Novavax Stock: Disappointing Despite Promises – Poor Outlook (NASDAQ:NVAX)

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Investment Thesis

The delays to Novavax’s (NASDAQ:NVAX) NVX-CoV2373 deliveries have been frustrating, given how we were bullish about the prospects of its protein-based COVID-19 vaccine. Unfortunately, though we have tried to ignore the naysayers, we may have to finally admit that some of their concerns were right, given how little has been delivered, despite countless promises of increased production capacities from its manufacturing partner in India.

In addition, despite filing for the US FDA Emergency Use Authorization (EUA) approval on 31 January 2022, there has been no further news in the past nine weeks. In contrast, the US FDA has very promptly authorized additional approvals for COVID-19 boosters shots from its competitors, including Pfizer (PFE) and Moderna (MRNA). Though speculative, we think the delays in the approval could very much be linked to the US production issues previously reported in October 2021. In addition, there are questions on whether there is sufficient demand for the protein-based vaccine, given the slow uptake in the EU, which has received approximately 35.4M doses so far.

In the meantime, we encourage you to read our previous bullish article on NVAX, which would help you better understand its position and market opportunities.

  • Novavax: Finally Leaving No Man’s Land

Why So Slow And So Little?

NVAX Total Deliveries From SII

NVAX Total Deliveries From SII

Ministry of External Affairs, India

Based on its existing EUA, NVAX will be supplying the early doses of its Advance Purchase Agreements from its manufacturing partner, Serum Institute of India (SII). NVAX would then supplement the EUAs with additional data from other manufacturing sites globally, once they obtain the necessary regulatory approvals.

However, based on the Ministry of External Affairs in India, SII only delivered a total of 50.82M doses to Indonesia, Australia, and the Netherlands YTD. It is a far cry from SII’s supposed NVAX production capacity of 150M per month since December 2021. In addition, it is essential to note that SII has a maximum monthly output of 275M, from its production of the Oxford-AstraZeneca vaccine in October 2021 and Covishield in December 2021k. Combined with South Korea’s first rollout of 840K vaccines, the total sum is still way below NVAX’s guidance for 2B doses of annual capacity, given that it is already the end of March now.

NVAX Advance Purchase Agreements

Novavax Advance Purchase Agreements

Seeking Alpha

We are unsure of the reasons for the delay and reduced production, given NVAX’s previous APAs of 1.61B for commercial purposes and COVAX. The company has also not delivered on its guidance of 80M doses to COVAX by the end of Q1’22. Though speculative, we think it may be possible that some of these countries could have reconsidered and/or canceled their APAs, due to the lengthy delays of over a year. In addition, fifteen months after Pfizer first rolled out its vaccines, those from wealthier countries who wanted to be vaccinated have already done so, with the anti-vaxxers remaining unvaccinated. Furthermore, with the Omicron and sub-variants as the dominant COVID-19 strain globally, Alpha-specific vaccines are no longer in demand.

There is indeed still a massive demand from the lower-income countries, given that only 14.5% have received at least one dose. However, with minimal NVAX deliveries for COVAX, we are also sorely disappointed by its slow start, given how we were bullish about the positive impact of the proven protein-based vaccine. Mayank Mamtani, a healthcare analyst at B. Riley Securities, said:

It’s concerning when they have been saying they have been ready to ship millions of doses but the numbers you’re hearing are different. (Biospace)

Nonetheless, early data based on the Reuters report could be misleading, given how NVAX was only administered in the regional vaccination centers for the first few weeks. Now that it is offered in clinics and pharmacies, we may expect an upward revision for NVAX usage in the EU. Nonetheless, we have to admit that both supply and demand for the vaccine have been underwhelming at best. If NVAX has managed to underperform and delay the launch of its excellent COVID-19 vaccine by over 12 months, despite:

its future looks uncertain from now on, no matter how its vaccines have outperformed competitors. Ultimately, the execution of promises matters. Otherwise, it is akin to someone turning up to Thanksgiving dinner five hours late with the world’s most delicious turkey. Everyone is already full, unfortunately.

So, Is NVAX Stock A Buy, Sell, or Hold?

NVAX Projected Revenue

NVAX Projected Revenue

S&P Capital IQ

Since our last article on NVAX in February, consensus estimates of its projected revenue remain broadly similar, with only an upward revision for its FY2023 revenues. In its latest earnings call, NVAX has guided FY2022 revenues in the range of $4B to $5B, representing an increase of 438% YoY. Nonetheless, it is evident that NVAX is running into capital issues and/or taking the chance to build its balance sheet, given how it has massively diluted its shareholders in the past two years. In 2021 alone, the company earned $565M through the sale of 2.6M of its shares, with another $500M sales agreement in effect and $34.7M already exercised as of February 2022.

NVAX Share Dilution

NVAX Share Dilution

S&P Capital IQ

NVAX is currently trading at an EV/NTM Revenue of 1.12x, lower than its 3Y mean of 25.56x. Based on its promising portfolio of NVX-CoV2373 and NanoFlu, NVAX has a huge potential to succeed in the vaccine industry moving forward. Unfortunately, NVAX’s management has proven to be disappointing in the past few months, due to the multiple underwhelming deliveries and overpromises. It is a massive contrast to PFE, which was able to promptly complete and launch its COVID-19 vaccine, Comirnaty, with the aid of BioNTech (BNTX), despite the complicated mRNA technology then. In addition, MRNA, which has yet to launch any vaccines in the past ten years and with no supply chain experience whatsoever, successfully launched its mRNA vaccine right after PFE. Though we want to remain bullish, I suppose it is time to adopt a wait-and-see approach from now on.

For those who have bought in at highs, we are genuinely uncertain when NVAX would ever reach those levels again, given the frustrating turn of events. As for those who have yet to buy, we will advise you to consider twice despite the lower valuations at $78.83 on 29 March 2022. Though it looked like a massive discount from its highs of $270.58 in September 2021, NVAX’s management needs to prove its mettle first, before we can be convinced again.

Therefore, we rate NVAX stock as Neutral for now.

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