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Msg  177987 of 184143  at  5/11/2022 3:18:13 PM  by


Is Novavax Stock A Buy, Sell, Or Hold After Recent Earnings?

Is Novavax Stock A Buy, Sell, Or Hold After Recent Earnings?
May 11, 2022 2:12 PM ETNovavax, Inc. (NVAX)AZN, AZNCF, BNTX, DVAX, JNJ, MRNA, PFE4
COVID is not over, but the situation for the many vaccine developers late to the party (including Novavax) is unclear.
There is significant ambiguity about what actual demand for the Novavax vaccine is; I dont see ~2 billion doses as firm commitments.
Gavi/COVAX was seen to be a 1.1 billion dose market for Novavax, but this appears to be disappearing.
Adverse events for Novavax vaccine may be similar to those for mRNA vaccines.
Novavaxs 2022 guidance of $4-$5 billion revenue looks problematic.
African American man in mask gesturing thumb up during coronavirus vaccination, approving of covid-19 immunization
Prostock-Studio/iStock via Getty Images

It has been just over a month since I wrote about Novavax's (NASDAQ:NVAX) prospects, but a month is a long time in the COVID world. Here I update on what has happened since Novavax's Q4 2021 reporting. I remain pessimistic about Novavax's prospects.

What's new in the COVID story?
The SARS-CoV-2 virus which causes COVID is a virus that changes a lot. While all over the world (except for China) Governments are increasingly acting as if the pandemic is over, the reality is that the pandemic continues. The outlook remains hard to make sense of as different strains are prevalent in different countries. What is clear is that COVID has killed a lot more people than most databases indicate. Databases that collect official data, such as worldometer have the number of COVID cases at 518 million and 6.28 million deaths as of May 11 2022. After a roughly linear increase in case numbers between mid-2020 and the end of 2021, case numbers have escalated in 2022, although this new increase seems to be plateauing. The US has 83 million reported cases and more than one million deaths, with hundreds of daily deaths still being reported and more than 3,000 deaths/million people. A recent WHO (World Health Organisation) report indicates that the actual number of direct and indirect deaths from COVID is now more than 15 million (around 3x the official deaths reported). Most of the deaths were among the elderly in low to middle incomes countries.

Clearly the pandemic isn't over but where it goes from here is unclear.

The biggest unknown is whether a new variant(s) will arise which are not addressed by existing vaccines. The companies well positioned to tackle such a situation are those producing mRNA vaccines (BioNTech (BNTX)/Pfizer (PFE) and Moderna (MRNA)).

What was new in Q1 2022 for Novavax?
1) Indian approval for age 12-17 shots
Seeking Alpha contributor "Out of Ignorance" has recently compared the progress and fates of Novavax and Dynavax (DVAX), two US COVID vaccine developers with protein-based vaccines. Both companies have partners in India to manufacture for the Indian market.

Dynavax's Corbevax is ahead of Novavax's Covovax in having recently received DCGI (Drugs Controller General of India) approval for children aged 5 through 12. Novavax's Covovax has been recently approved for children aged 12 through 17.

In terms of business uncertainty, "Out of Ignorance" notes that Novavax is more exposed to success via the COVID vaccine as it doesn't have a near term alternative product. Dynavax has HEPLISAV-B recombinant Hepatitis B vaccine, which is FDA approved for adults. This vaccine is starting to make money for Dynavax.

2) Big orders announced, but is the Novavax vaccine getting into people's arms?
I found the Q1 2022 reporting on actual Novavax vaccine (Nuvaxovid) in people's arms to be unsatisfactory, because the questioners seemed unable to elicit any clear information about this. The focus was on vaccine delivered, but it wasn't clear that this meant actual sale of the vaccine in a number of markets.

I'm Australian and I've tried to get some idea of the number of actual Nuvaxovid (Novavax) vaccinations that have occurred in Australia. The relevant point in terms of Novavax's 2022 guidance of $US4-5 billion is whether this reflects estimates based on orders or actual product received and used.

A story from Australian newsGP indicated that three million doses of the Nuvaxovid vaccine had been received in Australia in February and had passed TGA approvals. 3,500 approved sites were to receive the vaccine (including 1,600 general practices). The problem is that 94% of Australians over 16 have received two doses of vaccine (Pfizer/BioNTech's Comirnaty, Moderna's Spikevax or AstraZeneca's (AZN) Vaxzevira), and the Nuvaxovid vaccine is not yet approved as a booster dose. The claim is that there are patients waiting for the Novavax vaccine. The point is that in Australia there are only 900,000 people over 18 who are not double vaccinated, so that is an upper limit. The guess is that maybe 5-20% of unvaccinated might be interested in the Nuvaxovid vaccine. This gives 100,000-200,000 people who might seek the Nuvaxovid vaccine. This assumes that these people are truly waiting for the Novavax vaccine and not using its unavailability as an excuse not to get vaccinated. The point is that Australia has ordered 51 million doses of the Nuvaxovid vaccine, which means less than 4% of the vaccine ordered could be used for primary vaccination. This sounds like a basis for changing the order Maybe if a Nuvaxovid booster is accepted by the TGA soon, this could increase the demand for the vaccine, but a lot of people in Australia are happy with Moderna's Spikevax or Pfizer/BioNTech's Comirnaty.

