Why Novavax’s path to survival won’t be easy

Medical syringes and the Novavax logo in the background can be seen in this illustrative photo taken on December 2, 2021 in Krakow, Poland.

Jakub Porzycki | OnlyPhoto | Getty Images

Novavax has a clear message to Wall Street: The financially troubled Covid vaccine maker sees a way to survive.

That’s what Maryland-based Novavax said last month when it released its first-quarter financial results, unveiling sweeping cost-cutting measures and a better-than-expected 2023 revenue guidance of $1.4 billion to $1.6 billion. This report was in stark contrast to the previous quarter, when the biotech expressed doubts about its ability to stay in business.

Shares of Novavax rose about 30% on the news, but Wall Street has yet to fully embrace the recovery plan: The company’s share price is still down about 18% year-to-date after losing more than 90% of its value 2022.

Novavax’s market cap has fallen to around $700 million from about $1 billion six months ago and $3 billion a year ago.

And staying afloat through 2023 and beyond is unlikely to be an easy task.

The 36-year-old company will continue to focus most of its sales on its protein-based Covid vaccine – its only commercially available product – this year.

Sales of Covid vaccines will largely depend on Novavax’s ability to ship an updated version of its vaccine in time for the fall, when the US government is expected to shift vaccine distribution to the private sector. Even if Novavax can stick to that schedule, it will face stiff competition from mRNA rivals Pfizer And Modern.

Wall Street is also waiting to see how Novavax will implement its cost-cutting plan and how a pending $700 million arbitration over a canceled vaccine purchase agreement might play out.

The company needs to address these near-term challenges before it can focus more on its promising vaccine pipeline, which includes a covid-influenza combination vaccine, a standalone influenza vaccine, and a new high-dose Covid vaccine.

“The next six to nine months is going to be a really critical time for the company,” Cowen analyst Brendan Smith told CNBC.

competition in the commercial market

Novavax, now led by a new CEO, John Jacobs, was an early frontrunner in the Covid vaccine race, but the company’s two-shot regimen only got the US last year due to delays in regulation and manufacturing – Authorization for emergencies.

Now, Novavax’s top priority is to produce an updated Covid vaccine by the fall and gain commercial market share, having so far lagged behind Pfizer and Moderna. Some analysts believe the company has a good chance of doing so, but note that competition from the two mRNA giants could remain challenging.

“Given [Novavax’s] Given their financial situation, they really need to be able to get some commercial sales this coming fall and winter,” Smith said. “That will ensure they remain a viable business in future cycles.”

Once the US government’s supply of free Covid vaccines runs out, all three companies will sell updated vaccinations directly to healthcare providers.

Those shots target a variant of the virus, selected Thursday by a Food and Drug Administration advisory panel, which is expected to be most prevalent in the fall and winter.

Novavax is giving itself a “head start” in developing this updated vaccine because the company’s protein-based vaccine is taking longer to develop and manufacture — about three to six months in total — than its messenger RNA counterparts, said Silvia Taylor, executive vice president at the drug manufacturer.

Analysts estimate that it typically takes around six months to deploy a protein-based vaccine and three months to produce an mRNA vaccine.

Novavax is working closely with global regulators on variety selection to start development as early as possible. Taylor added that Novavax is already developing vaccines targeting various strains, including the Omicron subvariant XBB.1.5, the world’s dominant strain of the virus.

The World Health Organization recommended last month that new Covid shots target XBB variants, which Taylor described as “extremely encouraging” guidance ahead of the FDA panel meeting.

FDA officials also recommended the same strains ahead of Monday’s meeting.

Jefferies analyst Roger Song said he expects Novavax to ship its updated vaccine in time for the fall if FDA advisors choose a strain “from the current library” the company has been evaluating. It’s unlikely that consultants would choose an entirely new variety, he noted.

A healthcare worker prepares a dose of the Novavax vaccine as the Dutch healthcare organization begins the Novavax vaccination program on March 21, 2022 in The Hague, Netherlands.

Patrick Van Katwijk | Getty Images

Another benefit for Novavax could be the use of protein-based technology, a decades-old antiviral method used in routine hepatitis B and shingles vaccinations.

Novavax’s vaccine works differently than Pfizer’s and Moderna’s mRNA vaccines, but achieves the same result: you teach your body how to fight Covid.

