Medical syringes and Novavax logo displayed within the background are seen on this illustration photo taken in Krakow, Poland on December 2, 2021.
Jakub Porzycki | NurPhoto | Getty Images
Novavax has a transparent message for Wall Street: The cash-strapped Covid vaccine maker sees a pathway to survival.
Maryland-based Novavax said as much last month when it reported its first-quarter financial results and unveiled a broad cost-cutting push together with a higher-than-expected 2023 revenue forecast of $1.4 billion to $1.6 billion. That report stood in stark contrast to the previous quarter, when the biotech company raised doubts about its ability to remain in business.
Shares of Novavax jumped around 30% on the news, but Wall Street hasn’t entirely bought into the recovery plan: The corporate’s stock price continues to be down roughly 18% because the start of the yr after shedding greater than 90% of its value in 2022.
Novavax’s market cap has plummeted to around $700 million from roughly $1 billion six months ago and $3 billion a yr ago.
And staying afloat through 2023 and beyond is probably not a simple task.
The 36-year-old company will proceed to depend on its protein-based Covid vaccine – its only commercially available product – for many of its revenue this yr.
Covid shot sales will largely rely on Novavax’s ability to deliver an updated version of its jab in time for the autumn, when the U.S. government is anticipated to shift vaccine distribution to the private sector. Even when Novavax can meet that timeline, it can face tough competition from mRNA rivals Pfizer and Moderna.
Wall Street can be waiting to see how Novavax will execute its cost reduction plan, and the way a pending $700 million arbitration over a canceled vaccine purchase agreement could play out.
The corporate might want to juggle those near-term challenges before it could sharpen its give attention to its promising vaccine pipeline, which incorporates a mix shot targeting Covid and the flu, a stand-alone flu vaccine and a latest high-dose Covid shot.
“The subsequent six to nine months are going to be a very critical period for the corporate,” Cowen analyst Brendan Smith told CNBC.
Competing within the industrial market
Novavax, now led by a latest CEO, John Jacobs, was an early front-runner within the Covid vaccine race, but the corporate’s two-shot regimen won U.S. approval under emergency use just last yr on account of regulatory and manufacturing delays.
Now, Novavax’s biggest priorities are to fabricate an updated Covid shot by the autumn and to capture industrial market share after lagging thus far behind Pfizer and Moderna. Some analysts imagine the corporate has an affordable probability of doing so, but note that competition with the 2 mRNA giants could remain a challenge.
“Given [Novavax’s] financial situation, they actually need to have the option to herald some industrial sales this coming fall and winter,” Smith said. “That can ensure they continue to be a viable entity in future cycles as well.”
Once the U.S. government’s supply of free Covid vaccines runs out, all three corporations will sell updated shots on to health-care providers.
Those shots will goal a variant of the virus — chosen by a panel of advisors to the Food and Drug Administration on Thursday — that is expected to flow into most prominently this fall and winter.
Novavax is giving itself a “head start” on developing that updated shot because the corporate’s protein-based vaccine takes longer to develop and manufacture – around three to 6 months in total – than its messenger RNA counterparts, said Silvia Taylor, executive vice chairman on the drugmaker.
Analysts estimate it typically takes closer to 6 months to deliver a protein-based vaccine and three months to supply an mRNA shot.
Novavax is working closely with global regulators on strain selection guidance to begin development as early as possible. Taylor added that Novavax is already developing shots that concentrate on different strains, including the omicron subvariant XBB.1.5, the dominant strain of the virus globally.
The World Health Organization last month beneficial that latest Covid shots goal XBB variants, which Taylor called “extremely encouraging” guidance ahead of the FDA panel meeting.
FDA staff on Monday also beneficial the identical strains ahead of the meeting.
Jefferies analyst Roger Song said he expects Novavax to have the option to deliver its updated vaccine in time for the autumn if the FDA advisors select a strain “inside the current library” the corporate has been evaluating. It’s unlikely that the advisors will select a totally latest strain, he noted.
A medical examiner prepares a dose of the Novavax vaccine because the Dutch Health Service Organization starts with the Novavax vaccination program on March 21, 2022 in The Hague, Netherlands.
Patrick Van Katwijk | Getty Images
One other upside for Novavax could possibly be its use of protein-based technology, a decades-old method for fighting viruses utilized in routine vaccinations against hepatitis B and shingles.
Novavax’s shot works in a different way than Pfizer’s and Moderna’s mRNA vaccines, but achieves the identical end result: teaching your body find out how to fight Covid.
