They say that timing is everything. Unfortunately, Novavax (NVAX 2.70%) hasn't had great timing. The company was late to the party in winning authorizations for its COVID-19 vaccine, Nuvaxovid. And now it almost seems as if the party is already over.
If you only looked at Novavax's press releases, you wouldn't know about some recent bad news for the company. Novavax's only announcement so far in February is that the U.S. government plans to buy an additional 1.5 million doses of the company's COVID-19 vaccine. But there has indeed been a negative development that far overshadows this incremental win. Could it even be the telltale sign to sell Novavax stock?
Land of the setting sun?
Novavax scored a victory back in 2020 by partnering with large Japanese drugmaker Takeda Pharmaceutical. The connection with Takeda opened up what seemed to be a significant opportunity in the Japanese vaccine market.
In 2021, the Japanese government agreed to buy 150 million doses of Nuvaxovid from Takeda. Novavax's agreement with Takeda enabled it to receive a portion of the proceeds from the sales as well as development and commercial milestone payments. Now, though, any hopes Novavax might have had of making a lot of money in the Japanese market appear to have evaporated.
Takeda revealed on Feb. 10 in a filing to the U.S. Securities and Exchange Commission (SEC) that Japan's Ministry of Health, Labour, and Welfare has canceled the purchase of any additional doses of Nuvaxovid. The drugmaker had only supplied 8.24 million doses of the original order. None of the remaining 141.76 million doses will be bought by the Japanese government.
This cancellation probably shouldn't come as a shock. Takeda CFO Costa Saroukos acknowledged in the company's third-quarter conference call earlier this month that the market demand for Nuvaxovid was lower than expected. Saroukos attributed this low demand to "the current situation of vaccination in Japan and prevalence of omicron."
Novavax's dilemma
Japan's cancellation of the Nuvaxovid order doesn't really affect Takeda very much. In the SEC filing, Takeda stated that the financial impact was "immaterial." But it's a different story for Novavax.
The bad news from Japan comes at a time when Novavax needs all of the international sales it can get. Why? The weak demand in Japan underscores the "new normal" for the COVID vaccine market across the world. Even worse, though, the U.S. market is about to become much more challenging for the company.
So far, the U.S. government has been the sole buyer of all COVID-19 vaccines. That will soon change. The Biden administration plans to transition to a private market by early fall 2023. It could be even sooner. White House COVID response coordinator Dr. Ashish Jha recently stated that the federal government could potentially begin to shift purchases of COVID vaccines to private payers this summer.
This means that Novavax will have to compete directly in the private market against Pfizer and Moderna. Both of these rivals have a lot more money to fund sales and marketing efforts than Novavax does. Pfizer, in particular, already has a large national sales team with long-term relationships with many healthcare organizations.
A sign to sell?
Is the Japanese purchase cancellation a telltale sign for investors who have held onto Novavax stock to sell? It's certainly yet another confirmation of the difficult situation Novavax is in. However, there is still one reason for investors to at least consider hanging on to the vaccine stock.
Combination COVID-flu vaccines could be the future of the market. As of right now, Novavax has a lead over both Pfizer and Moderna. If the company can maintain that lead and win approvals for its combo vaccine first, the stock just might have significant upside potential.
One obstacle is that Novavax needs to catch up with its rivals in rolling out vaccine versions that target the latest coronavirus variants. Novavax has stated publicly that it plans to deliver vaccines that meet U.S. Food and Drug Administration booster recommendations for the 2023/2024 vaccination season. Takeda also said in its recent SEC filing that it's "working with Novavax to develop vaccines against the future variants."
Maybe Novavax could again be a high-flying stock. But the company (perhaps hand-in-hand with its big Japanese partner) absolutely needs to beat the competition to market. Timing truly is everything.