Australia is small cheese (although it has ordered 51 million doses!). The clearest indication of the bigger problem that I raise concerns Gavi (Gavi the Vaccine Alliance, a public-private global health partnership created in 2000)/COVAX which is an important market for Novavax (1.1 billion doses committed). A January 17 2022 COVID vaccine link indicated that COVAX had delivered more than one billion COVID vaccines to 145 participating countries, but the indication is that Gavi is oversupplied with vaccines already. Note that Pfizer/BioNTech is a major supplier with almost 1.1 billion doses delivered to a large number of countries. J&J (JNJ) and Astra Zeneca are other major suppliers, with Moderna providing a small contribution.

As far as I can gather from the Q1 reporting, Gavi has paused its orders and is currently not giving guidance as to what it will actually accept. From the Gavi website it looks like they have plenty of COVID vaccine (of all kinds), and the problem is demand from the countries scheduled to get vaccination. One questioner asked if Gavi renegotiated its Novavax vaccine requirement to zero, would this have a significant impact on guidance. The response from CFO James Kelly was that this was very negative and he refused to answer the question. James Kelly said that the company continues to work with Gavi to "ensure equitable access". That sounds like the company might be locked out, perhaps because Gavi has plenty of other vaccines?

I looked at the Gavi website under the heading "The COVID-19 vaccine race - weekly update". Admittedly the above link showed the date as 12 January 2022, so things might have changed, but the challenge for Novavax is that the Novavax vaccine did not appear in vaccines in Phase 4. It does appear under "In use".

List of COVID vaccines

In Phase 4, 10 vaccines were named, one of which was a protein-subunit vaccine. These vaccines have been approved and are being monitored in the wider population. Novavax's vaccine is not on this list.

These are : Medigen (Taiwan) protein subunit vaccine; Moderna (USA) RNA vaccine; AstraZeneca /Uni Oxford (UK) viral vector vaccine; Pfizer/BioNTech (USA/Germany) RNA vaccine; Sinovac (CHINA) inactivated vaccine; Cansino Biologics (CHINA) viral vector vaccine; Beijing Institute of Biological Products (CHINA) inactivated vaccine; Janssen/Johnson & Johnson (USA) viral vector vaccine; Moderna/National Institute of Allergies & infectious Diseases (USA) RNA vaccine; Wuhan Institute of Biological Products (CHINA) inactivated vaccine.

In Use, 23 vaccines are described, with six of them being protein-based. These vaccines are described as currently being offered to the general population.

The six protein subunit vaccines "In Use" are : Novavax (USA), Federal Budgetary Research Institution State Research Center of Virology & Biotechnology/Vector Institute (Russia), Anhui Zhifei Longcom Biopharmaceutical, Institute of Microbiology of the Chinese Academy of Sciences (China/Uzbekistan), The Center for Genetic Engineering & Biotechnology of Cuba (CUBA), Instituto Finlay de Vacunas (CUBA), Medigen (Taiwan).

The above is basically a restatement that Novavax is late to the party. It suggests that Novavax is lagging with a number of other also-ran vaccines. There is a huge amount of information about COVID vaccines available. One point of note is that 34.9% (166) of COVID vaccines under development/developed are protein subunit vaccines, while the next most popular vaccine category under development/developed is mRNA vaccines at 16.2% (77). I find these statistics astonishing in that mRNA vaccines have only just arrived on the scene. And to make the point of what being first means, Moderna's Spikevax and BioNTech/Pfizer's Comirnaty dwarf the rest of the mRNA field in terms of sales.

These comments from CEO Stan Erck made me conclude that there is a lot of uncertainty about the Gavi deliveries:

"Yeah. It's an unclear marketplace right now in the low and middle income countries. There appears to be lots of inventory that's been shipped to the main vaccine introduction side of the warehouse in many of these long and middle income countries and the difficulty appears to be getting it into the use in the country.

And so I think that, that's something that I don't have a lot of visibility into, but that's what's been related to us. And so therefore, the - that translates into uncertainty about the demand for our vaccine right now. And so it's, I think, characterized by uncertainty.

So I don't know where it's going to go for the low and middle income countries. And we're waiting on discussions with Gavi to see what we're going to do with our current contract. It's - we disclosed that there's uncertainty that's been fairly recent, and that's what it is."

