There was a lot of promise around Novavax (NASDAQ: NVAX) and its COVID vaccine a few years ago. But with the company being late to the finish line and now generating limited revenue from the vaccine, it has effectively missed the boat and the huge revenue that rivals Moderna and Pfizer have accumulated.
Novavax's future remains uncertain these days, as the company is back to needing a strong product to build its business around. Here's a look at where Novavax might be five years from now, and whether it's worth investing in the stock today.
Will Novavax be able to strengthen its financials?
Novavax is in cost-cutting mode. Reducing its expenses for both research and development and selling, general, and administrative costs is a key priority for the business in 2024. By the end of this year, it expects that its combined R&D and SG&A spending will be less than $750 million. That would amount to a nearly $1 billion cost reduction from the $1.7 billion it spent on those categories in 2022.
Cutting costs could be the name of the game for Novavax for the foreseeable future, especially since most of its business still centers around COVID and a seasonal influenza vaccine. The company is also working on a combination shot for both COVID and the flu. While the flu shot may present a new opportunity for Novavax, it's a highly competitive area where the payoff may not be significant.
While I'm optimistic that Novavax's expenses will come down over the next five years, I would be surprised if the company's top line is any better. For the first nine months of 2023, Novavax reported $692 million in revenue but incurred a loss of $367 million. Five years from now, both the revenue and net loss could be smaller for Novavax as the company is likely to drastically reduce its operations amid weaking COVID demand.
Can Novavax survive another five years?
Perhaps the biggest question is whether Novavax will be around five years from now. Last year, it issued a "going concern" warning, signifying that it doesn't know if it can survive another 12 months. The company doesn't have a big growth catalyst on the horizon, and its cash burn is likely going to remain high as COVID revenue dries up.
As of Sept. 30, 2023, the company reported cash and cash equivalents of $651 million. That's down from more than $1.3 billion it had as of the end of 2022. The company used up half of its cash in a period of just nine months. That's not a sustainable pace, which emphasizes the need for it to cut costs.
Novavax may also need to pay back close to $700 million to the Global Alliance for Vaccines and Immunization (Gavi) after it terminated a purchase agreement with the organization. Novavax received payment in advance, which Gavi is now seeking to get back. An arbitration hearing is scheduled for July.
An unfavorable result from the arbitration hearing would put Novavax's hopes of staying afloat in jeopardy. But even if that doesn't happen, the business doesn't appear to be on solid footing given its lack of growth opportunities and its problematic cash burn.
I don't hold out a lot of hope that Novavax will still be around in five years. The best-case scenario may be that another healthcare company acquires it.
Novavax stock is too risk to invest in today
Shares of Novavax are down 65% over the past 12 months and there isn't a compelling reason to believe that a turnaround will happen anytime soon. While a lot can change in five years, there isn't anything to lead me to believe the stock will become any better of an investment than it is today. Investors are better off pursuing other growth stocks that have more potential.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.
