Novavax(NASDAQ: NVAX) shares have offered investors a roller coaster ride over the past few years. They soared more than 2,700% in early pandemic days as investors bet on the company's investigational vaccine -- then plummeted 98% from their peak as the vaccine entered the market late, missing out on the biggest revenue opportunity.
Today, the company is generating sales from its vaccine, but less than anticipated, and that's forced Novavax to realign its cost base with the revenue opportunity. The biotech last year cut 20% of its workforce, and thanks to other efforts aims to reduce its research and administrative expenses by more than 55% this year compared to 2022. Wall Street has high hopes for Novavax shares, predicting a potential gain of 373% in the coming 12 months.
At the same time, the company still is in the middle of its cost-cutting effort and faces other challenges. What should investors do? Here's one reason to buy Novavax stock hand over fist -- and one reason to sell.
Image source: Getty Images.
Reason to buy: A promising vaccine candidate waits in the wings
Novavax's coronavirus vaccine launched a year or later (depending on the market) than vaccines from Pfizer and Moderna, so the company brought in a much lower level of revenue than its rivals. At its peak in 2022, the vaccine helped the company generate $1.9 billion in total revenue. Moderna and Pfizer reported vaccine sales of $18.4 billion and $37 billion, respectively.
Today, all three rivals are facing the challenge of declining vaccine demand. But one thing in the future could help increase vaccine uptake, and that's a combined flu/coronavirus shot. Nearly half of the U.S. population goes for an annual flu shot, and a combined option is likely to attract this group.
All three players are working on combined shots, but considering the market opportunity, each company could carve out market share. Novavax aims to start the phase 3 trial of its candidate early this year, with the goal of a launch in 2026. Moderna has spoken of a potential launch in 2025.
This potential product, along with the lower cost base Novavax is creating right now, could help earnings and the stock price take off.
Reason to sell: A dispute with a key customer
Gavi, the Vaccine Alliance is an organization that promotes access to vaccines around the world. In 2021, it signed an advance purchase agreement with Novavax for the delivery of vaccines and that involved an upfront payment and an additional payment totaling nearly $700 million.
About a year later, Novavax sought to terminate the agreement, saying Gavi failed to order the number of doses required by the agreement. Gavi then said the company breached the agreement and asked for a refund.
The dispute is under arbitration at the moment. A decision in Novavax's favor could offer the stock a big boost -- but a decision in Gavi's favor could be disastrous for the company.
When Novavax last year questioned its ability to continue operations if certain problems persisted or worsened, it mentioned the Gavi dispute as one of the uncertainties.
Considering Novavax has $666 million in cash, an order to refund almost $700 million could hit the company particularly hard.
Should you buy or sell?
The answer to this question depends on your comfort with risk. For most investors, it's best to watch Novavax from the sidelines right now and watch for the resolution to the Gavi dispute and further progress on the cost realignment plan. If the situation progresses in a positive way, you might consider picking up a few shares of this company and potentially benefit from its combined vaccine down the road.
If you already own Novavax shares, and selling would lock in a loss, you might consider holding on -- unless you've lost faith in the company and would prefer to reallocate your money into another stock or stocks.
Finally, if you're an aggressive investor, and are fully aware of and accept the risks, you may consider getting in on shares of Novavax today -- and possibly win big if all goes right for the company in the coming months.
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Adria Cimino 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.
