• Novavax reported a net loss of $0.76/share and $84.5M in revenue, beating estimates but cutting guidance due to lower COVID-19 vaccine sales.
• Revenue has declined since 2022, prompting a substantial cost reduction program set to refocus the company on 4 key value drivers.
• A collaboration with Sanofi offers flexibility and potential growth, allowing Novavax to focus on developing a COVID-19/influenza combination (CIC) and seasonal influenza vaccines.
• Despite effective products, reduced guidance and restructuring uncertainty make NVAX stock a hold, with the Sanofi partnership and upcoming milestones as a potential bullish catalyst.

Novavax (NASDAQ:NVAX) reported earnings Tuesday morning that beat estimates on the top and bottom line, reporting a net loss of $0.76/share and revenue of $84.5M for the quarter. However, the stock closed a solid 6.1% lower as the company cut its 2024 full-year guidance on lower than expected sales of its COVID-19 vaccine.

Revenues have shrunk since peaking in 2022, as vaccine uptake lagged behind Pfizer (PFE) and Moderna (MRNA). The company’s COVID-19 vaccine Nuvaxovid remains the company’s sole product, but has represented a small share of a shrinking pie. Now the company has entered into a substantial cost reduction program, shrinking R&D in order to adjust to this new business reality.

This year has seen some positives, primarily a collaboration with Sanofi (SNY) in a partnership announced earlier this year. This has given Novavax flexibility to transition away from its prior business model with Sanofi leading the way in commercialization, freeing Novavax to focus on new product development. In addition, the clinical hold on late-stage development of the company’s COVID-19/influenza combination was lifted as of Friday, freeing Novavax to pursue a Phase III clinical study. This is a major development, potentially paving the way for additional milestone payments in the coming year.

While Novavax has an effective vaccine product, the negative trend of reduced guidance along with the uncertainty of restructuring make the stock a hold. However, the silver lining of collaboration with Sanofi may be a bullish catalyst in the coming year. This partnership appears to be the best catalyst for a turnaround in the near-term.

Novavax Q3 Earnings Call: Value Drivers

CEO John C. Jacobs began the earnings call identifying the value drivers of Novavax’s business strategy. First and most importantly, the previously announced Sanofi partnership intends to find synergy through combining Novavax’s “proprietary protein and nanoparticle technologies, Matrix-M adjuvant R&D expertise” with Sanofi’s world-class expertise in the commercialization of innovative vaccines.

The deal provided an initial cash payment of $500 million up-front and a $70 million equity investment in Novavax. Moving forward, the company is eligible for up to $700 million in additional milestone payments based on sales of its Nuvaxovid vaccine. This was a huge plus for the company, which had earlier this year been forced to issue a “going concern” notice. As a result, the stock shot up from 52-week lows of under $4/share. With the stock around $8.46/share as of this writing, an investment is much less risky compared to earlier this year.

The second value driver is Novavax’s late-stage pipeline, highlighted by the lifted clinical hold on its COVID-19/influenza combination (CIC). Novavax is now accelerating toward a Phase III study (COVID-19 + seasonal influenza), which had been placed on clinical hold after the passing of a patient on the Phase II study. While this will still represent a frustrating delay, Novavax maintains that this patient’s passing was unrelated to the clinical trial.

As a third value driver, Novavax is pursuing its own seasonal influenza vaccines (in Phase II below), which will be subsequently partnered. Finally, the 4th value driver is the emerging stage early pipeline. The company’s platform technology will be leveraged in this case for other opportunities.

Novavax has come a long way this year. While the company’s future was in doubt previously, it now has a cash runway and is restructuring the business to reflect lower sales of its sole product.

NVAX Q3 Earnings Results

Next, Jim Kelly, the company’s Executive Vice President and CFO, presented the financial results for the quarter. Total revenue of $85 million was achieved and after the Sanofi agreement substantial cash reserves of over $1 billion are on hand. The enterprise value of the company is now only $565 million. Thus, the valuation is quite low considering the relative magnitude of potential milestone payments.

However, even with this war chest, Novavax has been spending rapidly, and a cost reduction program is being implemented to resize the R&D budget. For 2024, R&D and SG&A expenses are now $700 to $750 million. These are being slashed significantly moving into 2025 and 2026, reducing expenses to ~$500 million and ~$350 million respectively for those years. In this manner, Novavax is attempting to salvage the highest returns on investment, betting on its COVID-19/influenza combination as the nearest value driver for the company.

Driven primarily by COVID-19 vaccination trends in the US market, full-year guidance was reduced from a prior $700-$800 million range down to $650-$700 million for 2024. This was the primary shock that sent the stock lower in the pre-market. Time will tell if next year’s sales will finally rebound, however, Sanofi’s expertise could be a turning point.

Looking at the three-year trend, peak revenues of $1.981 billion in 2022 have gone substantially lower. At the mid-point of $675 million, 2024 revenues will be only 34% of what they were at the height of the pandemic.

The future cash flows under the Sanofi agreement were next outlined on the call. Milestones of up to $700 million beyond those received as yet are in play. The main two that are uncertain value drivers for the company into 2025 are $125 million for initiation of Phase 3 trial of Sanofi CIC program and $225 million for the first commercial sale of a Sanofi CIC product. Thus, if Novavax can execute on its second value driver, there will be a significant windfall. The lifting of the clinical hold allows forward progress to resume.

The third value driver of a seasonal influenza vaccine may also be substantial if Novavax’s platform succeeds to deliver a new product. The average analyst estimate for 2025 revenue is $537 million. Next year may be too soon to realize the full $700 million in milestone payments, but the tide may be shifting in the correct direction for Novavax.

If revenues can return to growth, it would represent a major turning point for the company. It seems early to make this call, but enterprising investors may be enticed by the company’s low price/sales ratio (2.68x FWD Price/Sales). An average price/sales multiple in biotechnology is 6.44x.

Conclusions

Given the lowered guidance for 2024, it still seems early to bet on a turnaround for Novavax. However, the company has made major steps toward a turnaround this year with the Sanofi agreement and lifting of the clinical hold, allowing for the company to move into Phase III with its COVID-19/influenza combination (CIC). It must be noted that the company has only one commercialized product (Nuvaxovid) and a history of operating losses. Thus, Novavax is certainly a speculative investment.

However, with the opportunity for substantial royalties and the Sanofi partnership, the tide may be turning. I rate the company a hold at the present time, but given the magnitude of milestone payments relative to the company’s market capitalization, it is possible to envision significantly higher stock prices should the turnaround succeed.

As NVAX stock has trended lower recently, the return for betting on a successful turnaround has become more attractive. As identified above, the forward revenue estimate times an averages sales multiple nets a price target of $20/share, this seems to be an appropriate price 18-month price target if the CIC can fully unlock the potential value of milestones in the Sanofi/Novavax partnership.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Novavax’ Q3 earnings are due on 6th November.
• The vaccine developer was part of Operation Warp Speed, receiving $1.8bn of funding from the US government to develop a COVID vaccine.
• Novavax succeeded, but Nuvaxovid came to the market too late to build market share and the company ended up making heavy losses.
• Sanofi has acquired the rights to nuvaxovid, paying Novavax $500m upfront, and will look to develop a COVID / Influenza combo vaccine using Novavax’ technology.
• Unfortunately, Sanofi milestones and revenues aside, that leaves Novavax with few opportunities to generate revenue, which likely means its valuation will fall over time.

Investment Overview

Novavax (NASDAQ:NVAX), the Gaithersburg, Maryland developer of protein-based vaccines coupled with its proprietary, Martix-M adjuvant, will announce its Q3 earnings next Wednesday, 6th November.

Novavax was a relatively unknown biotech, still chasing its first approval since becoming a public company in 1987, when the company was selected to be part of Operation Warp Speed, the US government’s COVID vaccine development program, in 2020.

As I have written in previous notes on the company:

Novavax received ~$1.8bn of funding from Operation Warp Speed (“OWS”), but despite delivering some strong safety and efficacy readouts, comparable to Moderna’s (MRNA) SpikeVax and Pfizer (PFE) / BioNTech’s (BNTX) Comirnaty, delays to completing Phase 3 studies meant that its candidate Nuvaxovid did not receive Emergency Use Authorisation (“EUA”) in the US until July 2022.

By that time, both Spikevax and Comirnaty, which received their EUAs in December 2020, dominated the COVID vaccine market, and although Novavax secured approvals in the UK, Canada, Australia, Switzerland, Singapore and New Zealand, and thanks to a partnership with the Serum Institute in India, South Korea, Thailand and Bangladesh, the company could not match its rivals’ earnings power, reporting revenues of $476m, $1.15bn, $1.98bn, and $984m in the four years since 2020.

Nor could Novavax return a profit in any of those years, reporting net losses of $(418m), $(1.74bn), $(658m), and $(545m) in the four years since 2020.

Its funding nearly exhausted, Novavax began 2024 warning about its ability to continue as a going concern, and its share price, which reached the dizzy heights of >$290 per share at the height of the pandemic, in early 2021, fell <$5 per share, around the same price it had traded in early 2020, pre-pandemic.

