Should You Give Up on Novavax?

During the early days of the pandemic, Novavax (NVAX -0.95%) jumped into the spotlight. That's after its COVID-19 vaccine program won a big investment from the U.S. government. And investors bet on the company's ability to bring its vaccine candidate to market. As a result, the shares skyrocketed, gaining more than 2,700% in a year.

But Novavax went on to disappoint investors. It won regulatory authorization a year after rivals, so it missed out on the initial big wave of demand and sales. Since then, the company hasn't been able to carve out much market share, and the stock has plummeted. In the fourth-quarter earnings report, the situation shifted from bad to worse. Novavax said various uncertainties exist, and they could lead to the company shutting its doors. Is it time to give up on this embattled stock? Let's take a closer look.

Lower-than-expected sales

First, some background on what's happened so far. Novavax's revenue climbed last year for one simple reason. Last year represented its first full year of sales for the coronavirus vaccine, Novavax's only commercialized product. Total revenue rose 73% to $1.9 billion. The problem is revenue was lower than the $4 billion to $5 billion the company predicted earlier in the year.

Most people who wanted a primary series already got it, resulting in a decline in demand and less need for Novavax's product. Today, Novavax's vaccine may be used as a booster. But here, too, Novavax won regulatory nods after rivals Pfizer and Moderna. At the same time, Novavax's expenses have climbed due to the costs of commercializing the vaccine.

In recent times, headwinds have multiplied. The company's partner in Japan, Takeda, said the country cancelled further purchases of Novavax's vaccine. The initial agreement covered 150 million doses. The cancellation means more than 141 million doses won't be bought by Japan.

Novavax also is facing a dispute with Gavi, the Vaccine Alliance. The company ended its purchase agreement with Gavi, saying the organization failed to order the agreed upon number of vaccine doses last year. But Gavi says Novavax wouldn't be able to fulfill its manufacturing promises.

Finally, the U.S. government has said its funding agreement with Novavax wouldn't continue beyond the end of this year. And that means Novavax could miss out on part of $400 million of funding from the government. The company is discussing potential solutions with the government. But the situation remains a risk.

Whether the company survives

What happens with U.S. funding and the Gavi dispute could help determine whether the company survives. Novavax's financial future also will depend on its ability to provide a vaccine updated with the latest strains for the fall vaccination season. Novavax's vaccine manufacturing process takes more time than that of Pfizer and Moderna. That could set Novavax behind -- something that would be disastrous for sales.

Right now, Novavax's forecasts suggest it has enough cash to continue operations through the coming year. But the risks mentioned above could change that.

"Given these uncertainties, substantial doubt exists regarding our ability to continue," the company said in its earnings report.

What does this mean for investors?

In the past, I've talked about Novavax's chances to excel in the long-term coronavirus vaccine market. The company is studying a promising combined flu/coronavirus candidate in phase 2 trials. But to reach success with that potential product, Novavax must have the financial strength to survive. Today, the company itself has pointed to doubts -- and that's not good news for investors.

So, should you give up on Novavax? It depends on your tolerance for risk and whether you already own the shares. If you're a shareholder, you might consider holding instead of selling at a loss. Novavax stock has dropped about 97% since its peak in 2021.

Now, the biotech is making big efforts to cut costs and turn today's difficult situation around. It might be successful. And any good news could significantly lift the stock.

But if you don't own Novavax already, my best advice is to wait and watch the company's progress this year. Getting in on this story today is way too risky.