues? Poonawalla singled out the U.S. government's enactment of a law that blocks the export of items critical in the manufacture of COVID-19 vaccines.
Last month, the Biden administration invoked the Defense Production Act in the fight against the COVID-19 pandemic. The act, which was passed in 1950 during the Korean War, gives the president emergency powers to harness the production of U.S. companies to address critical national security needs.
The Biden administration especially wanted to make sure that Pfizer has everything it needs to ramp up production of BNT162b2, the COVID-19 vaccine it developed with BioNTech. Pfizer ran into problems obtaining all the raw materials it needed to make the vaccine in late 2020, causing the big drugmaker to lower its production targets.
How Novavax could be affected
So how does this impact Novavax? The company inked a deal last year for SII to manufacture around 1 billion doses of NVX-CoV2373 in 2021. In February, Novavax announced a memorandum of understanding with SII and Gavi (an international organization that works to increase access to vaccines in poor countries) to provide 1.1 billion doses of its COVID-19 vaccine. That target could be in jeopardy.
Poonawalla stated, "The Novavax vaccine, which we're a major manufacturer for, needs these items from the U.S. If we're talking about building capacity all over the world, the sharing of these critical raw materials is going to become a critical limiting factor -- nobody has been able to address this so far."
Novavax CEO Stanley Erck alluded to the potential raw material shortage in his comments during the company's fourth-quarter conference call. When asked about Novavax's production capacity, he replied that "there's some scrambling to get enough raw materials to make all the plants work at full speed." Erck added, "But I think we're getting there."
So far, Novavax has supply agreements in place for around 300 million doses of NVX-CoV2373 with governments around the world. That includes 100 million doses for the U.S. government. The raw materials for those doses targeted for the U.S. should be readily secured thanks to the invoking of the Defense Production Act.
Should investors worry?
Supply shortages certainly could be an issue for Novavax. Poonawalla emphasized that if enough raw materials arent' available from the U.S. it's "going to be a serious limiting factor."
We don't know how much Novavax is charging for the 1.1 billion doses it hopes to supply for use across the world. It's likely that the company's profit margin on those doses is well below what it will make in the U.S., U.K., and other developed nations.
There's also a good chance that the Biden administration will relax export restrictions once the majority of Americans have been fully vaccinated. That could happen as soon as this summer.
Regardless, any issues that Novavax faces related to global supply shortages are likely to be only temporary. With the likelihood that NVX-CoV2373 will soon win key authorizations, the biotech stock should still have tremendous growth prospects in the months ahead.