Then, the company took the market by surprise by announcing, alongside its Q1 earnings, that it has signed an agreement with French Pharma giant Sanofi (SNY) to co-commercialise a COVID vaccine. The deal saw Sanofi pay Novavax $500m up-front, and pledge up to $700m in “development, regulatory and launch milestones”, with Novavax receiving:

tiered double-digit percentage royalty payments on sales by Sanofi of COVID-19 vaccines and flu-COVID-19 combination vaccines, plus;

Additional launch and sales milestones opportunities of up to $200 million plus mid-single digit royalties for each additional Sanofi vaccine product developed under a non-exclusive license with Novavax’s Matrix-M adjuvant technology.

Novavax stock skyrocketed to >$20 on the back of this deal, which seemingly solves its funding issues and gives the company a new lease of life, even if, as I discussed in a Q2 earning preview note in July, Sanofi will earn the lion’s share of any future COVID vaccine revenues.

In Q2, Novavax reported $415m of revenues, which included $391m of the $500m Sanofi payment, and net income of $162m – only its second profitable quarter in the past ten – with cost of sales reported as $46m, R&D expenses of $107m, and SG&A expenses of $101m. Cash position was reported as $1.1bn.

Full year 2024 guidance was presented as per the table below:

This slightly confusing picture essentially tells us that Novavax expects $175m – $275m of revenues in 2H24, “subject to updated variant manufacturing and regulatory approvals”. Given Novavx’ track record, my prediction is that revenues will ultimately come in at the lower end of guidance.

On the Q2 earnings call CEO John Jacobs discussed the company’s four new value drivers – its Sanofi partnership, late stage pipeline, further partnership opportunities related to its technology platform, and a new early stage pipeline. Let’s explore the potential of each.

Novavax’ New Value Drivers May Offer Limited Promise

From 2025, Sanofi will take over responsibility for commercialising nuvaxovid, with Novavax eligible for up to $350m of milestones, and a “tiered royalty on net product sales in the high teens to low twenties”.

If Sanofi successfully commercialises an influenza / COVID combo vaccine, there is also $350m of milestones on the table for Novavax, plus royalties in the “mid single digits to sub teens percentages”, and Sanofi will also pay Novavax $10m for any new candidate it decides to develop using Novavax’ technology, $200m in launch and sales milestones, and mid-single digit royalties on sales.

Value driver number one is almost guaranteed to generate revenue for Novavax, then, although it is hard to estimate how much, given the future market for COVID vaccination is highly uncertain, and the race to develop a first influenza COVID vaccine highly competitive.

Value driver number two, the proprietary late stage pipeline, has already hit a major road bump. Earlier this month, the FDA opted to place a clinical hold on Novavax’ Investigational New Drug (“IND”) application for its own COVID / Influenza combo (“CIC”) vaccine candidate.

According to a press release:

The clinical hold is due to a spontaneous report of a serious adverse event (SAE) of motor neuropathy in a single CIC Phase 2 trial participant outside of the U.S. who received the vaccine in January 2023

In response, Novavax’ Chief Medical Officer Robert Walker commented:

It is important to note that safety is our top priority, and while we do not believe causality has been established for this serious adverse event, we are committed to working expeditiously to fulfil requests for more information from the FDA. Our goal is to successfully resolve this matter and to start our Phase 3 trial as soon as possible.

It seems slightly bizarre that the Sanofi deal has left the door open for Novavax to produce its own CIC candidate, but nevertheless, Novavax had been promising Phase 3 data by the middle of 2025. As ever, however, there will now be a frustrating delay, and if the safety issues cannot be resolved, the project will have to be shelved altogether.

Value driver three, attracting other partners to work with its platform – is a speculative source of revenues. Granted, Sanofi was prepared to make a substantial payment to Novavax, but my feeling is that the Pharma’s attention is focused solely on squeezing as much revenues as it can from nuvavoxid sales, with all regulatory hurdles already cleared, and developing a CIC.

Would another Pharma or biotech look to develop other vaccine candidates using Novavax’ technology? It is not impossible – management’s execution, not the underlying efficacy of its protein based vaccine – is the main reason why the company has struggled in the past – however, Novavax’ may have to settle for unfavourable deal terms, and it may therefore be doubtful that this value driver will provide much more than ~$100m per annum, even in an optimistic scenario.

Finally, with Novavax’ track record – 35 years without a single approval to its name pre-pandemic – the value of its early stage pipeline must be considered negligible.

The Sanofi Paradox – Why I Still Don’t See Value In A Novavax Investment

Novavax took the market by surprise in Q1 with its announcement of the Sanofi deal, but I don’t see lightning striking twice – especially not in the same year – and I am struggling somewhat to see how Novavax shares will remain at current value – even after the sell-off in response to news of the FDA’s clinical hold, which dropped the share price from ~$13, to <$10.

The positives are that Novavax has cash and investments of >$1bn, and thanks to the Sanofi payments, is likely to break even in 2024. It is also notable that Pfizer has guided for ~$5bn of Comirnaty revenues in 2024, and has struck a bullish note on the long-term sustainability of COVID vaccine revenues.

With Sanofi assuming control of marketing and selling nuvaxovid from next year, if we assume it can gain a 15% share of a global market I’d estimate to be ~$5bn in size (I suspect Pfizer will generate no more than $3bn in coomirnaty revenues in 2025, spikevax perhaps $1bn, and other vaccines up to $1bn), then Novavax could earn ~$150m in royalties, and perhaps another $100m in milestones.

The final exciting catalyst is Sanofi’s CIC vaccine – Sanofi stated its intention on its Q3 earnings call with analysts to “immediately move next year towards Phase 3, assuming Phase 1/2 positive data”. I could see an approved CC vaccine generating ~$2bn per annum, which would generate ~$200m per annum for Novavax.

I don’t foresee any other clear revenues opportunities for Novavax, however, due to its poor track record developing vaccines in-house, which has already been demonstrated with the FDA’s recent clinical hold.

As discussed above, I don’t see many, if any companies approaching Novavax for access to its technology, which is viewed in many quarters as being somewhat antiquated and cumbersome.

My suspicion is that Sanofi made a good deal with Novavax because it benefits directly from nearly $2bn of R&D spending on the COVID vaccine, which it can market and sell every year going forward, and perhaps earn a few hundred million dollars from, while the CIC opportunity is speculative but potentially lucrative, and again, requires minimal R&D effort, the R&D having been completed at great expenses using tax payer funding during the pandemic.

I also suspect that Novavax would have been better off securing a full exit to Sanofi – an M&A deal, as opposed to the deal it has got, which limits its ability to earn from its only obvious source of revenue which is COVID vaccine or CIC revenues in future.

The optimal strategy for Novavax may be to keep reducing staff and costs and to accept that, Sanofi milestones and royalties aside, it has very few opportunities to generate revenue. As such, with SG&A costs falling, and no costs of sales fron next year onward, why not trim the R&D budget also, and passively accept income from Sanofi.

This strategy won’t result in Novavax growing its share price – I’d speculate it would shrink it to ~$1bn, on a maximum of ~$300m in annual revenues from Sanofi, in an optimistic scenario, but I don’t see any other viable strategies for the company, therefore, like it not, Novavax and its management may have to accept the direction the company is headed in and adjust to the new reality.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Novavax’s financial position improved significantly with a $570 million cash infusion from Sanofi, boosting its balance sheet and cash reserves to $1.1 billion.
• Despite Jefferies’ bullish $31 price target, Novavax faces challenges with limited market share and uncertain future revenues from royalties and new drug sales.
• The Sanofi partnership is beneficial, but Novavax’s future sales are expected to decline, impacting stock valuation.

Novavax, Inc. (NASDAQ:NVAX) is in a far better financial position following the partnership deal with Sanofi (SNY). The biotech has a vastly improved balance sheet, but a lot of questions exist on how the company will boost the stock going forward. My investment thesis remains Neutral on the stock with a $2 billion market cap, though the stock soared due to analysts with a very bullish view on Novavax.

New Chapter

Novavax entered a new chapter in Q2, with the company receiving $570 million in cash from Sanofi as part of the partnership. Novavax now has a cash balance of $1.1 billion, with $500 million in upfront payments and the other $70 million via equity investment in stock.

Jefferies issued a bullish note on the stock based on meeting with management. The research firm has a $31 price target for ~100% upside from here, but the prospects of only meeting ’24/’25 seasonal sales aren’t so promising.

At the recent Baird conference, management outlined the product sales guidance for the fall season at only $225 million as follows:

Then product sales guidance, $275 million to $375 million. So you got a midpoint at $325 million.

In that $325 million midpoint, you got a $100 million that we already sold this year under our advanced purchase agreements. The remainder, $225 million in sales for the fall season, the vast majority of which, U.S. market.

Now the question is what revenues are possible for Novavax via new drugs and how much royalties the company can claim from Sanofi on top of the $700 million in additional development, regulatory and launch milestone payments. Sanofi would have to be far more successful selling the Covid vaccine in the ’25/’26 season in order for Novavax to record material royalty revenues.

The company has very limited market share on vaccines sold in the EU and the U.S. These charts hardly show Novavax in the picture with Pfizer (PFE) and Moderna (MRNA) selling millions upon millions in vaccines.

