Even as mask mandates end in the U.S., the global market for coronavirus vaccines continues to evolve. On April 19, Novavax (NVAX 4.64%) reported that its Nuvaxovid jab against the coronavirus had been approved by regulators in Japan for use in a primary immunization series as well as a booster shot. With the help of Takeda Pharmaceutical Company (TAK -0.74%) as the company's local collaborator, the commercialization of Nuvaxovid is now in full swing.
The only question is: Will this do anything to stem Novavax's stock's loss of more than 61% this year? The answer is more complicated than it might seem.
Will supply be able to meet demand?
The approval in Japan is just the latest of a handful of green lights for the company in recent months. Novavax's jab is currently authorized by the World Health Organization (WHO), not to mention in the E.U., Switzerland, India, Indonesia, and South Korea, among other countries. Though its application with U.S. regulators is still pending, it could be coming quite soon.
On its own, being able to sell Nuvaxovid in Japan is a wholly positive (albeit expected) development for shareholders. If everything goes as planned, management thinks that it'll see total annual revenue of $4 to $5 billion for this year. But hitting within expected annual revenue ranges is far from being guaranteed: in 2021, Novavax anticipated $4.3 billion in revenue, though trailing 12-month sales reached only $1.1 billion. Raking in some extra cash from the Japanese market will be helpful in topping last year's income.
The trouble is, none of these approvals will matter much if demand is less than anticipated or if Novavax can't serve existing demand in the form of advance purchase agreements (APAs) can't be served by Novavax in a timely fashion. As recently as February, for instance, dose shipments to key customers, like the Philippines, were running behind schedule.
Still, I rate it as unlikely that Novavax will experience issues that would cause it to whiff as badly on the 2022 earnings forecast as it did in 2021 since it has had a significant amount of time to remedy its issues.
Will earnings follow sales?
There is another scenario in which the approval in Japan matters significantly for shareholders. If Novavax can't profitably serve demand from the newly opened market (or its other markets), it might actually end up destroying value.
Consider the below chart, which tracks Novavax's total expenses as a percentage of revenue and its profit margin.
The fact that Novavax isn't profitable is starting to get a bit concerning, considering that its manufacturing operations are scaling up to serve around 2 billion doses this year, with more capacity coming after that. Serving demand unprofitably will result in losses that will be reflected in the stock price and grind down its cash reserves of $1.5 billion.
Of course, Novavax is free to price its jab according to what it thinks countries will be willing to pay, so it can control its margin to an extent. The trouble is, in high-income countries like Japan, most people are already vaccinated, even if they aren't boosted. S That lessened demand reduces the company's ability to ask for a higher price. Moreover, competitors which are already established will probably be able to undercut Novavax's pricing.
That dynamic makes the fresh approval somewhat less exciting, even if it's most likely a good development for the share price in the long run.
But I don't think this risk of value destruction via unprofitable growth is going to be realized, at least not imminently. For now, these concerns are largely hypothetical, and we'll get a better idea about where the business stands by the middle of 2022.