Novavax (NASDAQ: NVAX) investors are looking at a share price decline of more than 90% over the past 12 months, and the shares are now trading close to their 52-week low. Though it successfully commercialized its Nuvaxovid jab in a slew of countries for primary series COVID-19 vaccinations, and also for booster vaccinations, the biotech is struggling to find a profitable future amid declining demand and persistent problems with its manufacturing operations.
The risk of this company failing to make a turnaround appears high. But savvy investors recognize that there's often an opportunity for significant returns on investment when the general market sentiment about a business is poorer than is warranted.
So is Novavax stock a buy now, during what appears to be the winter of its discontent, or would investors be better served to avoid it and invest in more reliable businesses? The better choice is the latter one, and it isn't a contest. Here's why.
Manufacturing problems are hampering revenue
Perhaps the most important reason why you shouldn't rush to invest in Novavax is that it (still) hasn't demonstrated that it can actually deliver its COVID-19 vaccine to customers in the quantities they require. Per a regulatory filing on Nov. 18, it severed its purchase agreement for 350 million doses with Gavi, the Vaccine Alliance, an international public-private health partnership dedicated to improving vaccination rates in poorer countries. Novavax alleges that Gavi had failed to hold up its end of the bargain and buy the contractually obligated doses.
Importantly, Gavi has paid Novavax $700 million in the last two years, and its $350 million payment in 2021 accounted for a large fraction of the biotech's $1.1 billion in total revenue for the year.
Even more importantly, Gavi disputes Novavax's allegations. In the view of Gavi, there was little chance Novavax would have been able to manufacture the doses it was obligated to produce before the end of the year. Furthermore, a Gavi spokesperson told Reuters that the company hadn't delivered even one dose to the locations required by the purchasing contract.
Regardless of which party's claims are factually correct, investors should probably take a long pause whenever a company and one of its major customers get into a public spat where basic details of a multi-hundred-million-dollar deal are in dispute. And that conflict with Gavi is only the latest instance in which Novavax's manufacturing capabilities have been called into serious question by its clients.
Late last year, problems with the purity of the company's vaccine doses put it into conflict with the Food and Drug Administration and delayed its jab from being commercialized in the U.S. And though management reassured investors after a poor first quarter that the company would bring in between $4 billion and $5 billion in annual revenue, when it delivered its Q3 earnings update, management was forced to revise its estimate for 2022 down to a mere $2 billion.
There's always a chance that Novavax will be able to rectify its lingering manufacturing issues and deliver on its purchasing agreements. Likewise, there's a chance that either the original or updated versions of its COVID-19 inoculation will prove superior to the vaccines made by larger competitors like Moderna or the Pfizer/BioNTech partnership, thereby giving it an edge in gaining market share. But at this point, it doesn't make sense to be optimistic, and trust between management and shareholders is likely to be badly frayed.
Don't mistake a low valuation for a bargain
So Novavax stock probably isn't something for most investors to be buying. The long-term thesis for it to gain in value via recurring vaccine sales isn't credible if that company hasn't been able to solve its manufacturing problems after over a year. On the other hand, the steep decline in its share price over the last year or so could leave the door open for bargain-hunters who are willing to invest in practically anything at the right price, so it's worth briefly analyzing.
Let's consider its price-to-sales multiple in comparison to other key coronavirus vaccine makers:
Novavax's ratio has tumbled to a mere fraction of the ratios of those competitors. That doesn't make it a cheap purchase so much as a business that's rapidly losing the confidence of its investors. Wall Street analysts predict that it will make a scant $1.3 billion next year, even less than its lower-than-anticipated haul for 2022.
Even amid this year's market downturn, investors should recognize that Novavax's falling share price isn't being driven by macroeconomic phenomena alone. There are genuine and serious issues with the company's ability to compete.
At this time, Novavax is no bargain. Investors should not buy it until and unless it provides tangible evidence that it has remedied its manufacturing woes and found major new customers.
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