BNTX - Novavax: The Gig Is Up

Summary

• Novavax has issued dire warnings to shareholders as the company continues to burn substantial amounts of cash.
• The small biotech continues to dilute shareholders via near-endless share issuances, and no guarantees exist that the company will have a successful 2023 vaccine update.
• Novavax stock is one to avoid, even after crashing below $7 on the dire warning.

Anyone historically following Novavax, Inc. ( NVAX ) could've predicted this ending for the biotech focusing on vaccines. The company has a history of promising new vaccines while constantly diluting shareholders over and over with new share issuance. The stock soared to amazing heights on exuberance around the approved covid vaccine, but now the gig is up. My investment thesis is Bearish on Novavax, Inc. stock following statements from the company about substantial doubt of a going concern due to heavy losses and questionable covid vaccine demand.

Going-Concern Doubt

Novavax, Inc. provided the following somewhat shocking statement to investors with the Q4 2022 earnings release :

The company suggests having sufficient capital to fund operations for the next year, but the uncertainty around the covid vaccine and the Gavi lawsuit raises questions regarding a going concern. The amazing part about this statement is that Novavax ended 2022 with a cash balance of $1.3 billion.

On the Q4'22 earnings call , CFO James Kelly highlighted why major concerns exist considering the company already in financial distress still needs to deliver an updated version of the covid vaccine for 2023:

I'd like to first discuss these uncertainties and then share with you immediate actions we have taken to mitigate these concerns and improve our financial position. Regarding our full year 2023 revenue, our performance will depend on our ability to deliver an updated version of our COVID-19 vaccine for the 2023 fall vaccination season. Key activities in support of this plan include our timely completion of the 311 study to demonstrate our strain change capabilities, and delivering an updated COVID-19 vaccine consistent with public health recommendations for screen composition.

For those following Novavax, the company spent decades trying to get various vaccines approved by the FDA, and the very undoing of the company could be the approval of the covid vaccine. The biotech saw revenues surge in 2022, but the global pandemic quickly ended, and the company never benefitted from the vaccine due to being late to the game.

Somehow, Novavax turned $2 billion in 2022 sales into a $658 million loss. The small biotech ended the year with a net loss of $182 million in the December quarter alone.

Novavax, Inc. has over $400 million in quarterly operating expenses now leading to a big part of the going concern issue. The biotech is competing with much larger biotechs in Pfizer ( PFE ), BioNTech SE ( BNTX ), and Moderna ( MRNA ), reducing the ability to effectively compete on covid vaccines when the company is seen as a distant third option, at best. After a study from Australian scientists determined the effectiveness of the Novavax vaccine underperformed against the mRNA-based vaccines from these larger biotechs, the company faces an even bigger uphill battle in 2023.

The company forecasts a $15+ billion annual market for covid vaccines, with the U.S. and the EU accounting for $10 billion per year. The biotech doesn't make any case in why patients will prefer the Nuvaxovid vaccine over ones from Pfizer and Moderna already well established in the developed markets.

Novavax plans to lower the opex spend to $370 million per quarter, but the company will still spend at an annual clip of $1.5 billion now. Management doesn't expect vaccine sales during Q1, with an anticipation for a seasonal shift starting in Q2, leading to substantial cash burn in the 1H of the year before the company even knows the level of vaccine sales for the rest of the year.

Selling More Shares Than Vaccines

The biggest issue with Novavax, Inc. stock for years now is that promising vaccine developments only lead to the biotech selling more shares. Novavax managed to accelerate the share dilution during the covid vaccine period to an extreme.

As a prime example, the company recently raised ~$250 million via a concurrent convertible debt offering and a public offering of 8.5 million shares at just $10 per shares. These offerings were completed at the end of 2022 prior to issuing this going concern statement.

The company ended 2022 with over 78 million diluted shares outstanding. Prior to covid, Novavax had done a 1-for-20 reverse split to reduce the share count.

In essence, long-term shareholders are far worse off now than before getting the covid vaccine approved. Though, investors did have nearly a year to unload shares above $200 in another prime sign of how taking advantage of market opportunities is a must versus stubbornly holding a stock for the long term.

Investors should have huge concerns about execution in this category due to the need to constantly update the covid vaccine to cover new strains while facing bigger biotechs with more established vaccines. Also, the additional costs place Novavax, Inc. in a more precarious financial position, though the company has a history of selling more shares and diluting shareholders.

Takeaway

The key investor takeaway is that Novavax, Inc. is a highly risky stock due to cash burn and constant share dilution. Besides, if the company couldn't produce a profit during the covid period, Novavax, Inc. investors should have grave concerns about how the business can accomplish this goal when the disease is in the endemic phase.

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