Novavax has a solid platform but continues to face a $700 million litigation headwind, an analyst said Thursday as he downgraded NVAX stock.
In response, the biotech's shares crumbled 8.2% and closed at 8.23 on today's stock market. That put NVAX stock on top of a floor at its 50-day moving average, according to MarketSmith.com.
The biotech company is one of the makers of Covid vaccines. Novavax is ensconced in a battle with Gavi — an international alliance that aims to ensure equitable access to vaccines — over a deal to deliver 350 million doses of its Covid shot. Gavi made two $350 million payments and hadn't received any doses, the New York Times reported in February.
"We believe better visibility on the outlook for this litigation is needed as is clarity on the degree to which Novavax can penetrate the commercial Covid-19 vaccine market and fund further development of future boosters," TD Cowen analyst Brendan Smith said in a note to clients.
On Thursday, Smith downgraded NVAX stock to a market perform rating from outperform. He also slashed his price target to 10 from 55.
NVAX Stock Remains Under Pressure
Novavax shares have been under pressure since mid-2021 amid an expected — and now realized — decline in demand for Covid shots. The same has been largely true for shares of another Covid shot maker, Moderna. The Covid vaccines are those companies' only commercial products.
Smith says Novavax's platform is "solid." The company uses an older protein-based vaccine tech in combination with an adjuvant. Adjuvants boost the capabilities of some drugs, including vaccines. Vaccine rivals Pfizer and Moderna use newer messenger RNA technology.
All three companies are working to update their Covid boosters, in line with U.S. health officials' guidance. But Novavax's platform needs a roughly six-month lead, Smith said. Pfizer and Moderna need about three months' notice to update their shots. NVAX stock investors will watch that battle play out this fall.
"This could delay a potential U.S. rollout behind mRNA boosters from Moderna and Pfizer (with partner BioNTech) in the fall, both of whose commercial franchises are already bolstered by significant name-brand recognition," he said.
Gavi Litigation Puts Cash At Risk
And the Gavi litigation continues with the potential to chop $700 million from the $1.3 billion in cash Novavax had on hand at the end of 2022.
That would come at a tricky time for Novavax. The company said in its fourth-quarter earnings release that there's "significant uncertainty" about its future. Novavax cited 2023 revenue, funding and arbitration as key risks. NVAX stock plummeted nearly 26% on March 1 following its report.
According to the Times, Gavi had expected Novavax to begin delivering Covid shots as soon as the summer of 2021. But the company faced production troubles and Gavi didn't place its orders. Novavax argued this was a breach of contract and canceled the deal, but kept the $700 million.
The company is now working to reduce operating expenses and rein in its cash burn by pausing pipeline development beyond its Covid and flu shots. NVAX stock analysts now expect a steep drop-off in sales and ongoing quarterly losses.
"However, we expect quarterly earnings throughout fiscal year 2023 to be the ultimate arbiter of how effectively these initiatives are able to extend Novavax's cash runway," Smith said.
Amid these challenges, NVAX stock has a low Relative Strength Rating of 4. This puts shares in the lowest 4% of all stocks when it comes to 12-month performance, according to IBD Digital.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
