Novavax (NVAX 3.54%) shares soared more than 30% in one trading session this week. That's a huge gain for any stock. But it's particularly impressive for Novavax. The biotech stock has been in the doldrums ever since the company fell behind in the coronavirus vaccine race -- and statements from the company earlier in the year pushed the shares even lower. That's because Novavax called into question its own ability to keep its business going.
So, why the big gain now? Canada agreed to pay Novavax $350 million for unused doses of the biotech's coronavirus vaccine. This is an amendment to the original advance purchase agreement. Is this a good sign for the embattled company and for investors?
At the head of the race
First, a little background on Novavax's problems. The company started out at the head of the coronavirus vaccine race -- and thanks to that posted a mind-boggling gain of more than 2,700% back in 2020. But when the company fell behind, investors took notice. The stock tumbled as Novavax's vaccine -- its only commercialized product -- entered the market at least a year behind rivals.
And because of that late debut, Novavax missed out on much of the revenue opportunity. This is evident when you compare the revenue of Novavax to that of vaccine leader Moderna.
NVAX Revenue (Annual) data by YCharts
To make matters worse, earlier this year, Novavax said its cash-flow forecast was subject to uncertainty. And therefore, the company expressed "substantial doubt" regarding its ability to continue business. Novavax then said uncertainties included funding from the U.S. government regarding vaccine doses and a dispute with Gavi, an organization that provides equitable vaccine access. As a result, shares of Novavax sank 27% in the first half of this year.
Now let's get to the latest news. Canada agreed to pay Novavax, as mentioned above, for vaccine doses that it had originally ordered but then forfeited. The country will pay the fee in two equal installments this year -- one right away, and the other after the delivery of new vaccine doses in the second half of this year. The amendment maintains the value of the original agreement.
Good near-term news
This clearly is good news for Novavax because it could help keep the company going in the near term. As Novavax suggested earlier, elements affecting cash flow could be decisive. In this case, the payment should offer cash flow a boost. Meanwhile, Novavax has been aggressively cutting costs to manage through this difficult time. The effort involves cutting 25% of the global workforce with the goal of reaching cost savings of at least 40% next year.
All of these details are positive. And good signs if you're wondering whether Novavax has what it takes to keep operating. But I would remain cautious about Novavax shares right now. That's because it's still not clear how Novavax will grow revenue over the next couple of years.
The company probably will find its vaccine on the shelves next to those of Moderna and the other market leader, Pfizer, this fall. But these companies dominate the market. So, it's unlikely Novavax can carve out significant share. Novavax does have a promising combined coronavirus/flu candidate involved in clinical studies right now. And such a product could lead to revenue growth. But that candidate still is in phase 2 trials.
What could happen
Meanwhile, Novavax doesn't have another compelling product to rely on in the coming year or so. This means, in the best situation, Novavax must succeed in its cost-cutting program and bring in enough coronavirus vaccine revenue to continue developing its combined candidate -- or find a partner to support that development.
The company said in an earnings call earlier this year that to "unlock the potential" of its assets it would take the necessary steps, including business development deals.
All could turn out just fine for Novavax. But right now, a lot of uncertainty remains. The company may be finding near-term solutions to keep going, and that's great. But, as a long-term investor, you'll want to have some visibility on prospects a few years down the road. And right now, it's too early to get a clear picture. So, yes, the Canada news is a good sign for Novavax. But, for most investors, it's not a buy sign.
