Novavax (NVAX 3.54%) soared more than 2,700% early in the pandemic as investors bet on its ability to bring a coronavirus vaccine to market. The company followed through on that -- but not as quickly as planned. Novavax's product launched more than a year after those of rivals. This meant Novavax missed out on the biggest revenue opportunity, disappointing investors. As a result, the stock plummeted, and today is down 98% from its peak.
The vaccine maker has gone through difficult times, having to lower costs to ensure its survival, and Novavax also is in the middle of a dispute with one of its customers -- Gavi, an alliance that promotes access to vaccines. Still, five Wall Street analysts covering the stock forecast this down-on-its-luck stock may soar a whopping 379% in the coming 12 months. Does this make the stock a buy now? Or is Wall Street being too optimistic?
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Novavax falls behind
Novavax's COVID-19 vaccine hit the market after the initial big waves of vaccinations, and after countries already had signed big supply deals with market leaders Pfizer and Moderna. These two companies vaccinated most of the population, and doctors and pharmacists became very familiar with their mRNA-based products.
Novavax's product, based on a traditional vaccine technology, hit the market with the hope it would catch on with those who hesitated to go for mRNA vaccines. But that hasn't been enough to offer Novavax significant market share or enough revenue to support growth. In fact, early last year, Novavax even questioned its ability to keep its business going and launched a major cost-cutting plan.
The company cut 20% of its workforce last year, aims for further reductions this year, has reduced current liabilities by $1 billion, and is set to lower research and administrative expenses by more than 55% this year compared to 2022.
At the same time, Novavax continues to sell its coronavirus vaccine and is shepherding its combined COVID/flu vaccine candidate through clinical trials with the goal of a 2026 launch. A combined vaccine could more easily attract those who opt for an annual flu vaccine -- about half of the U.S. population, according to recent vaccination rates.
So, a combined vaccine could help Novavax win in the coronavirus vaccine market...if Novavax launches that product at around the same time Pfizer and Moderna launch their combined vaccines, or earlier. The two leaders also are working on combination candidates, and if they beat Novavax to market by a year or more, Novavax may struggle to catch up once again. That's one uncertainty to consider. And this assumes all three companies will successfully reach the finish line with their vaccines.
Gavi's dispute with Novavax
A second uncertainty is Gavi's dispute with Novavax, which is currently under arbitration. The company says Gavi failed to secure the number of doses required by its advance purchase agreement. Gavi says Novavax breached the agreement, and therefore Gavi is requesting a refund of nearly $700 million. Considering Novavax right now has $666 million in cash, a decision in Gavi's favor could be terrible news for the company.
It's also important to keep in mind that the coronavirus program is Novavax's only source of revenue, and its pipeline focuses on COVID and flu.
Now let's get back to our question: Is Novavax a buy now? Even if Novavax prevails in the Gavi dispute, I wouldn't expect the stock to soar more than 300% in just 12 months without another big catalyst, so I think Wall Street is being extremely optimistic.
Over time, if Novavax goes on to advance its combined vaccine and show it can compete with bigger rivals, then we might expect a triple-digit gain. But, if Novavax loses in the Gavi dispute or falls behind in the combination vaccine race, the stock could fall from today's levels.
All of this means Novavax continues to be a risky bet, with a lot depending on the two challenges I mentioned as well as its ability to continue keeping costs in check and to continue funding its combination vaccine program. So, in spite of Wall Street's optimism, unless you're a very aggressive investor, you may want to watch Novavax from the sidelines right now.