The big question is, how many Covid vaccines can be sold? Novavax lists a bunch of retail locations for the ’24/’25 vaccine season, but the company turns to Sanofi to market the vaccines starting in 2025.

The Covid-19-Influenza (CIC) combination vaccine is promising. Novavax targets the start of the Phase 3 trial in Q4 with top-line results targeted for Q2’25.

One has to question how successful the small biotech can market such a vaccine against the big biopharmas, even with a partner. The biggest hope is probably for Sanofi to get their CIC drug approved to successfully market against anything from Pfizer and Moderna.

Hard To Value

While the Sanofi deal was a huge positive for Novavax, the small biotech will likely now transition to a period of declining sales. The stock market doesn’t usually reward stocks with declining sales.

Between APAs and governments forcing Covid vaccines in the past, Novavax reported far higher sales. The company even just reported Q2 GAAP revenues of $415 million, due mostly to the upfront payment from Sanofi.

The current analyst forecasts are for limited sales next year, despite Novavax still reporting revenue from the upfront payment and the potential additional milestone payments of up to $350 million. Sanofi will start selling the Covid vaccine on January 1, so going forward sales are likely minimal, based on collecting only royalties.

The consensus analyst estimates are very wide for the next few years. While only two analysts have numbers for 2027, the revenue estimate at $377 million is actually below the 2025 targets.

As mentioned above, the current 2024 revenue estimates only include ~$225 million in product sales for the current vaccine season. The other $500 million comes from $100 million in APAs and another $400+ million for the upfront payment from Sanofi recorded as revenue in 2024.

Again, the Sanofi deal is incredible, but the stock will be valued based on the revenues generated based on the royalties going forward. Especially considering Novavax plans to find another partner for the CIC vaccine, assuming regulatory approvals following good Phase 3 results.

Novavax will spend upwards of $450 million on operating expenses in 2025, followed by $350 million in 2026. The company will undoubtedly burn cash at these run rates, outside of any additional milestone payments from Sanofi.

Shareholders have long faced the pain of heavy spending, leading to share dilution to raise additional capital. The new structure likely limits the risks, but the royalty structure also cuts the upside potential from vaccine sales.

Takeaway

The key investor takeaway is that Jefferies is very bullish on the stock, but Novavax needs sustainable royalty revenues for the stock to hold on to higher prices.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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• Novavax has secured a transformative partnership with Sanofi, which includes $1.2 billion in potential payments and critical commercial support.
• The company’s COVID-19 vaccine targets the JN.1 variant, but newer Omicron variants have outpaced it, limiting competitive advantage.
• Financial stability hinges on achieving key milestones in the Sanofi partnership and successful commercialization of new vaccines.
• Despite the Sanofi deal, maintaining a “hold” position is prudent given the high-risk nature of Novavax’s future prospects.

Introduction

Novavax’s (NASDAQ:NVAX) stock is up almost 40% since my rating upgrade to “hold” in May. The upgrade followed a collaboration with Sanofi (SNY), granting the pharma giant a license for Novavax’s adjuvanted COVID-19 vaccine for use in combination with Sanofi’s flu vaccines. Sanofi paid Novavax $500 million upfront with a potential for $700 million in milestone payments, as well as tiered double-digit percentage royalty payments on sales. The deal allowed Novavax to ditch its “going concern” doubts in its financial statements, breathing life into the company. Both Novavax and Sanofi, however, enter a race towards an influenza/COVID combination vaccine that has other runners. Moderna (MRNA) and Pfizer (PFE) are also vying for market share and already in later-stage trials, although the latter company had a setback recently after missing a key endpoint.

Click to enlarge

Here’s a look at some upcoming catalysts for NVAX:

Click to enlarge

Novavax’s Sanofi Pact: A Lifeboat Amid Vaccine Market Turbulence

There have been a few developments since my last look. Novavax received emergency use authorization (EUA) from the FDA on Friday for its updated COVID-19 vaccine that targets the JN.1 variant. This subvariant of Omicron was prevalent last season, causing as high as 60% of total COVID cases. JN.1 has since been replaced by other Omicron subvariants like KP.3.

In this regard, Novavax seems to be a step behind, although the company has stated that their vaccine is also effective against KP.2 and KP.3 (as the variants are structurally similar to JN.1). Meanwhile, Pfizer and Moderna received an EUA for their vaccines targeting the KP.2 variant.

This is during a time when COVID cases are beginning to rise. CDC data reveals increases in test positivity, hospitalization rates, and COVID-19 deaths since April.

Despite the EUA, I don’t think there’s any reason to believe Novavax will suddenly gain share against much larger companies and household names like Moderna and Pfizer. In fact, Novavax recently cut its revenue outlook for 2024 from ~$1 billion to ~$750 million due to lower demand for its COVID-19 vaccine.

Novavax’s partnership with Sanofi is progressing. Sanofi’s combination vaccine, which incorporates Novavax’s COVID-19 vaccine, is expected to begin a Phase 3 trial before winter, with top-line data expected by mid-2025. Novavax could receive milestone payments based on clinical success and regulatory approval, while commercial success would result in royalty payments. The company anticipates marketization in time for the 2025/2026 influenza season. With this outlook, the company expects to reveal an expanded clinical pipeline before the end of the year.

Q2 Earnings

Novavax reported revenue of $415.484 million, largely driven by the Sanofi collaboration. Product sales of just $19.9 million were down from $285.163 million in Q2 2023. EPS was $0.99, which missed analyst’s estimates of $1.36. Nonetheless, this is a significant improvement compared to past performance. Net income was $162.381 million for the quarter. R&D expenses decreased to $107 million, down from $219 million in the same period last year. SG&A expenses rose slightly to $101 million due to fees associated with the Sanofi agreement.

Financial Health

As of June 30, Novavax had $680.162 million in cash and cash equivalents. Marketable securities totaled $369.432 million. Total current assets were $1.2 billion, while total current liabilities equaled $1.157 billion. This means that their current ratio is just over 1, which isn’t ideal, but should reasonably cover short-term obligations. Novavax does owe $533.431 million in “deferred revenue” and $168.848 million in “convertible notes payable.”

The company’s revenues are variable and now heavily reliant on milestone payments. Although they reported net income in Q2, it was primarily due to one-time payments from the Sanofi collaboration. However, Novavax is likely to receive additional major milestone payments, which will help to offset their OpEx (see table below). So, for the time being, I will defer estimating the cash runway, assuming that the milestone payments expected over the next two years will bring the company close to profitability.

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NVAX Stock: Risk/Reward Analysis and Investment Recommendation

To summarize, the company has significantly improved its prospects following the Sanofi agreement. They were clearly unsuccessful in going it alone in the competitive vaccine market. Novavax’s partnership with Sanofi, which has a long history of developing and commercializing vaccines around the world (for example, influenza, pediatric vaccines, and travel vaccines), makes the company viable. As discussed in a previous article, although Novavax’s “surrendering” their technology makes this far less like a lottery ticket, we can now have reasonable expectations of returns (maintain “hold“). Relative to my previous risk/reward analysis, I have slightly reduced NVAX’s prospective returns due to its stock rallying 40% as the market digests the Sanofi partnership.

Despite Novavax’s efforts to reduce OpEx, the company still faces significant operational and financial risks. As previously mentioned, the company is heavily reliant on Sanofi’s partnership for revenues, and if clinical trials are successful, Sanofi will face competition from Pfizer and Moderna in the COVID/influenza combination vaccine market. Importantly, any developments that even threaten Novavax’s receipt of said milestone payments could result in a sudden and significant drop in its stock. Still, for those who want in on a piece of the potentially lucrative influenza/COVID combination vaccine market, NVAX, as a Quadrant 1 stock (high risk/high reward), may serve its purpose within a barbell portfolio.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article is intended to provide informational content and should not be viewed as an exhaustive analysis of the featured company. It should not be interpreted as personalized investment advice with regard to "Buy/Sell/Hold/Short/Long" recommendations. The predictions and opinions presented are based on the author's analysis and reflect a probabilistic approach, not absolute certainty. Efforts have been made to ensure the information's accuracy, but inadvertent errors may occur. Readers are advised to independently verify the information and conduct their own research. Investing in stocks involves inherent volatility, risk, and speculative elements. Before making any investment decisions, it is crucial for readers to conduct thorough research and assess their financial circumstances. The author is not liable for any financial losses incurred as a result of using or relying on the content of this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Novavax’s Future Hinges On Sanofi Deal And Upcoming Milestones appeared first on Up2info.com.

• Novavax reported Q2 earnings with a miss on EPS and revenue, causing a drop in share price, but recovered after the earnings call.
• Novavax is making progress with internal vaccine candidates, Sanofi partnership, and potential market opportunities, despite disappointing Q2 earnings.
• I provide my thoughts on the quarter, and will highlight a few downside risks that investors should consider.
• I discuss my updated NVAX strategy.

