The Novavax (NVAX -4.82%) rollercoaster has been a wild one. The stock soared more than 2,700% in 2020 after the company received $1.6 billion from the U.S. government to develop the COVID-19 vaccine we now know as Nuvaxovid.
Unfortunately, Novavax didn't receive authorization to sell its vaccine in the U.S. until this July. Disappointed investors have pushed Novavax's stock price down around 93% from the peak it reached in early 2021.
Part of Novavax's losses came in response to a recent downgrade from JPMorgan Chase analyst Eric Joseph. On Thursday, Sept. 22, 2022, Joseph lowered his rating from neutral to underweight and reduced his price target on the stock from $132 down to $27 per share.
Why Wall Street's losing faith in Novavax
When Novavax reported first-quarter results in May, the company told investors to expect between $4 billion and $5 billion in revenue this year. In August, shortly after its vaccine became available in the U.S., the company had to lower its revenue estimate dramatically. Now, total revenue this year is expected to land between $2.0 billion and $2.3 billion.
Joseph downgraded Novavax mainly because he believes the company's latest estimate is too generous. Nuvaxovid was developed to address the original strain of the virus responsible for COVID-19, not the omicron variants that the first generation of vaccines has a limited response against.
With bivalent boosters that address prevailing variants already available in the U.S. from Pfizer and Moderna, Nuvaxovid's domestic audience will be extremely limited.
What the bulls say
A lack of visibility regarding Nuvaxovid is troubling, but this vaccine itself isn't the reason intrepid investors are buying up shares of Novavax. Long-term investors are attracted to the valuation the stock is trading at. Novavax finished June with $1.4 billion in cash on its balance sheet, but its market cap is only $1.8 billion at recent prices.
In a sense, the market is looking at Nuvaxovid and the rest of Novavax's development platform and saying it's only worth around $400 million. Nuvaxovid probably won't meet expectations, but the stock's valuation seems too low for a company with a proven vaccine development platform.
Novavax bulls are particularly excited about an experimental combination vaccine that protects against flu and COVID-19 at the same time. The flu component succeeded in a phase 3 trial in 2020, and a phase 1/2 study with the COVID-19-influenza combination vaccine candidate produced encouraging data earlier this year.
Image source: Getty Images.
Why I'm not buying
Novavax has lots of cash on its books now, but it probably isn't enough to avoid another dilutive capital raise before a COVID-19 and influenza combination has a chance to generate sales.
The company burned through a frightening $510 million in the second quarter, and the road ahead will get bumpier. The company has a big $325 million convertible note on its books that matures in February 2023, and increased development activity will push operating expenses much higher. The company intends to begin a big phase 3 trial with its COVID-flu combination candidate in 2023.
With updated COVID vaccines that address prevailing variants already available, Nuvaxovid sales will most likely continue to disappoint. Novavax won't stop trying to market it at a loss, though, because it's the company's only commercial-stage product.
If Nuvaxovid sales continue along their depressing trajectory, investors can expect the company's cash cushion to melt away before the end of next year. Given its recent history, expecting Novavax to develop its COVID-19-flu combination shot quickly enough to avoid the need for heaps of dilutive financing is a bad idea.
With rising expenses and no way to make ends meet, Novavax probably isn't a stock that you want in your portfolio right now.
