Novavax Downgraded by JPMorgan Chase. Time to Sell?
Why Wall Street's losing faith in Novavax
When Novavax reported first-quarter results in May, the company told investors to expect between $4 billion and $5 billion in revenue this year. In August, shortly after its vaccine became available in the U.S., the company had to lower its revenue estimate dramatically. Now, total revenue this year is expected to land between $2.0 billion and $2.3 billion.
Joseph downgraded Novavax mainly because he believes the company's latest estimate is too generous. Nuvaxovid was developed to address the original strain of the virus responsible for COVID-19, not the omicron variants that the first generation of vaccines has a limited response against.
Novavax has lots of cash on its books now, but it probably isn't enough to avoid another dilutive capital raise before a COVID-19 and influenza combination has a chance to generate sales.
The company burned through a frightening $510 million in the second quarter, and the road ahead will get bumpier. The company has a big $325 million convertible note on its books that matures in February 2023, and increased development activity will push operating expenses much higher. The company intends to begin a big phase 3 trial with its COVID-flu combination candidate in 2023.
With updated COVID vaccines that address prevailing variants already available, Nuvaxovid sales will most likely continue to disappoint. Novavax won't stop trying to market it at a loss, though, because it's the company's only commercial-stage product.
If Nuvaxovid sales continue along their depressing trajectory, investors can expect the company's cash cushion to melt away before the end of next year. Given its recent history, expecting Novavax to develop its COVID-19-flu combination shot quickly enough to avoid the need for heaps of dilutive financing is a bad idea.