2023-11-13 17:37:48 ET
Summary
- Novavax, Inc. reported Q3 2023 numbers above consensus estimates based almost solely on grant revenue.
- The company cut guidance for 2023 revenues and even pushed out a large portion of those revenues to Q1 2024 due to weak COVID vaccine demand.
- The stock continues to decline as the company remains disconnected from the market demand for COVID vaccines.
Novavax, Inc. ( NVAX ) continues to trend lower as the biotech still sounds somewhat disjointed from the market demand for COVID vaccines. Ironically, the company announced another cost reduction plan, a sure sign of the actual direction of vaccine demand is much lower. My investment thesis remains Bearish on NVAX stock, even at the multi-year lows near $6.
Source: Finviz
2023 Guide Down
Novavax reported Q3 '23 results slightly above consensus estimates. The company generated the vast majority of its sales of $187 million from government grants .
The big key is that guidance for 2023 revenues were cut and a large portion of estimates were pushed out from Q4 to Q1 '24. The issue here is that someone truly concerned about COVID would obtain the shot by December, a delay into January or February would end up missing the majority of the virus season.
CEO John C. Jacobs made the following statement on the Q3 '23 earnings release :
We are proud of the progress we made over the last quarter to deliver the only protein-based non-mRNA vaccine option in the U.S. and have worked to provide broad access across retail pharmacies and healthcare offices. With the delayed start of respiratory vaccinations, we believe we have yet to reach the midpoint of the vaccination season and, with early and encouraging signs of demand for our vaccine, we believe there remains an opportunity to deliver doses and grow our share. This reinforces our belief that the long-term COVID-19 market represents a sustainable opportunity for Novavax in the years to come.
The Department of Health and Human has documented how vaccine uptake has been low this year. The current estimates suggest only 15 million people had taken the COVID vaccine by the end of October compared to 23 million last year.
The Novavax CEO suggested the slow uptake will lead to more vaccine demand in early 2024. The reality is likely that patients are weary of a vaccine that is still approved under an Emergency Use Authorization.
Novavax is now guiding to 2023 revenues of only $1.0 billion, down from a prior estimate of $1.3 to $1.5 billion. The biotech is now providing strange guidance including Q1 '24 for total revenues of only $1.3 billion for the period.
Source: Novavax Q3'23 presentation
Not only is Novavax suggesting oddly high demand for the vaccine in early 2024 versus a previous expectation for no revenues during Q1, but also the company forecasts needing all of Q1 to reach just the previous low-end guidance for 2023. The biotech now forecasts missing the 2023 midpoint by $100 million in the process.
More Cost Reductions Aren't A Good Sign
If Novavax was confident in the COVID vaccine demand in 2024, the company probably wouldn't be announcing another massive $300 million cost reduction plan. Even at just 50% gross margins (low for a biotech), Novavax would be signaling revenues of $600 million below prior expectations.
The biotech has already taken on a restructuring that has reduced operating expenses by $950 million compared to 2022. Management is now guiding to 2024 operating expenses of $750 million, down $200 million from a prior target of below $1 billion.
Novavax only spent $106 million on R&D during Q3 '23, down nearly $200 million YoY. The SG&A expenses were still $107 million only down slightly from $123 million last Q3.
The R&D levels are taking a dramatic hit in the process considering how much is still being spent on SG&A. In total though, Novavax only spent $213 million on SG&A during the quarter and the goal of getting below $750 million on operating expenses only requires a cut of ~$102 million on the Q3 spending pace of $852 million.
Novavax still lost $131 million in the quarter. A big part of the loss was the write-off of obsolete inventory, but the company still faces issues with being reliant on the actual testing and approval of a future vaccine.
Even worse, the transition from Nuvaxovid to a combination influenza/COVID shot won't be launched until late 2026, assuming a Phase 3 program starting in 2024. The market has recently been hit with research showing older patients obtaining both shots at the same time have a higher risk of stroke
The company projects a $1 billion seasonal revenue opportunity from COVID vaccines, but Novavax doesn't make a strong case for this scenario, considering up to $700 million of current revenues is reliant on APAs.
Takeaway
The key investor takeaway is that investors should continue avoiding Novavax. The stock value has dipped below $1 billion, but the company is still struggling to be profitable with slumping COVID vaccine demand. Even with the current restructuring, the company will struggle to be profitable and the major hope of the business is a combination shot that faces the same issues as the current COVID vaccine issues.
For further details see:
Novavax: The COVID Gig Is Over