It has been less than a month since my last Novavax (NASDAQ:NVAX) article, where I discussed partnership with Sanofi (SNY) and updates on their COVID-19 and H5N1 bird flu vaccine programs. Those updates forced me to revise my NVAX strategy to account for upcoming catalysts and the possibility of a sustained rally. Well, that rally turned into a malaise fade over the past few weeks. However, the ticker has experienced a shot of volatility over the past few trading sessions after the company released their Q2 earnings, with a miss on EPS and revenue. Novavax posted that their GAAP EPS came in at $0.99, which missed the Street’s estimates by $0.68. The company also had a 2.1% drop in their revenue and came up $13M short of the Street’s expectations. The subpar performance forced the company to cut and augment their full-year guidance, which caused the share price to drop from around $11 per share down to the $8 handle. However, the company was able to rally the troops with a strong showing in their earnings call, where they stressed the potential benefits of their partnership with Sanofi. As a result, the share price recovered after the opening bell and ended the day in the green. Personally, I am not overly concerned about the weak Q2 earnings, thanks to Novavax’s partnership with Sanofi, cash position, and progress in their own vaccine development.

I intend to review the company’s Q2 earnings and recent developments. Then, I will discuss my views on the quarter and will highlight some of their growth prospects. In addition, I will point out some notable downside risks that NVAX investors need to consider when managing their position. Finally, I take a look at the charts to see if I need to update my current strategy.

Q2 Performance

It is safe to say that Novavax has had an erratic earnings history since launching their COVID-19 vaccine. The pandemic was a boon for vaccine companies that were able to produce a viable candidate. Unfortunately, Novavax did not get the preferential treatment that other companies were given, and the company’s commercial performance has not been stellar.

For Q2, 2024, Novavax was able to pull in $415M in revenue, which is a slight decrease from $424M in Q2 of last year. However, I would point out that $391M of the revenue came from licensing and royalties, thanks to the upfront payment from the Sanofi deal. Therefore, Novavax only pulled in $19.9M in COVID-19 vaccines, a 93% decrease year-over-year.

On the bright side, the company recorded a nice bump in net income, hitting $162M versus $58M in Q2 of last year. Furthermore, Novavax made some headway with their efforts to streamline operations. Management reported that they were able to cut R&D expenses by more than half. The company’s SG&A expenses did pop up from $94M to $101M for the quarter; however, it was noted that this increase was ascribed to the costs of the Sanofi deal.

Taking a look at their bankroll, the company closed out the quarter with $1.1B in cash and investments, up from the $584M they had at the end of 2023.

The company’s Q2 disappointing earnings forced them to recalibrate their full-year guidance. Now, management expects the company’s total revenue to drop in the range of $700M-$800M. In addition, the company projects their combined R&D and SG&A expenses to come in between $700M-$750M.

Notable Updates

The Novavax-Sanofi partnership announcement was arguably one of the most notable events in biotech during the second quarter. Not only does Sanofi’s interest in Novavax’s technology provide validation, but it also provides the company an opportunity to potentially collect billions in milestones and royalties. So far, Novavax has already earned a $570M upfront payment and equity investment.

Novavax is also making significant progress with their internal vaccine candidates. The company’s COVID-19-Influenza Combination “CIC” vaccine is heading toward Phase III trials in the coming months, alongside an individual influenza vaccine. Results are expected from these pivotal trials by mid-2025. An approved CIC vaccine would provide dual protection against both COVID-19 and influenza, which could be a huge win for Novavax, as it would be set to capture substantial market share.

Beyond COVID-19, Novavax’s RSV vaccine candidate has shown promising marks in preclinical studies that outperformed an AS01E adjuvanted vaccine. This is noteworthy, considering that RSV is a major global health crisis.

In fact, RSV leads to ~33M cases of acute lower respiratory infections each year. Furthermore, RSV causes 3M hospitalizations and between 60K to 200K deaths in children under five years old. In the US, RSV is guilty of generating 58K to 80K hospitalizations of kids under one year of age. RSV also significantly impacts the elderly, with ~177K hospitalizations and 14K deaths in patients 65 years old and older each year. In the U.S. alone, RSV is expected to cost $1B annually, just to manage RSV in children under five years old. Clearly, an operative RSV vaccine would be a substantial market opportunity for Novavax.

Furthermore, Novavax is still managing its H5N1 avian influenza vaccine candidate. Early preclinical studies in primates previously primed with a seasonal vaccine highlighted the vaccine’s ability to facilitate high levels of neutralizing antibodies. The company is also looking into intranasal dosing, which could enhance the vaccine’s efficacy and improve its ease of administration. The company is looking to start IND-enabling studies this year, with hopes to move the vaccine into Phase I and potentially out-license it to a partner.

My Thoughts On The Quarter

My takeaway for the quarter comes down to the structural changes and financial transactions that will allow the company to move on from a COVID-19 vaccine company. Novavax made efforts to improve operational efficiency with reductions in R&D and SG&A while strengthening their financials from payments from the Sanofi deal. Furthermore, Novavax is attempting to streamline operations by exploring potential sales of manufacturing facilities to further reduce its operational footprint, and get another injection of funds.

Novavax reported a solid cash position of approximately $1.1B, which should support their ongoing R&D activities and help them advance their own vaccine candidates, as well as have some flexibility to consider other growth opportunities.

Indeed, Novavax’s Q2 commercial numbers were a bit disappointing. However, it’s important to recognize that the COVID-19 vaccine market has weakened, with most major players reporting significant declines in COVID-related sales this year. So, the lackluster vaccine sales are not exactly a surprise and is not really on strong verdict for the company. Admittedly, the weakening COVID vaccine market does not bode well for Novavax in the near term, as the market continues to punish COVID stocks that are failing to report growth. However, I am going to point to the strengthening of Novavax’s finances and operational enhancements that will position them for sustainable growth.

Considering Some Risks

Despite my bullish outlook on the ticker, Novavax faces several hallmark risks that could impact their near-term and long-term performance. Primarily, we have to accept that the competition in the fierce competition in the vaccine arena is strong, with Big Pharma and emerging biopharma attempting to outperform one another. In addition, Novavax has to worry about regulatory risks, supply chain issues, IP, litigation, finances, and the market designating them as a COVID-stock, or a COVID-play.

Thankfully, the Sanofi partnership should moderate some of the risks mentioned above. On the other hand, that makes the success of the Sanofi partnership pivotal to Novavax’s financial outlook and the ticker’s performance. Any delays in the development or commercialization of any Sanofi-related vaccine program could hurt revenue projections. In addition, any setback could spark speculation amongst investors about a potential termination of the partnership. Keep in mind, NVAX investors have been hearing the company promote this deal as a multi-billion dollar opportunity, so, any setback would most likely have a big impact on the share price. Although the Sanofi partnership could be incredibly lucrative for Novavax in the coming years, the stock will most likely be chained to the partnership’s success going forward… good, or bad.

Considering these risks, I am maintaining my NVAX conviction level of 3 out of 5, and the ticker will remain in my “Bio Boom” speculative portfolio.

Checking The Plan

In my previous article, I disclosed that I was looking to trade NVAX around catalysts in order to book some profits while amassing a core position for a long-term investment. In addition, I also revealed that I had upgraded my Buy Threshold to $25 per share, which will be the limit I am willing to buy NVAX. At that time, the ticker was trading was volatile, so I set buy and sell orders hoping to take advantage of the extreme trading environment.

Unfortunately, the share price did not drop down to my standing order just above the uptrend ray from the low in April of 2024.

Now, I am scratching that order and will look to place another buy order at a higher share price. The ticker remains above the 200-day EMA and is above the proximal-low anchored VWAP. So, I will keep an eye on the Go-No-Go indicator to see if it turns bullish, and place an order once I see signs of a potential reversal.

On the other hand, I will keep my sell orders around $45 and $60 per share to book some profits and return my position to “House Money” status.

Long-term, I still expect NVAX to remain in the Compounding Healthcare “Bio Boom” speculative portfolio for at least five more years, or until it graduates to my growth portfolio.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NVAX, SNY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Thank you for reading my research on Seeking Alpha. If you want to learn even more about my method and how I discover these investment opportunities, please check out my subscription marketplace service, Compounding Healthcare, and sign up for a free trial.  

The post Novavax: Staying Long Despite Coming Up Short In Q2 appeared first on Up2info.com.

• Novavax’s Q1 2024 earnings were so-so, but a major partnership with Sanofi sent its share price soaring by 200%.
• The Sanofi deal provides essential funding but restricts Novavax’s future earning potential, making it reliant on revenue streams from Sanofi.
• Novavax’s long-term prospects may be challenging as it may struggle to develop new products and could see its revenue streams dry up post-2025.
• In this review ahead of Q2 earnings (to be announced on August 6) I take a deeper look at the Sanofi deal, and what to expect from Q2 earnings.

Investment Overview

I last provided coverage of Novavax (NASDAQ:NVAX) – the Gaithersburg, Maryland based developer of “innovative vaccines to prevent serious infectious diseases”, ahead of the company’s Q1 2024 earnings in early May.

Frankly, I was not especially optimistic about the company’s prospects, although I did not rule out a surprise – I wrote as follows:

The days of wild share price fluctuations and spikes >$100 per share are a long way behind Novavax now – a spike into the double digits would frankly be surprising in the current climate, as management wrestles with financial problems, announcing plans to let go ~30% of staff when announcing its 2023 earnings.

With that said, Novavax does have an effective, approvable vaccine product that may be capable of driving “blockbuster” revenues for many years to come, if a long-term private COVID vaccination market emerges, as many believe it will.

