Novavax (NVAX 3.54%) shares have brought investors extremely good times and extremely bad times. They soared back in 2020 on hopes the biotech would score a win with its coronavirus vaccine candidate. But as Novavax fell behind in the race, the stock retreated.
Since then, Novavax has launched a vaccine, but the late-to-market entry meant it missed out on the biggest revenue opportunity. After all, vaccine demand is on the decline as we head toward a post-pandemic situation.
But that isn't holding back Wall Street's optimism about Novavax's stock performance potential. The average analyst forecast calls for a 150% increase over the coming 12 months.
Should you follow Wall Street's signal and buy the stock?
A year behind leaders
First, let's talk about Novavax's position in the coronavirus vaccine market. As mentioned, Novavax commercialized its vaccine later than leaders Pfizer and Moderna. In fact, the company launched its vaccine about 1 1/2 years later, depending on the regulatory timeline of each country.
Novavax brought in annual revenue of more than $1 billion last year, but that came in much lower than Moderna's revenue. The two are comparable because they both are biotech companies relying on one product -- the coronavirus vaccine -- right now.
NVAX Revenue (Annual) data by YCharts.
Today, Pfizer, Moderna, and Novavax all are preparing to release updated vaccines for the fall vaccination season and await the go-ahead from regulators. The idea is to begin vaccinations by late September, if possible.
All three companies still are providing vaccines directly to governments through contracts but are also transitioning to a commercial market. This means they're competing to sell vaccines directly to healthcare providers. Moderna and Pfizer, after dominating the pandemic vaccine market, may find it easier to win over these customers, and that could make things difficult for Novavax.
Meanwhile, Novavax has taken steps to match its investments with the future revenue opportunity. Earlier in the year, it launched a restructuring plan, with a goal of reducing research and development and selling, general, and administrative expenses. Novavax aims to cut these expenses by 40% to 50% next year, compared with 2022.
Cutting liabilities by $1 billion
Novavax has taken positive steps here, reducing those expenses by $85 million in the second quarter year over year and cutting total liabilities by more than $1 billion this year. The company says it's on track to reach its savings goals.
Novavax is getting ready to compete in this fall's commercial vaccine market and is progressing with its cost cuts. That's positive. And at the same time, its shares are trading at their pre-pandemic levels. Prior to the health crisis, Novavax didn't have any products on the market, so the stock today may look like a bargain.
But before diving in, it's important to consider the whole picture. Novavax still faces a decent amount of uncertainty, from its lagging position in the vaccine market to a dispute with Gavi, an international organization committed to improving vaccines for children in underdeveloped countries. The vaccine alliance wants to take back $700 million in pre-payments it made to Novavax as part of a contract. We won't know the outcome of this until an arbitration that's set for next summer.
It's also important to consider Novavax's pipeline, which we could argue, is pretty narrow. The company has a flu vaccine in phase 3 studies and a combined coronavirus/flu shot in phase 1/2 trials. It's also working on a candidate for malaria.
Of these candidates, the combined vaccine stands out as a potentially big winner -- if Novavax is able to bring it to market before its rivals launch combined vaccines.
Is Wall Street right?
Now let's get back to our question: Should you get excited about Wall Street's optimism and buy this struggling biotech company? Before answering, I'll say this: I think Wall Street is too optimistic considering the uncertainties I've mentioned above and the fact that Novavax still is early in its recovery story. I'm not convinced the stock will climb 150% over the coming 12 months.
That said, if Novavax delivers some good news -- such as gains in the vaccine market or a win in the Gavi dispute -- the shares could move higher.
So, should you buy? Novavax remains a risky bet for the uncertainties mentioned above, and that's why cautious investors should watch this stock from the sidelines. If you can handle some risk, though, you may want to scoop up a few shares and bet on the promise of the company's potential combined vaccine.
