The pandemic set off an intense race among pharmaceutical companies to produce effective vaccines against COVID-19. Pfizer and Moderna proved to be the leaders. But other companies like Novavax's (NVAX 2.06%) have been hard at work in the laboratory as well.
Yet, despite getting its Nuvaxovid coronavirus jab approved for sale in the U.S., E.U., Japan, and a bevy of other places, Novavax saw its stock fall more than 93% in 2022. Further losses could well be on the way, and that should discomfort shareholders and prospective buyers alike. Here's why.
Old problems remain as disruptive as ever
Novavax's critical weakness continues to be its manufacturing operations, which since mid-2021 have struggled to scale up to meet the company's ambitions -- never mind the purchase orders for which it already received payment from customers.
In short, the company uses a more complicated vaccine manufacturing platform than its competitors, and the platform appears to be considerably more difficult to scale up. And that's (still) costing it valuable business.
Per its 2021 annual report, the biotech had an advance purchase agreement with Gavi, a global nonprofit vaccine purchasing group, for 350 million doses. Likewise, by the end of 2021 it had agreed to deliver between 20 million and 100 million doses to the E.U.
Other major international purchasers inked deals for similarly large quantities in 2020 and 2021, driving Novavax's trailing-12-month revenue to grow to more than $1.8 billion, though it remains unprofitable. Management said it would be able to produce as many as 2 billion doses annually once its manufacturing scale-up was complete.
But as of its Q3 update in mid-November 2022, Novavax had only produced and delivered around 94 million doses worldwide across all its customers since the shot's approvals. Its agreement with Gavi fell through in late November. That news left a hefty dent in its share price, and now the two appear to be headed for a legal confrontation to settle the issue.
Meanwhile, Novavax was forced to return $112.5 million to the U.K. government in December after its order for up to 15 million doses was slashed in half because it failed to get regulatory approval for its vaccine before a specified deadline.
Novavax also said that it would pay one of its foreign contract vaccine manufacturers a termination fee of up to $185 million in several installments in 2023 as the company was unable to find sufficient demand for the contractor's production capacity -- also a curious turn of events.
These fees and refunds mean less cash in hand for research and development programs and commercialization infrastructure too.
Is a recovery in the works?
As you can see, the 2022 bear market was not the key issue for Novavax as it had a slew of material setbacks that far outweighed market factors. It's hard to have faith in the company's leadership team at the moment, but it could still stabilize from its tailspin under the right conditions.
Righting the ship will take money, if only to keep the lights on while the manufacturing issues are ironed out. As of Dec. 28, the company is shoring up its cash reserves, raising a total of $250 million by issuing roughly $175.2 million in convertible debt notes and making a new offering of its stock that was worth $74.7 million. That'll dilute shareholders while also adding to the $697.1 million in existing debt that it reported in the third quarter.
But it could make the biotech's 2023 look a bit different than 2022, and perhaps things will be a bit sunnier for shareholders as well. A new CEO is slated to take control on January 23, which could make for a big improvement in getting its manufacturing issues sorted for good. Commercially, the focus will be on finding a market for Novavax's vaccine formulated as a booster, and also on advancing an updated version of Nuvaxovid that's effective against the circulating viral variants.
Of course, it could be a challenge to convince prospective buyers that the company is capable of actually delivering these doses -- and that's the ultimate reason why it's probably a good idea to avoid buying this stock.