As such, Novavax retains the ability to surprise the market, as nobody quite knows what to expect from the company, or how its target market may develop over the coming years.

In my conclusion, I wrote:

My expectations aren’t especially high for the upcoming earnings. I would not expect the company to report much in the way of revenues as most of the APA agreements are likely to be settled later in the year, I’d assume, and the fall vaccination season is the key period for earnings commercial revenues.

Where the company may offer investors hope is with some positive developments in terms of the approval of its BLA in the US, and early development of its vaccine targeting the newest strain of COVID, so that it is ready to be launched and compete against its rival vaccines as early as possible.

Management will also (hopefully) update on progress with commercial and retail partners – one major deal could transform the company’s fortunes, but will any company step up and make nuvaxovid a central part of its plans to compete in COVID markets?

What actually happened was that, while reporting a so-so set of earnings – revenues of $94m, up from $81m in the prior year period, a net loss of $(148m), compared to $(294m) in the prior year period, and a cash position of $496m, Novavax shocked the market by announcing a major partnership with French Pharma Sanofi (SNY), potentially worth multi-billions of dollars in revenue, which sent its share price soaring from $4.50 per share, to $13.50 per share, overnight – a gain of 200%.

I am certainly not going to claim I saw this deal coming – I ruled out Novavax’s share price reaching double digits under almost any circumstance, but today it trades at over $16.50 per share.

With Q2 earnings set to be released in ten days’ time, on August 6, I felt this would be a good time to update my thesis, factoring in the impact of a deal that completely reversed Novavax’s fortunes – in the short-to-medium term at least – and speculating about how far this fresh momentum can carry the company, and the long-term effect on its share price and valuation.

Before we discuss Q2 earnings in detail, let’s first recap the company, and the Sanofi deal.

Novavax Seals Sensational Sanofi Deal In Q1 2024

Prior to Q1 earnings Novavax had warned investors that “conditions or events existed that raised substantial doubt about our ability to continue as a going concern” – the reasons for this can be traced to its failure to establish its COVID vaccine, Nuvaxovid, alongside Moderna’s (MRNA) Spikevax and Pfizer’s (PFE) Comirnaty as a preferred vaccine option for major governments’ – here is what I wrote in May:

Novavax is arguably best known for being the company that – very nearly – challenged the supremacy of the messenger-RNA vaccines developed by Moderna (MRNA) and Pfizer (PFE) / BioNTech (BNTX), that earned ~$135bn of revenues during the COVID pandemic era of 2021-2023.

Novavax received ~$1.8bn of funding from Operation Warp Speed (“OWS”), the Trump administration’s vaccine accelerator program, in 2020, but despite delivering some strong safety and efficacy readouts, comparable to Moderna’s SpikeVax and Pfizer / BioNTech’s Comirnaty, delays to completing Phase 3 studies meant that Nuvaxovid did not receive Emergency Use Authorisation in the US until July 2022.

By that time, both Spikevax and Comirnaty, which received their EUAs in December 2020, dominated the COVID vaccine market, and although Novavax secured approvals in the UK, Canada, Australia, Switzerland, Singapore and New Zealand, and thanks to a partnership with the Serum Institute in India, South Korea, Thailand and Bangladesh, the company could not match its rivals’ earnings power, reporting revenues of $476m, $1.15bn, $1.98bn, and $984m in the four years since 2020.

Nor could Novavax return a profit in any of those years, reporting net losses of $(418m), $(1.74bn), $(658m), and $(545m) in the four years since 2020.

Prior to Nuvaxovid, Novavax had been in business for nearly 35 years without securing a single drug approval, but its unique approach to vaccine development had produced an essentially effective vaccine against COVID – the mechanism of action (“MoA”) of Nuvaxovid is described as follows by NebraskaMedicine.com:

The Novavax method uses moth cells to make spike proteins:

1. Researchers select the desired genes that create certain SARS-CoV-2 antigens (spike protein).
2. Researchers put the genes into a baculovirus, an insect virus.
3. The baculovirus infects moth cells and replicates inside them.
4. These moth cells create lots of spike proteins.
5. Researchers extract and purify the spike proteins.

The vaccine also benefits from a soapbark tree extract adjuvant, Matrix-M, designed to increase the immunological effect, and in fact, its differentiation from Moderna and Pfizer messenger-RNA vaccines – hugely popular during the pandemic, but also criticised in some quarters for possessing undesirable side effects – may be what brought Sanofi to the negotiating table.

By the terms of the deal, Sanofi made a $500m upfront payment to Novavax, with a further $700m potentially payable, based on achievement of certain “development, regulatory and launch milestones”. Beginning in 2025, Sanofi says it will “book sales of Novavax’s adjuvanted COVID-19 vaccine and will support certain R&D, regulatory, and commercial expenses”, with Novavax eligible for “tiered double-digit percentage royalty payments on sales by Sanofi of COVID-19 vaccines and flu-COVID-19 combination vaccines”.

Additionally, Sanofi has taken a 5% equity stake in Novavax, and will pay up to $200m of milestone payments plus mid-single digit royalties, “for each additional Sanofi vaccine product developed under a non-exclusive license with Novavax’s Matrix-M adjuvant technology”.

Deal Makes Sense – But Novavax Had To Sell The Crown Jewels

The deal represents a significant coup for Novavax’s CEO, John Jacobs, appointed in January 2023 to succeed the retiring, long-time CEO Stanley Erck, virtually guaranteeing the company can remain financially stable for years to come, although there is a downside to the deal, in that Novavax has effectively sold the crown jewels.

By the terms of the deal, Novavax is permitted to continue developing its own influenza, COVID, and other vaccine and adjuvant products, and the company does have a COVID-Influenza (“CIC”) vaccine at the Phase 3 study stage, and a preclinical RSV vaccine program.

In its Q1 2024 quarterly report/10Q submission Novavax discusses plans for the CIC vaccine as follows:

We have previously received agreement with the U.S. FDA on a Phase 3 design, study endpoints, trivalent comparators, and size of licensure enabling safety database.

We have recently decided to modify the study to focus on individuals at higher risk by enrolling adults aged 60 years and older and to include a stand-alone influenza vaccine comparative component.

We remain on track to submit an investigational new drug application, inclusive of this new study design and initiate the study in the second half of 2024, with potential accelerated approval and launch of the CIC vaccine in the fall of 2026.

For the RSV vaccine, Novavax says (on its Q1 2024 earnings call) that in terms of neutralising responses:

We have driven six fold increase for RSV A compared to the licensed GSK-vaccine, which represents the difference of titers from 3,700 to over 23,000. And for RSV B, a titer difference from 440 to over 1,500.

Based on our previous clinical experience with a related construct, we are evaluating whether additional preclinical or toxicology studies are required. Partnering discussions for this antigen are ongoing.

For my money, the progress and setbacks discussed above for both candidates sounds all too familiar. Yes, Novavax is capable of designing vaccine prospects with decent efficacy and safety profiles, but the pace of development is usually not fast enough, and usually, Novavax is beaten to the punch by larger or more agile companies.

Recently, two new RSV vaccines have been approved by the FDA – Pfizer’s Abrysvo, and GSK’s (GSK) Arexvy, with a third candidate developed by Moderna likely to be approved this year. As such, the market opportunity for Novavax candidate already looks niche, and the company is likely to struggle to find a partner to help move this project forward.

Furthermore, with Sanofi now having access to all of Novavax’s knowhow in relation to its COVID vaccine, and its adjuvant, the chances of its producing a better CIC vaccine than its new partner seem minimal – Sanofi is a global vaccine giant, after all, with an influenza vaccine generating over $3bn revenues per annum.

In essence, then, while we can say that the Sanofi deal has provided Novavax with essential funding, it has, in another way, significantly restricted the company’s future earning potential.

Shown above is a breakdown of all the milestone payments Novavax is eligible to receive from Sanofi, and the royalties it may receive. Personally, I can see all of the listed milestones being achieved and Novavax receiving the full $1.27bn of milestone payments, and here is what CEO Jacobs had to say about the remainder of the deal structure on the Q1 2024 earnings call:

By licensing Sanofi to use our Nuvaxovid to develop their own combination Flu and COVID products, and to use Matrix-M as a component of other vaccines across their portfolio, we expect to realize substantial additional royalties and milestones valued potentially in the billions of dollars, driven by Sanofi’s product development and commercialization efforts over the years and decades to come.

Jacobs points out that each new product Sanofi developed with Matrix-M is worth up to $200m of milestones, plus single digit royalties, so five new products would equal $1bn in milestones alone, but is this realistic? Today, Sanofi markets and sells a handful of vaccines, so would the company realistically develop five new vaccines using Matrix-M?

Equally, if Nuvaxovid finds a +$1bn per annum revenue opportunity within the private COVID vaccine market, then Novavax could earn ~$200m per annum for many years to come, but again, is this realistic?

If the private COVID market matches the influenza market in size – ~$10bn per annum – Nuvaxovid may theoretically be able to claim a 10% share of the market, but in 2023, Moderna’s market research shows that only 11% of Americans got a COVID shot, while 44% opted for a flu jab.

