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

novafax He has a clear message for Wall Street: The cash-strapped Covid vaccine maker sees a path to survival.

Maryland-based Novavax said last month when it reported its first-quarter financial results and unveiled a A massive push to cut costs Along with a higher-than-expected revenue forecast for 2023 of $1.4 billion to $1.6 billion. This report was in stark contrast to the previous quarter, when the biotech company raised doubts about its ability to continue in business.

Novavax shares jumped about 30% on the news, but Wall Street hasn’t fully bought into the recovery plan: The company’s share price is still down nearly 18% year-to-date after losing more than 90% of its value in 2022.

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

And staying afloat into 2023 and beyond may not be an easy task.

The 36-year-old company will continue to rely on its protein-based Covid vaccine — its only commercially available product — for most of its revenue this year.

Sales of the Covid shot will depend largely on Novavax being able to offer an updated version of the vaccine in time for the fall, when the US government is expected to shift distribution of the vaccine to the private sector. Even if Novavax can meet that schedule, it will face stiff competition from its mRNA competitors Pfizer And accident.

Wall Street is also waiting to see how Novavax will carry out its cost-cutting plan, and how it will carry out $700 million pending arbitration A canceled vaccine purchase agreement could expire.

The company will need to juggle those challenges in the near term before it can sharpen its focus on them Promising vaccine pipelinewhich includes a combination shot targeting Covid and influenza, a standalone flu vaccine and a new high-dose Covid vaccine.

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

Novavax, now with new leadership CEO, John JacobsIt was an early frontrunner in the race for Covid vaccines, but the company’s vaccine regimen only received US approval under emergency use last year due to regulatory and manufacturing delays.

Now, Novavax’s biggest priorities are manufacturing an updated Covid shot by fall and grabbing commercial market share after lagging behind Pfizer and Moderna so far. Some analysts think the company has a reasonable chance of doing so, but note that competition with mRNA giants could remain a challenge.

“Given[Novavax’s]financial condition, they really need to be able to generate some commercial sales this coming fall and winter,” Smith said. “This will ensure that they remain a viable entity in future cycles as well.”

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

These shots will target a different type of virus — chosen by a panel of advisors to the Food and Drug Administration. Thursday – It is expected to spread prominently in the fall and winter.

Novavax is giving itself a “head start” in developing that updated shot because the company’s protein-based vaccine takes longer to develop and manufacture — about three to six months in total — than its mRNA counterparts, Silvia TaylorExecutive Vice President of the pharmaceutical company.

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

Novavax is working closely with global regulators on strain selection guidelines to begin development as soon as possible. Taylor added that Novavax is already developing shots that target different strains, including the omicron variant XBB.1.5the dominant strain of the virus worldwide.

WHO last month recommended That the new Covid shots target XBB variants, which Taylor called “very encouraging” guidance ahead of the FDA committee meeting.

On Monday, FDA staff also recommended the same strains before the meeting.

Roger Song, a Jefferies analyst, said he expected Novavax to be able to deliver its updated vaccine in time for the fall if FDA advisors selected a strain “within the existing library” that the company was evaluating. It was unlikely, he noted, that the advisors would choose an entirely new strain.

Another upside to Novavax could be its use of protein-based technology, a decades-old method for fighting viruses used in routine vaccines against hepatitis B and shingles.

The Novavax shot works differently than Pfizer and Moderna’s mRNA vaccine, but achieves the same result: teaching your body how to fight off Covid.

Mayank Mamtani, a Riley Securities analyst, said Novavax could leverage the unique benefits of the company’s protein-based platform as part of its commercial marketing efforts.

“They have a compelling message in theory that says, let’s try something new,” Mamtani told CNBC. “Let’s try a new vaccine that, in some cases, won’t make you miss work because of chills or fever or other side effects you might have with the mRNA.”

Clinical trial data on the Novavax vaccine suggests that it is Less likely to cause side effects Compared to the shots of Pfizer and Moderna. The data also shows that it has a similarly high rate of effectiveness – about 90% – Like its competitors of mRNA.

However, Smith noted that the company will have to compete with the “enormous brand recognition” of Pfizer and Moderna, which have dominated the US market for Covid vaccines since the Food and Drug Administration approved its shots for emergency use in late 2020.

These vaccines have received full approval from the Food and Drug Administration, while the Novavax vaccine has not.

The United States has administered more than 360 million vaccines and boosters from Pfizer and more than 230 million from Moderna, according to Centers for Disease Control and Prevention. Novavax’s late entry into the game has led to a significant drop in intake: The United States has managed fewer than 90,000 rounds from the company.

Smith added that Novavax will also have to compete at a time of “record low public interest” in getting Covid booster shots.

Only according to the CDC about 17% of US residents received bivalent Omicron boosters made by Pfizer and Modern, which have been available since September.

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

He said Novavax is cutting back on spending at the same time it needs to increase its commercial sales force, which makes the timing “unfortunate in a much broader context.”

Novavax has been cutting costs dramatically, with plans that include cutting nearly 25% of its global workforce. It was for the company only Less than 2000 employees As of late February.

The pharmaceutical company will also enhance its facilities and infrastructure. These moves aim to reduce the company’s 2023 research and development expenses as well as selling, general and administrative costs, which combined $1.7 billion last year.

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

Song Jefferies said it’s more focused on its 2024 cost-cutting goal, but noted that the company needs to be careful about how much it decides to cut costs.

“I hope they can mow a little faster and a little bit bigger,” Song told CNBC. “But they also don’t want to go beyond what they need to scale back and jeopardize their capabilities.”

But 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 well positioned in terms of working with relentless focus on our priorities and working in a more efficient manner so that we can achieve our goal of making our vaccine available for this season,” she said. CNBC.

A pending $700 million arbitration involving JaviIt is a non-governmental global vaccine organization.

Last year, Novafax Finished Covid shot purchase agreement with Geneva-based Gavi, citing Gavi’s failure to buy 350 million vaccine doses Agreed to purchase in May 2021 on behalf of a COVAX facility – a Universal program which aims to distribute Covid vaccines more equitably in low-income countries.

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

Gavi is now trying to recover these advance payments. The organization told Reuters interview Last year, Novavax violated the agreement and failed to supply vaccines to COVAX from contractually specified locations.

Song described Gavi’s arbitration as the biggest uncertainty around Novavax. He said the company “could be in trouble” if it had to return the entire $700 million to Gavi this year.

But he said there is a good chance Novafax and Jaffe will settle the arbitration on common ground. That could include Novavax paying back less than the full amount or putting in place a payment plan through 2024, Song added.

“If there’s one thing the market tends to hate, it’s uncertainty,” Queens-Smith said.

“We don’t know how or when the arbitration will be conducted, which is why I continue to rate this as a significant drag on the stock,” Smith added.

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

“We’ll know soon enough what happens with that,” she added.