Atrocious, bad, dismal, horrible. Pick your favorite of these adjectives, and it will definitely apply to Novavax's (NVAX -0.90%) second-quarter update.
The vaccine maker reported on Monday that its Q2 revenue fell nearly 57% year over year to $186 million. That's especially worrisome, considering that Novavax's COVID-19 vaccine wasn't on the market anywhere a year ago.
What's more, Novavax slashed its full-year revenue guidance. It previously projected 2022 revenue of $4 billion to $5 billion. Now, the company is looking for revenue of only $2 billion to $2.3 billion.
Unsurprisingly, Novavax stock crashed on the atrocious, bad, dismal, horrible news. There's reason to believe that the company's revenue could fall even more in the near future. Believe it or not, though, that could actually be good news for Novavax.
Lower revenue ahead
The idea that Novavax's revenue could decline isn't one I invented. Actually, the projection is based on the company's management's own words.
John Trizzino, Novavax's executive vice president, chief commercial officer, and chief business officer, discussed in the company's Q2 conference call about where the COVID-19 vaccine market is likely headed. He said that Novavax expects the market will be between 25% and 50% greater than the current flu vaccine market.
The global flu vaccine market totaled $6.59 billion in 2021, according to Fortune Business Insights. If we use the low end of Trizzino's range, that would translate to a COVID-19 vaccine market of roughly $8.25 billion per year.
Trizzino also stated that Novavax thinks it can capture 20% to 25% of the COVID-19 vaccine market going forward. Again, if we use the lower end of his range, that would mean Novavax's sales would be somewhere in the ballpark of $1.6 billion -- well below the company's revenue guidance for 2022.
How could declining revenue even remotely be good news for Novavax? There's a simple answer: The revenue that Trizzino anticipates would be recurring.
Novavax's market cap currently stands below $3.2 billion. Based on the midpoint of the company's revenue guidance, the vaccine stock trades at less than 1.5 times expected sales. That's a super-low valuation for any biopharmaceutical company with a product already on the market.
The primary reason behind this low valuation is that there's considerable uncertainty about what the future demand for COVID-19 vaccines will be. If Novavax is able to generate annual sales of $1.6 billion, though, the company will be worth a lot more than its current market cap.
Keep in mind that we've used the most pessimistic numbers provided by Trezzino. We also haven't factored in any growth for the flu vaccine market that he used as a baseline for his projections. The global flu vaccine market is expected to grow to $10.7 billion by 2028. If we use the upper end of Trizzino's ranges, that would give Novavax potential annual revenue of around $4 billion.
Eight important words
However, Trizzino added eight important words: "All of this is very speculative in nature." His projections could be wrong.
But I'd argue that Trizzino's projections aren't farfetched. It's not unreasonable to expect that COVID-19 could transition into a market that's somewhat larger than the flu vaccine market. Many experts think that COVID-19 will be endemic. It's still often more severe than the flu.
Could Novavax really capture at least 20% of this market? I don't think it's out of the question.
Novavax's current woes are due, in large part, to the fact that the company's COVID-19 vaccine isn't authorized as a booster yet in most countries. The company could win those booster authorizations in Europe relatively soon. It expects to file for U.S. authorization of its omicron-targeting booster in the fourth quarter of 2022.
Also, Novavax holds the lead in developing a combination COVID-19/flu vaccine. It plans to advance a combo vaccine into late-stage testing next year.
Perhaps Novavax will still flop along the way. However, it's quite possible that the company will be able to generate solid revenue on a recurring basis beyond 2023. If so, investors will have to find some new adjectives to describe Novavax -- and they'll be positive ones.