If Sanofi develops a flu/COVID combo shot, Novavax will receive $350m of milestone payments (according to my understanding), plus double-digit royalties on all revenues. This is the best opportunity for my money. Sanofi’s flu jab currently generates ~$2.7bn per annum, so if a CIC jab could match, or exceed, that figure, Novavax, with a 15% royalty, for example, could earn $450m per annum.

Looking Ahead – Previewing Q2 Earnings & Speculating About The Long Term

In Q1 2024, Novavax was able to reduce its R&D and SG&A spend by 50% year-on-year – and decrease its current liabilities by $831m, in part due to settling ongoing disputes with GAVI, the vaccine alliance, and with Fujifilm, relating to manufacturing. The total consideration due to GAVI was ~$700m, while Fujifilm received ~$150m (Source: 10Q submission).

Novavax’s goal is to reduce R&D and SG&A expense in 2024 to $750m, and then to reduce them to $500m in 2025. In Q1, the combined R&D plus SG&A figure was ~$179m, and I would expect to see a similar figure in Q2, now that the workforce has been reduced by 30%, and with the target in mind.

In Q1, Novavax slightly upgraded its revenue guidance, to $970m – $1.17bn, including the Sanofi agreement payments, however revenue-ex Sanofi was downgraded from $800m-$1bn, to $400m-$600m. In its guidance notes the company states:

Full year 2024 guidance reflects APA expected dose delivery schedules of $150 million to $250 million and non-APA related revenue of $250 million to $350 million, subject to updated variant manufacturing and regulatory approvals, from a combination of commercial market product sales plus royalties and other revenue from our partner-related activity.

In terms of Q2 revenues, I would expect to see less than $100m, as in Q1, and probably from the fulfilment of an advanced purchase agreement (“APA”) order, as the fall vaccination season is where the bulk of commercial revenues will come from.

Having received instructions from the Vaccines and Related Biological Products Advisory Committee (“VRBPAC”) about which strain of COVID to target, the committee voted unanimously in favour of strain JN.1. Novavax is preparing to have its latest vaccine ready ahead of the fall vaccination seasons.

Novavax’s Biologics License Application (“BLA”) requesting full approval of its prototype COVID-19 vaccine has been filed with the FDA, with a decision date set for April 2024, so the company must rely on securing another Emergency Use Authorisation (“EUA”) in order to market and sell this year’s vaccine.

The forward revenue guidance does not seem to suggest Novavax is especially enthusiastic about this year’s private COVID shot market – Sanofi will assume all of this responsibility from 2025, and Novavax is trying to reduce operating costs, so it’s not likely to fund an extravagant marketing campaign.

On the plus side, however, Novavax says it will have a prefilled syringe version ready “no later than mid-August”. According to CEO Jacobs, speaking at the Jefferies Healthcare Conference in June:

That’s very important, is the first three to four weeks of the season is 40% to 50% of the market opportunity. So even a few weeks drift there could make a huge difference.

Analyst’s consensus is for Novavax to deliver $347.78m of revenue – I assume this includes part of the Sanofi money – and achieve earnings per share $0.98 on a GAAP basis, and $1.01 on a normalised basis. This feels achievable, as thanks to Sanofi, Novavax does look likely to be profitable this year.

Novavax’s market cap is $2.34bn. It was just over $600m when I last covered the company less than three months ago. And I would not necessarily expect Q2 earnings to drastically alter the share price, although with Novavax, you can never be entirely sure what is in store.

Looking further ahead, however, I’d be a little concerned. To sustain its current valuation, I’d expect Novavax would need to generate ~$500m in revenues per annum, with a price to sales ratio of ~5x, and be at least marginally profitable.

Initially, milestone payments ought to make this achievable, but the payments from Sanofi could dry up rapidly, if, for example, Sanofi develops a different type of COVID/influenza combo. In that scenario, Novavax earns no royalties.

With a drastically reduced staff and R&D budget, the chances of Novavax bringing its own vaccine to market looks remote, so, looking beyond 2025, I see a somewhat challenging environment.

Concluding Thoughts – Sanofi Deal Saved Novavax, But May Not Be Able To Revive The Company

Novavax management has stressed that the Sanofi deal does not represent the “sale” of the company, but in many ways, while the deal has almost certainly saved Novavax from bankruptcy, it does feel as though the company is unlikely to develop new products of its own going forward, and is now almost completely reliant on revenue streams from Sanofi.

I may be wrong on this score, and Novavax is nothing if not hard to predict, but a deal that saved the company may have also sapped its energy and taken away its life force. In such a scenario, so long as the royalties and milestone are rolling in, the company valuation will be supported and potentially even increase, but longer-term, if Sanofi does go down the route of an alternative CIC vaccine candidate, the Pharma may conclude that squeezing the revenue out of the current vaccine is worth the $500m outlay. It could opt against developing further products with Matrix-M or Nuvaxovid and Novavax’s revenue streams may well dry up, and hence, I am issuing a “sell” recommendation today.

Like most people, I was completely blindsided by the Sanofi deal, although after breaking down the deal and its implications, I am not sure that the 200% upside was completely justified. As with most things vaccine related, however, the market is looking at the short term, and not worrying about what happens after 2025. With that said, Novavax’s unpredictability means I may well end up revising my thesis again before the year is out.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The post Novavax Ahead Of Q2 Earnings – Picking Apart The Sanofi Deal appeared first on Up2info.com.

• Novavax, Inc. secured a lucrative deal with Sanofi, receiving potentially $1.2 billion in cash and future royalties for Covid vaccines.
• The deal significantly improved Novavax’s financial position, but the stock has already rallied from $4 to $14, limiting potential upside.
• Novavax’s future success hinges on the royalty revenue from the Sanofi deal in 2025, with limited ability to compete with Sanofi’s commercialization capabilities.

In a matter of months, Novavax, Inc. (NASDAQ:NVAX) went from a biotech with a questionable future to one flush with cash and a potentially huge royalty deal. Investors being too greedy and not alert were probably caught on the wrong side of the trade. My investment thesis is more Neutral on the biotech due to the stock now trading at nearly $14, up from only $4.

Sanofi Deal

The whole investment thesis for Novavax now hinges on the Sanofi (SNY) deal announced back on May 10. As Stone Fox Capital highlighted in the comments section of our prior research, a deal appeared highly unlikely heading into the big announcement and the investment thesis was altered.

Our previous view had been very bearish on Novavax due to the weak financials. This deal alters the value of the company with the cash infusion and the potential for both royalties and additional partnership deals.

Sanofi is a massive biopharma with a $117 billion market cap, making an investment in Novavax and agreeing to sell Covid vaccines from the small biotech was a massive step. As mentioned in the comment, Novavax will get up to $1.2 billion in cash from the deal via a $500 million upfront payment and another $700 million in potential development and launch milestones.

Next year, Sanofi will sell Covid-19 vaccines and Covid-19 influenza combination vaccines, with Novavax receiving a tiered double-digit royalty percentage as follows:

Sanofi will commercialize Nuvaxovid in the U.S., U.K. and Europe initially and worldwide over time. Novavax already has partnerships in several countries and APAs not included in this deal.

On the Q1 ’24 earnings call, the Novavax CEO highlighted the potential for the Sanofi license deal to far exceed the initial benefits of selling Covid-19 vaccines as follows (emphasis added):

By licensing Sanofi to use our Nuvaxovid to develop their own combination Flu and COVID products, and to use Matrix-M as a component of other vaccines across their portfolio. We expect to realize substantial additional royalties and milestones valued potentially in the billions of dollars, driven by Sanofi’s product development and commercialization efforts over the years and decades to come. The royalties and milestones associated with potential new vaccines, Sanofi may develop using Matrix-M as well as those royalties and milestones anticipated from sales of our COVID-19 vaccine and the development of Sanofi’s combination flu COVID and other potential combination vaccines, should help us to sustain cash flow as we invest in our own R&D in an efficient and thoughtful manner for years to come.

Novavax ended Q1 with a cash balance of $496 million. The company will collect $570 million in Q2 from the upfront payment and $70 million investment. Sanofi now owns 6.88 million shares for a value of $96 million, already providing a solid incentive to boost the valuation of the stock over time.

The small biotech should collect another $350 million this year on approval of the next Covid-19 vaccine, along with an eventual additional $350 million in milestone payments with Sanofi developing their CIC. The additional $700 million in cash payments will provide Novavax with a lot of cash.

While Covid-19 vaccine demand has plunged, a large portion of the population in the US and Europe appears set on receiving annual booster shots. Novavax is now transferring the commercialization of the vaccine and especially the potential CIC vaccine to Sanofi, considering the small struggle massively at operational execution.

In the U.S. along, the Covid-19 vaccine rate was only 11% for the ~36 million vaccines administered while flu vaccines were 4x as high. At the same time, Covid hospitalizations were higher. The opportunity likely exists for higher vaccine rates as some of the public fear settles down.

Reality

In essence, Novavax gets a massive partner to sell their Covid-19 related vaccines. Sanofi gives the small biotech a massive lifeline with a big cash infusion and a larger partner to compete with Pfizer (PFE) and Moderna (MRNA) for vaccine sales.

