Many investors have seen Novavax (NVAX 3.54%) as a promising recovery story ever since the biotech launched a plan to cut costs to better match the revenue opportunities ahead of it. Once one of the biggest coronavirus vaccine hopefuls, Novavax's shares soared by more than 2,700% in 2020 -- then plummeted as the development and commercialization of the company's COVID vaccine candidate lagged behind its rivals.
The late arrival of Novavax's vaccine on the market meant the company missed out on the early multibillion-dollar waves of vaccine sales, which cost it a great deal of market share. Still, the company's peak vaccine sales did pass the billion-dollar mark, and Novavax also is developing a combined coronavirus/flu candidate that could become popular. And the company's cost-cutting plan has been bearing fruit too.
One major obstacle remained in Novavax's path though: a dispute with Gavi, the Vaccine Alliance. That public-private international health partnership, which supports global vaccine access, had asked Novavax for a refund of nearly $700 million -- and an order to immediately refund that amount could have spelled disaster for the already fragile company. Last week, though, Novavax and Gavi settled their dispute, and Novavax's shares soared by 32% over two trading sessions.
If Novavax has just solved its biggest problem, might this be an opportune time to add its stock to your portfolio?
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Cutting costs
So let's talk about Novavax's key problems. The first was that Novavax, after selling far fewer vaccine doses than it expected to, found itself with a cost structure that didn't match its revenue prospects, either today or down the road. That's why Novavax pledged to bring its expenses for 2024 down by more than 55% compared to 2022.
The company has made significant progress toward that goal, reducing current liabilities by $1 billion as of September, for example. And Novavax recently said it would extend job cuts, leaving it with a workforce 30% smaller than it was at the end of 2023's first quarter.
Novavax is making the moves to strengthen its financial picture and allow it to usher its combined vaccine candidate through development. The company aims to launch a phase 3 trial this year, with a goal of commercializing the product in 2026.
So it's fair to say Novavax's cost-cutting plan is on the right track.
Novavax and Gavi
As part of an advance purchase agreement, Gavi paid Novavax nearly $700 million for the eventual procurement of vaccine doses. Novavax later attempted to terminate the agreement, saying Gavi hadn't ordered the number of doses specified. Gavi argued that Novavax breached the agreement and asked for a refund.
Last week, the two parties reached a settlement, ending the pending arbitration. As part of the agreement, Novavax made an initial $75 million payment to Gavi and has agreed to pay $80 million annually through 2028, for a total of as much as $400 million. The agreement also involves an $80 million annual vaccine credit if Gavi needs to procure doses -- which would reduce Novavax's payment for the year.
Novavax is offering another vaccine credit for more than $200 million in the case of further vaccine demand that could be used at any time during the term of the deal.
The good news here is this partial refund comes under terms that Novavax will be able to manage financially, and may even be lower than expected if Gavi orders vaccine doses from it. And it eliminates the potential for an enormous payment that could have been disastrous for the vaccine maker. It's important to remember that when Novavax management last year called into question its ability to continue operations, it mentioned the Gavi situation as a big uncertainty.
Of course, Novavax still faces the challenges of lower-than-expected vaccine sales and potential competition for its combination candidate -- Moderna and Pfizer are developing combined COVID/flu vaccines, too.
But, with the Gavi settlement, Novavax may have eliminated its biggest problem -- and now, it can focus on cost cuts, developing its combination vaccine, and carving out market share.
Is it finally time to buy Novavax?
So is it finally time to buy Novavax stock? That depends on your comfort with risk. If you're a conservative investor, you still may want to wait and see on this one. Novavax doesn't have a broad pipeline, and will depend on its coronavirus vaccine and a potential combined candidate for revenue for the foreseeable future. If demand for COVID vaccines falls more than expected, its share price could suffer.
If you're an aggressive investor, though, now may be a good time to open a position in this biotech stock. There are plenty of catalysts ahead, including further progress on cost cuts and data readouts on its combined vaccine candidate. Positive news on any or all of those fronts could propel Novavax stock upward from here.