B. Riley Securities analyst Mayank Mamtani said Novavax could leverage the unique benefits of the corporate’s protein-based platform as a part of its industrial marketing efforts.
“They’ve a theoretically compelling message that claims, let’s try something latest,” Mamtani told CNBC. “Let’s try a latest vaccine that, in some cases, won’t make you miss work on account of chills, a fever or other unintended effects you would have with mRNA.”
Clinical trial data on Novavax’s vaccine suggests it’s less prone to cause unintended effects compared with Pfizer’s and Moderna’s shots. Data also indicates that it has a similarly high rate of efficacy – around 90% – as that of its mRNA rivals.
Still, Smith noted, the corporate may have to compete with the “enormous name-brand recognition” of Pfizer and Moderna, which have dominated the U.S. Covid vaccine market because the FDA approved their shots for emergency use in late 2020.
Those vaccines have received full approval from the FDA, while Novavax’s jab has not.
The U.S. has administered greater than 360 million vaccines and boosters from Pfizer and over 230 million from Moderna, based on the Centers for Disease Control and Prevention. Novavax’s late entrance into the sport has led to significantly lower uptake: The U.S. has administered just below 90,000 shots from the corporate.
Novavax may also need to compete at a time of “record low public interest” in getting Covid booster shots, Smith added.
In response to the CDC, only about 17% of the U.S. population has gotten Pfizer’s and Moderna’s bivalent omicron boosters, which have been available since September.
“There’s still various headwinds sort of working against [Novavax,]” Smith said, adding that cost-cutting efforts could potentially hinder the corporate’s ability to compete within the industrial Covid vaccine market this fall.
Novavax is pulling back spending at the identical time it must ramp up its industrial sales team, making the timing “unlucky in a way more broader context,” he said.
Cost-cutting plan
Novavax is working to drastically cut costs, with plans that involve slashing roughly 25% of its global workforce. The corporate had just under 2,000 employees as of late February.
The drugmaker may also consolidate its facilities and infrastructure. Those moves are intended to scale back the corporate’s 2023 research and development expenses in addition to selling, general and administrative costs, which together amounted to around $1.7 billion last yr.
Novavax expects the cost-cutting plan to scale back that figure by roughly 20% to 25% this yr and by 40% to 50% by 2024.
Jefferies’ Song said he’s most focused on the 2024 cost reduction goal but noted the corporate must watch out about how much it decides to slash costs.
“I hope that they will cut a little bit bit faster and larger,” Song told CNBC. “But in addition they don’t need to overshoot what they should cut and jeopardize their capabilities.”
But Taylor emphasized that the plan will help Novavax refocus on its top priority: delivering an updated vaccine in the approaching months.
“We feel like we’re in an excellent place by way of operating with a relentless give attention to our priorities and operating in a more efficient manner with a view to have the option to fulfill our objective of creating our vaccine available for the season,” she told CNBC.
Gavi arbitration
And, looming overhead is a pending $700 million arbitration related to Gavi, a nongovernmental global vaccine organization.
Last yr, Novavax terminated a Covid shot purchase agreement with Geneva-based Gavi, citing Gavi’s failure to acquire the 350 million vaccine doses it agreed to purchase in May 2021 on behalf of the COVAX Facility — a global program that goals to distribute Covid vaccines more equitably in lower-income countries.
As a part of the agreement with Gavi, Novavax said it received nonrefundable advance payments amounting to just about $700 million.
Gavi is now attempting to recoup those prepayments. The organization argued in a Reuters interview last yr that Novavax breached the agreement and failed to supply COVAX with vaccines from contractually specified locations.
An elderly woman receives a dose of Covid-19 vaccine at a clinic on Dec. 12, 2022 in Hohhot, Inner Mongolia Autonomous Region of China.
Ding Genhou | Visual China Group | Getty Images
Song called the Gavi arbitration the largest uncertainty around Novavax. He said the corporate “could also be in trouble” if it has to return the total $700 million to Gavi this yr.
But he said there’s an excellent probability Novavax and Gavi will settle the arbitration on middle ground. That would involve Novavax repaying lower than the total amount or establishing a repayment plan through 2024, Song added.
Cowen’s Smith said, “If there’s one thing the market tends to dislike, it’s uncertainty.”
“We do not understand how the arbitration goes to play out or the timing of it, in order that’s why I proceed to categorize this as a significant overhang for the stock,” Smith added.
Novavax’s Taylor declined to comment on the state of the continued arbitration, but said “we feel pretty good about our position.”
“We’ll know soon enough what happens with that,” she added.