The flip side of getting the cash infusion is that royalty sales will be far less than collecting the fee for the full vaccine. Analysts have the following estimates for annual sales, generally falling to the $600 million range going forward in 2025 when the Sanofi royalties start.

Novavax will report large sales in 2024 from the initial Sanofi payments of $500 million plus. The vaccine sales were cut to only $400 to $600 million with up to $350 million in APAs from Canada, Australia, New Zealand and Israel delayed to future periods.

The company plans to reduce 2025 operating expenses to below $500 million with up to $100 million in reimbursements, making Novavax, in theory, close to profitable. The small biotech will only have $400 million in annual operating expenses.

The company ended Q1 with a cash balance of $500 million and the additional $570 million cash payment and investments in Q1. Novavax will start Q2 with a combined $1.1 billion pro forma cash balance, along with the additional major cash infusions ahead. The company burned $88 million in cash during the last quarter, and limited revenues this year could lead to substantial cash burn to quickly offset some of the cash inflows from Sanofi.

The really significant unknown is the royalty amounts Novavax could collect. If the small biotech is only collecting up to $600 million in actual Covid-19 vaccine sales this year, a 20% royalty would only amount to royalties of $120 million.

Naturally, Sanofi should be able to grow vaccine sales and the CIC vaccine in the future would provide substantial upside potential. The stock currently has a market cap of $2 billion and limited potential from additional drug approvals.

The financial equation is vastly improved, but the stock has already rallied from $4 to $14. Novavax only seems to have upside on developing a new existing drug, whereas the current opportunities in the CCI and stand-alone flu vaccine seem to have limited ability to compete with the Sanofi options, especially with Novavax having limited commercialization capabilities. The company can form a business partnership or another out-licensing agreement, though these seem unlikely, having to compete with Sanofi.

Takeaway

The key investor takeaway is that the value of Novavax is mixed now, considering the large cash balance and the unknown royalty revenue going forward in 2025. Novavax will still have plenty of costs, likely leading to the royalty revenues mostly just offsetting the expenses, requiring the biotech to have a viable drug candidate in the future to warrant a stock rally. The biggest risk in the short term is the stock closing the gap all the way to $4, or the $10 price paid by Sanofi, based on some confusion regarding the Sanofi deal and the 6+ month timeline for the deal to start on January 1.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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The post Novavax: New Chapter, Questions Remain appeared first on Up2info.com.

• Novavax has seen a surge in stock price due to recent COVID-19 and bird flu vaccine developments, reaching over $27 per share.
• The company is making headlines with updates on their COVID-19 vaccine, bird flu vaccine, and potential FDA approval, with upcoming catalysts expected.
• Investors need to consider competition risks, but potential for Novavax to generate revenue and validate their vaccine technology with upcoming clinical trials.

It has been just over a month since my last Novavax (NASDAQ:NVAX) article, where I highlighted the company’s recent partnership deal with Sanofi (SNY) and updated my NVAX strategy. At that time, the company had mentioned that they were moving forward with their COVID-19 vaccine programs, as well as doing some pre-clinical work for a H5N1 bird flu vaccine. However, I underappreciated the timeliness of those updates because it was only days later that the FDA announced their suggested strain for the fall COVID-19 vaccine season. In addition, we have seen an increase in the number of reports from healthcare organizations about a potential public health crisis as humans are starting to be infected with the bird flu. As a result, the ticker went from roughly $8.60 per share to over $27 per share. Since then, NVAX has receded to around $14 per share, but it still has plenty of bullish signals and seasonality to potentially support a sustained rally. The ticker may be in reversal mode, forcing me to rework my NVAX strategy to adjust for multiple potential upcoming catalysts.

I intend to review some of the recent vaccine headlines and provide some background on Novavax’s efforts. In addition, I will highlight some of the downside risks that investors need to consider when managing their NVAX position around these headlines. Finally, I share how I plan to adjust my NVAX strategy if these recent headlines turn into a string of catalysts.

Recent COVID Headlines

Novavax has gained recognition as an innovative vaccine company during the COVID-19 pandemic as it battled other vaccine developers to get their unique vaccine through healthcare organizations to be available to the public. Although Novavax did not receive preferential treatment during COVID, the company was able to benefit from their efforts and became a household name. The ticker benefitted from the onslaught of COVID-related headlines, going from roughly $4 per share to $300 per share in just over a year’s time. Following the pandemic, I expected Novavax to retain some name recognition as they attempted to get their COVID-19 vaccine fully approved and work on their other vaccine programs through the FDA. At the same time, I anticipated the share price to weaken as the COVID-related headlines lost their punch.

Now, Novavax is back making headlines regarding their COVID-19 vaccine and labor in developing a bird flu vaccine. Back in May, the FDA revised their EUA for Novavax’s COVID-19 vaccine to have this season’s formula. In addition, the company’s vaccine has been given the green light for people 12 years old and older for both the vaccinated and those who have not been vaccinated against COVID-19. I must also point out that Novavax’s vaccine can now be administered to people who have already been vaccinated with an mRNA vaccine. This was a notable update because it unlocks the broader population who have been regulated into sticking with the mRNA vaccines.

Luckily, Novavax has been preemptive in updating its COVID-19 vaccine to be prepared for the latest variants and posted encouraging results from its XBB.1.5 Omicron subvariant, which is expected to be operative against the JN.1 Omicron subvariant. Today, Novavax has the regulatory authorization to vaccinate or boost a large millions of Americans as we head into the vaccination season. Luckily, Novavax has worked with the Serum Institute of India to prepare vaccines in prefilled syringes that will be set for distribution by mid-July.

Into the bargain, the FDA informed Novavax that they have reviewed their BLA and set the vaccine’s PDUFA date for next April. If approved, the company would have a fully-approved commercial product, and won’t have to keep reapplying for EUAs for their next COVID vaccine formulations.

Looking ahead, Novavax is looking to launch a Phase III trial for its COVID-Influenza Combination (CIC) vaccine and stand-alone influenza vaccine programs. The company believes they are on track to submit an IND for this pivotal trial in 2H of this year, which could allow for a potential product launch at some point in 2026. This is an important program to keep an eye on because the CIC vaccine is probably the ideal formulation, as it would allow an individual to get one shot to prepare for the COVID-Flu season rather than getting two separate shots.

So, despite the pandemic coming to an end, the company’s COVID-related headlines are still plentiful. Although these headlines might not produce a parabolic move in the share price as they did during the pandemic, these advancements are meaningful to the company’s long-term outlook and could lead to durable moves in the share price.

Bird Flu Headlines

The Avian/Bird Flu headlines might seem like another potential epidemic or even a pandemic. However, the world has had to deal with bird flu scares a few times over the past 20 years, and Novavax has attempted to produce a viable candidate for those circumstances. In 2007, Novavax reported that its H9N2 bird flu vaccine triggered a strong immune response in animal models. The study was published in the online journal Vaccine. In 2008, Novavax reported that its H5N1 bird flu vaccine generated produced a robust immune response in animal models. In mice, the vaccine protected them from death. In ferrets, the vaccine protected them from live H5N1 bird flu viruses.

This time, Novavax is utilizing their platform technology utilizing mucosal vaccination routes and employing their high-density nanoparticles. Unlike most contemporary vaccines that are administered via injection, Novavax is looking to administer the bird flu vaccine via mucosal surfaces, such as the nasal or oral routes. This type of vaccine can offer a number of edges over the competition, including ease of administration, the prospective for a mass immunization campaign, as well as both systemic and local immunity at the point of infection/entry. In addition, the company would still be using their high-density nanoparticle technology to help boost the vaccine’s efficacy by producing a stronger and more durable immune response.

At the moment, it looks as if the U.S. government is partially ready if the bird flu becomes a legitimate epidemic. BARDA has “hundreds of thousands of doses” of H5N1-strain vaccines stockpiled, which appears to be operative against this strain. In addition, manufacturers could yield millions more within weeks and “up to 100 million doses in five months.” However, the concern is that the approved bird flu vaccines are grown in chicken eggs, and the virus is later killed and bottled into a vaccine. Although this method works, you are relying on chicken eggs to produce the vaccine to a virus that kills chickens… so, chicken eggs could become a scarce commodity if the virus starts to spread like wildfire amongst livestock.

Novavax does not have to worry about chicken eggs because their particles are produced in more stable insect-cell cultures, and yields are seven to 10x higher than egg-based manufacturing. In addition, Novavax vaccines can also be created within 10 to 12 weeks of identifying a pandemic strain, which is half the time it takes to make egg-based vaccines.

Looking ahead, Novavax is preparing to start clinical trials for their bird flu vaccine. If approved, Novavax’s vaccine would the company have the prospects to generate some revenue and would validate their ability to quickly develop an operative vaccine for a growing public health concern. The bird flu headlines and the vaccine’s regulatory journey could deliver numerous catalysts that should have a positive impact on NVAX’s performance.

