A few years ago, biotech company Novavax (NVAX 3.54%) looked like a promising stock. It emerged as a leader in the development of a COVID-19 vaccine, which sent its share price through the roof.
However, there have been a lot of negative developments for Novavax since then, and as a result, the biotech has given up all of its gains. Is there any hope for Novavax? If the company can improve its situation, investors who get in on the stock now could earn outsized returns.
Let's find out whether Novavax is likely to pull off a comeback or whether the best the company has to offer is in the rear-view mirror.
What does the COVID-19 market look like?
Novavax's sales for 2023 declined substantially compared to 2022. For the full fiscal year, the company expects total revenue of between $900 million and $1.1 billion. It reported revenue of about $2 billion in 2022, which means at the midpoint, its 2023 top line will be cut in half compared to the previous fiscal year. There is little reason to think Novavax will perform much better in 2024.
Thankfully, we are no longer in an emergency, and there is less need for COVID-19 vaccines. To be clear, many people will still choose to get inoculated. After all, the coronavirus can still lead to severe disease, complications, and death, especially for those patients with other underlying conditions. However, this market isn't nearly as attractive as in the earlier pandemic years. And whatever is left of it won't be dominated by Novavax.
Other companies, namely Moderna and the team of Pfizer and BioNTech, have consistently dominated this space over Novavax. They entered the market first and generated tens of billions in revenue from their products. Where does that leave Novavax? While its coronavirus vaccine is approved in multiple countries, it seems doubtful that it can generate enough revenue and profits from this market alone to turn things around.
So, Novavax will have to launch other products to get back in the good graces of investors.
Novavax looks trapped
For a biotech company the size of Novavax -- its current market capitalization is just over $500 million -- it isn't a tragedy to have just one product on the market that generates little revenue. Some similarly sized clinical-stage peers look somewhat promising.
The secret is to have exciting pipeline candidates in late-stage studies and the funds to push these programs through the final clinical and regulatory hurdles -- and Novavax seems to be lacking in both categories.
First, the company has two non-coronavirus candidates in the pipeline (this does not include a malaria vaccine that uses Novavax's proprietary technology and is authorized in some countries). That's not a bad number, but they are both still in phase 2 clinical trials. The first is a vaccine for the flu, while the second is a combined COVID/flu vaccine.
Both could be relatively successful, especially the second one. Making one trip and getting one shot to get inoculated against the coronavirus and the flu beats having to get one shot for each. Novavax hopes to start a phase 3 study for this combined vaccine candidate this year. However, neither one of these products will hit the market until 2026 at best. A lot can happen between now and then to prevent them from ever seeing the light of day, outside the lab anyway.
They could run into clinical or regulatory problems, or Novavax could encounter funding issues. Speaking of which, the biotech ended the third quarter of 2023 with $666 million in cash, equivalents, and restricted cash, compared to $518 million as of the end of the second quarter. Novavax was able to increase its cash balance thanks to a sale of common stock.
Of note, Novavax started 2023 by telling investors that it was at risk of running out of money and going out of business. The company has since implemented cost-cutting strategies. Still, with an uncertain COVID-19 vaccine market and no biotech with deep pockets as a partner, the company's financial situation hardly inspires confidence.
With all that going on, can Novavax bounce back? Maybe it can, but no one -- at least nobody without an incredibly high-risk tolerance -- should bet on it. In my view, the biotech doesn't have much to offer investors. The best likely is in the rear-view mirror for Novavax.