Novavax reports a total of ~2 billion doses of Nuvaxovid committed globally but after the 1.1 billion committed to Gavi, the rest looks less certain with advance purchases to the European Commission and seven countries of up to 430 million doses, 110 million doses to the US Government and up to 400 million doses under licensing agreements. It all seems more hope than reality.

In several parts of the Q1 2022 Q&A, where there seemed to be issues on likely lower deliveries, other opportunities for the vaccine (not yet approved) were raised as likely to fill gaps. I did not get a comfortable view about how much Nuvaxovid vaccine is actually getting into people's arms.

CFO James Kelly made the following specific comment in the Q1 2022 transcript that ties into these concerns "Although we're not adjusting our full year 2022 revenue guidance, we note that our current guidance assumes successful delivery and conversion up to $700 million prepayment to product revenue. In the event we deliver less, our resulting revenue expectations for the year could be affected." Is this acknowledgement that the $4-5 billion guidance for 2022 has some considerable uncertainty attached to it?

3) FDA EUA for Nuvaxovid?
The Q1 2022 earnings report was more bullish than previous comments about FDA approval, indicating that EUA seems likely after a scheduled June 7 meeting. My take on Novavax announcements is to wait to see what reality brings. Given only three vaccines (BioNTech/Pfizer Comirnaty, Moderna Spikevax and Janssen (J&J) COVID vaccine) have FDA EUA (Emergency Use Authorization), and the FDA has recently limited the use of the J&J Janssen vaccine, I remain cautious about how this will play out.

4) Nuvaxovid and side effects
A very common theme from Novavax enthusiasts is that Nuvaxovid is a completely safe vaccine that has no side effects like the Moderna and BioNTech/Pfizer mRNA vaccines. My take is that vaccines have to be very safe to be considered for human use and so side effects are always rare for vaccines that are being seriously considered for human use. My concern about Novavax proponents claims concerning safety of the vaccine might be because not enough people had actually received the vaccine for side effects to be visible. In that context recent data from Australia is instructive.

The Australian TGA reported 122,000 doses of Nuvaxovid (Novavax) administered by April 24, 2022 and that there were 588 reports of suspected adverse events, mostly comprising headache, chest pain, paraesthesia, fatigue and dizziness. The number of patients receiving the vaccine is still too small to draw firm conclusions about these minor effects, but of more concern were some cases of suspected myocarditis and/or pericarditis. After assessing against internationally accepted criteria, one case is likely to be myocarditis and seven cases pericarditis. Note that the TGA reported the incidence of myocarditis in adults with Pfizer/BioNTech and Moderna vaccines is 1-2 in every 100,000 people. This suggests a similar incidence of myocarditis for the Novavax vaccine to that found with the mRNA vaccines. If this pattern continues with more people vaccinated, it would suggest that a major claimed benefit of the Nuvaxovid vaccine (no heart problems) may not be true.

Novavax's position
Novavax is the company that missed the massive profits in the heat of the early phase of the pandemic and which is still promising big returns soon. I think that it is important to understand what Novavax has achieved. If the mRNA technology of BioNTech/Pfizer and Moderna had not succeeded, Novavax would look very different as it would be bringing to market powerful technology very fast compared with previous vaccine developments, although of course more traditional inactivated virus vaccines have beaten them. The point remains that the mRNA technology has arrived and there is a strong chance that most vaccines developed in the future will be based on mRNA technology. This leaves little room for Novavax and that is why I'm not optimistic about Novavax share price appreciation. The NVAX share price is down 67.2% in the past six months. It is true that early Novavax investors have done well (up 222% over five years), but the big gains were based on potential not reality.

Having looked closely at recent news from Novavax and its Q1 2022 reporting, I see no reason to change my previous conclusion about the challenging prospects for Novavax going forward. I think that the $4-$5 billion guidance for 2022 revenue looks more problematic after Q1 reporting. Also evidence about adverse events for Nuvaxovid begins to look like it may end up being similar to the mRNA vaccines of Moderna and BioNTech/Pfizer. This would not be surprising as Novavax, Moderna and BioNTech/Pfizer vaccines all use the SARS-CoV-2 spike protein as the immunogen source. It is just that Novavax makes the spike protein in a fermenter while the mRNA vaccines rely on the body of the recipient to make the spike protein. All of these vaccines have a much less dramatic adverse events profile than people who contract COVID.

Novavax continues to have a widely divergent treatment from Seeking Alpha authors and Wall Street analysts, with six Wall Street analysts in the past 90 days giving four strong buys, one buy and one hold recommendation, and seven Seeking Alpha authors in the past 90 days offering one strong sell, three sell, two hold and one buy. Novavax share price continued to slide over the past month by 9.8% to $53.86. This included a slide to a year low of $41.74. I don't see reasons for a significant recovery at this time.

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