B. Riley Securities analyst Mayank Mamtani said Novavax can leverage the unique advantages of the company’s protein-based platform as part of its commercial marketing efforts.

“They have a theoretically compelling message that says, let’s try something new,” Mamtani told CNBC. “Let’s try a new vaccine that, in some cases, doesn’t cause you to miss work due to chills, fever, or other side effects that mRNA could cause.”

Clinical trial data on the Novavax vaccine suggests that it is less likely to cause side effects compared to the Pfizer and Moderna vaccines. The data also suggest that the efficacy rate — around 90% — is similar to that of its mRNA competitors.

Still, Smith said the company will have to compete with the “tremendous brand recognition” of Pfizer and Moderna, which have dominated the U.S. Covid vaccine market since the FDA approved their shots for emergency use in late 2020.

These vaccines received full FDA approval, but Novavax’s vaccine did not.

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According to the Centers for Disease Control and Prevention, the US has administered more than 360 million vaccines and boosters from Pfizer and over 230 million from Moderna. Novavax’s late entry into the game has resulted in significantly lower adoption: the US administered nearly 90,000 of the company’s vaccinations.

Novavax will also have to compete in sourcing Covid boosters at a time of “record low public interest,” Smith added.

Only about 17% of the US population has received Pfizer and Moderna’s Omicron bivalent boosters, which have been available since September, according to the CDC.

“There are still a number of headwinds that are being countered [Novavax,]Smith said, adding that cost-cutting efforts could potentially hurt the company’s ability to compete in the commercial Covid vaccine market this fall.

Novavax is cutting its spending while at the same time scaling up its commercial sales team, making the timing “unfortunate in a much broader context,” he said.

cost reduction plan

Novavax is working on drastic cost reductions and plans to cut about 25% of its global workforce. At the end of February, the company employed almost 2,000 people.

The drugmaker will also consolidate its facilities and infrastructure. These moves are expected to reduce the company’s research and development expenses in 2023, as well as selling, general and administrative expenses, which totaled approximately $1.7 billion last year.

Novavax expects its cost-cutting plan to cut that by about 20% to 25% this year and 40% to 50% by 2024.

Jefferies’ Song said he is primarily focused on the 2024 cost-cutting target, but noted that the company needs to be careful about how much it chooses to cut costs.

“I hope they can cut something faster and bigger,” Song told CNBC. “But they also don’t want to overshoot what they need to limit and compromise their abilities.”

However, Taylor stressed that the plan will help Novavax refocus on its top priority: delivering an updated vaccine in the coming months.

“We feel we are in a good position to remain focused on our priorities and work more efficiently to meet our goal of getting our vaccine available for the season,” he said she CNBC.

Gavi Arbitration

In addition, a $700 million arbitration is looming in relation to Gavi, a non-governmental global vaccine organization.

Last year, Novavax canceled a deal to buy Covid vaccines with Geneva-based company Gavi, citing Gavis’ failure to source the 350 million vaccine doses the company ordered in May 2021 on behalf of the COVAX facility agreed to buy – a global program aimed at distributing more Covid vaccines fairly in lower-income countries.

As part of the agreement with Gavi, Novavax said it received nearly $700 million in non-refundable upfront payments.

Gavi is now trying to recoup those upfront payments. The organization argued in a Reuters interview last year that Novavax breached the agreement and failed to supply COVAX with vaccines from contracted sites.

An elderly woman receives a dose of the Covid-19 vaccine at a clinic in Hohhot, China’s Inner Mongolia Autonomous Region, December 12, 2022.

thing Genhou | Visual China Group | Getty Images

Song called the Gavi arbitration the biggest uncertainty surrounding Novavax. He said the company “could be in trouble” if it has to pay back the entire $700 million to Gavi this year.

But he said there’s a good chance Novavax and Gavi will settle the arbitration on a middle ground. That could mean Novavax repaying less than the full amount or setting up a repayment schedule through 2024, Song added.

Cowen’s Smith said, “If there’s one thing the market doesn’t like, it’s uncertainty.”

“We don’t know how the arbitration will end or when it will take place, so I continue to view this as a large overhang for the stock,” Smith added.

Novavax’s Taylor declined to comment on the status of the ongoing arbitration, but said, “We feel pretty good about our position.”

“We’ll know soon enough what happens to it,” she added.