Like many of the biotechs pursuing coronavirus vaccine development, Novavax (NVAX 3.54%) has seen better days. Its shares are down by 96% over the past three years, and the company's remaining shareholders face fading hopes for a spontaneous revival.
Nonetheless, while there are a few good arguments for why you should avoid investing, there's still one big reason to buy Novavax stock. Let's discuss the major point in its favor that might drive some to be interested in buying it, then follow up with a trio of reasons it would probably be better to sell.
A reason to buy: Its shot could be more effective than the competition's
As a vaccine business, Novavax intended its coronavirus vaccine, Nuvaxovid, to be its first commercialized product as well as its golden goose. Now, with trailing-12-month revenue of just over $1 billion -- down from nearly $2 billion in 2022 -- many would say that Nuvaxovid was not nearly as much of a success as the ubiquitous shots made by Pfizer and Moderna.
But that elides a trio of issues that are still as important as ever. The jabs made by the other two manufacturers don't actually stop viral transmission; they don't confer long-lasting immunity; and they can pack a wallop of short-term side effects, particularly fatigue.
Nuvaxovid appears to perform better across all three factors, especially in situations where people get vaccinated with it as their primary series and then opt to get one or more booster doses over time.
While it doesn't prevent people from getting infected with perfect reliability, it does appear to generate antibodies against COVID precisely where its competing vaccines don't -- in the nose and mouth. The nose and mouth are where the virus first has an opportunity to infect someone, so Novavax's vaccine has an edge in guarding against transmission.
Furthermore, the bulk of that protection lasts for at least seven months, as opposed to three months for the other vaccines. And few patients complain about the side effects as they're transient and non-burdensome in most cases.
So, the key features of Novavax's product are a bit better, which means that it could have an advantage in capturing market share from highly informed patients. It's unclear whether its advantages will persist as it continues to be updated based on circulating viral variants, but for now it looks like the most potent option. That might convince some people to buy the stock.
Now, let's look at a trio of reasons why this stock is actually worth selling rather than buying.
1. Demand is gone
Let's look at this chart depicting the revenue trajectories of a few major coronavirus vaccine manufacturers:
NVAX Revenue (TTM) data by YCharts.
Notice the pattern? Revenue is declining from the peak. Demand in the market is tapped out. The coronavirus vaccine gold rush is long over. There almost certainly won't be a sharp uptick in demand for more doses, and if the data are to be believed, only 20% of people in the U.S. are opting to stay current with their booster shots this season.
It is possible that there will be some residual demand for jabs on an ongoing basis for as long as the pandemic continues. Novavax may also launch additional products for other indications eventually. But for now, the future for its market is bleak, and that's a reason to sell.
2. Its costs remain too high
Another reason to sell Novavax is that the company was never able to become profitable despite launching its shot and raking in a few billion dollars in sales. In the past 12 months, its total quarterly expenses have actually grown as a proportion of revenue. It isn't anywhere close to breaking even. And with demand in withdrawal, it probably can't.
What's more, with decreasing demand necessarily comes a dialing back of its manufacturing output. That means it's less likely to be able to utilize economies of scale in manufacturing its vaccine, thereby pushing its unit economics even further out of the reach of generating money. It's not a good position to be in.
3. The company is warning about its viability
Last but not least, shareholders should consider selling Novavax because management has been overtly warning that the company may be on life support since the first quarter of 2023. The immediate danger may be past, or it might not be if vaccine sales continue to drop. Either way, Novavax is planning on making deeper cuts to its staff and its research and development (R&D) expenses in 2024, after already making cuts in 2023.
Biotech companies need to constantly do R&D to have a future. Novavax is dramatically scaling down its ability to generate opportunities because it can't afford to do otherwise. There aren't many clearer signs that it's time to sell.