Accepting The Risks

Although these recent headlines and developments could benefit Novavax, investors need to concede that the company has several hurdles to overcome if they want their efforts to translate to revenue. Unfortunately, the biggest concern is competition for both COVID and bird flu. Moderna and Pfizer were able to exploit their connections in the government and health agencies to get the red-carpet treatment. Novavax will have to continue to compete with both of those companies for COVID. However, it looks as if Moderna (MRNA) and Pfizer (PFE) are also working on their bird flu vaccine candidates. So, we could see another replay of COVID where Novavax can produce a viable vaccine candidate in a similar time frame as Moderna and Pfizer but is not given the same support despite being an alternative vaccine technology. Furthermore, Novavax will have to face competition from existing bird flu vaccines from GlaxoSmithKline (GSK), Sanofi, and Novartis (NVS). These vaccines are already stockpiled, and government agencies could request them to restart production to ensure they have enough to cover an initial vaccination campaign and could be perceived as the best option moving forward considering the reliability of those vaccines. So, not only does Novavax have competition from the mRNA vaccines in the clinic, but they will have to prove they are a better option than the reigning bird flu vaccines from Big Pharma.

Novavax may get their full approval for their COVID-19 vaccine and produce a bird flu vaccine candidate, only to have the government and distributors choose the competition as their preferred brand. I wish this weren’t a possible scenario, but the company’s history for both COVID and bird flu suggests this is a strong probability… at no perceivable fault of the company.

Luckily, it would appear there is some public apprehension about using mRNA tech for vaccines and the older egg-based vaccine technology might raise concerns, forcing authorities to consider Novavax as one of the favored brands moving forward. Still, NVAX investors need to accept the company could generate impressive clinical data with a legitimate commercial structure for their own vaccines, and the agencies shrug at Novavax.

My Plan

Although I am willing to trade around these potential COVID and bird flu catalysts, I must have some parameters to follow to ensure my transactions coincide with my long-term plan NVAX strategy. In my previous article, I disclosed that I had to adjust my trading levels for the company’s deal with Sanofi, which could provide Novavax with billions in revenue in the upcoming years. As a result, I upgraded my Buy Threshold to $25 per share, which will be the limit I am willing to buy NVAX. Considering the ticker is trading below this level, I am still looking to add to my position.

Now that the recent headlines have provided some additional bullish momentum, I am going to have to be ready to work my Buy and Sell Targets to take advantage of the elevated volatility. Typically, I tend to rely on executing these trades manually, but NVAX’s volatile movements tend to offer brief opportunities to manage your position. Therefore, I am going to set both buy and sell orders to prevent missing out on an opportunity to get a discount or sell at a premium. Indeed, this strategy does carry the risk of missing out on a big move higher or buying during an intense sell-off. However, it is a risk I am willing to take, considering the Sanofi partnership and the ticker’s history.

Looking at the monthly chart, we can see that NVAX finally broke the downtrend ray from the 2021 high, but looks to be forming an inverted hammer on the June monthly candle.

Therefore, I am waiting to see how this month closes before setting any large orders for NVAX. The CDC ACIP is set to meet on June 26th to discuss H5N1 alongside its routine votes on other vaccines. This meeting could provide us with some insight on how health agencies are viewing the bird flu, as well as their thoughts on other vaccines, including COVID and seasonal flu. Any mention about Novavax or comments about concerns over mRNA, or egg-based vaccines could be a powerful catalyst that could help the ticker end the month on a strong note.

Thankfully, NVAX is heading into a nice stretch of bullish seasonality trends for June, July, August, and September.

So, a positive update or headline could trigger a durable move for the share price as we grind through the summer.

Looking at the Daily Chart, we can see that the share price broke that downtrend under heavy trading volume, with a large percentage coming from retail traders. That percentage has dropped in June; however, the retail investor is still making a greater percentage following the Sanofi deal. In my view, this makes for a great trading environment as people outnumber algos, allowing for plenty of opportunities to manage your position.

In addition, the ticker is now trading above the 200-day EMA and is bullish on the Go-No-Go indicator. So, I think there is still some bullish energy remaining in the ticker.

I am looking to the proximal high and low-anchored VWAPs as the next key levels of conflict. I will use these as potential signals to determine my next buy. A break above the proximal high-anchored VWAP will command me to set some buy orders. If the share price drops below the proximal low-anchored VWAP it will signal a bearish condition and I will wait for a reversal before committing to a buy.

Once the ticker breaks and holds above that line, I will consider making an addition to my NVAX position. Next, I will set sell orders around $60 per share to book some profits and return my position to “House Money” status. I will continue to trade the ticker around these catalysts involving the company’s Sanofi deal, COVID-19 programs, and bird flu-related headlines to generate profit while building a core position.

Long term, I still expect NVAX to remain in the Compounding Healthcare “Bio Boom” speculative portfolio for at least five more years, or until it graduates to my growth portfolio.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NVAX, MRNA, PFE, SNY, GSK, NVS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Thank you for reading my research on Seeking Alpha. If you want to learn even more about my method and how I discover these investment opportunities, please check out my subscription marketplace service, Compounding Healthcare, and sign up for a free trial.  

The post Novavax: Bird Flu And COVID-19 Headlines Trigger Rally appeared first on Up2info.com.

• Novavax announced Q1 2024 results with a beat on EPS and a miss on revenue, causing a surge in premarket trading.
• Novavax finalized a licensing agreement with Sanofi worth up to $1.2B, boosting its COVID-19 vaccine commercial performance.
• The Sanofi deal revitalizes the outlook for Novavax, providing immediate cash infusion, long-term revenue streams, and a narrowed focus.

Novavax (NASDAQ:NVAX) has just announced mixed Q1 2024 earnings with a beat on EPS and a miss on revenue. NVAX surged by around 175% in premarket trading as investors applauded that their net loss narrowed by around 50% year-over-year to $148M, thanks to a 16% increase in revenue. In addition, investors were relieved to see the removal of the company’s going concern notice in the 10-Q, which was one of the geneses of the ticker’s relentless sell-off. However, I believe the primary cause of the spike in share price was thanks to Novavax finalizing a licensing agreement with Sanofi (SNY) worth up to $1.2B, to boost its COVID-19 vaccine commercial performance and Novavax’s Matrix-M adjuvant. I was elated to see the Sanofi news after waiting over three years for one of the big vaccine firms who sat out of the COVID-19 vaccine race to choose Novavax. Back then, NVAX was “My Magnum Opus Investment Idea” as it rocketed 6000% from my previous article due to investors bidding up anything related to the pandemic. Well, Novavax did not secure a big-name partnership to take over its commercialization efforts and the bigger names with inside connections got preferential treatment from every organization associated with the pandemic response. Now my NVAX bull thesis has been revitalized, forcing me to reassess my dormant position.

I intend to review the known details of the Sanofi partnership and will discuss how it revitalized my outlook for Novavax. Then, I point out some downside risks that investors should consider when managing their NVAX position. Finally, I reveal my plans for remodeling my NVAX strategy as we head into the second half of 2024.

Overview of the Sanofi Deal

The Sanofi co-exclusive licensing agreement is a huge step forward for Novavax, opening up a potential multi-billion dollar revenue opportunity. Under the agreement, Novavax and Sanofi will co-commercialize Novavax’s adjuvanted COVID-19 vaccine globally, apart from regions where Novavax has already signed partnerships. Additionally, the collaboration involves the development of novel COVID-19/Flu combination vaccines employing Novavax’s Matrix-M adjuvant technology.

In return, Sanofi will also make a sizeable commitment to Novavax, including a $500M upfront payment and about $70M minority investment in NVAX. In addition, Novavax is eligible for $700M in near-term milestones related to COVID-19 and combo vaccine development, along with ongoing royalties on product sales.

So, the COVID-19 vaccine and COVID/Flu combo vaccine products alone, can provide Novavax with a combined ~$1.27B in the near term.

The biggest upside comes from the potential development of new vaccines with Novavax’s Matrix-M adjuvant. The company will be eligible for clinical milestones and royalty payments that could add up to billions in revenue in the coming years and decades.

My Views On The Deal

For me, the Sanofi agreement highlights the potential of Novavax’s technology platform and its ability to cultivate value in the global vaccine market. Sanofi is one of the world’s biggest and best vaccine makers, so this potentially multi-billion dollar deal validates Novavax’s technology both clinically and commercially. I don’t believe Sanofi would commit to a deal of this magnitude if it wasn’t enthralled with Novavax’s nanoparticle technology and their Matrix-M adjuvant. I can’t think of a better partner to help commercialize a vaccine you have created, and that can maximize the potential of the vaccine technology that you developed. For me, this deal is a true endorsement of Novavax and their efforts to develop cutting-edge vaccine technology.

Secondly, I have to stress that this is not exclusively a COVID-19 vaccine deal… So, there are multiple pieces that could provide Novavax with milestones and royalties in the coming years. This is not just a $1.3B deal for the near-term milestones… it is a potentially multi-billion dollar deal when you add in the Matrix-M milestones and royalties over time. The hope is that Sanofi takes Matrix-M and utilizes it to develop multiple new products providing Novavax with a steady stream of partnership revenue for a prolonged period of time.

Thirdly, the Sanofi deal will immediately have a material and strategic impact on Novavax’s operations going forward. Novavax stated that half of the cash is coming within 10 days of signing the Sanofi deal, which has already encouraged Novavax to update their 2024 financial guidance to the range of $970M to $1.17B and remove the company’s going concern warning. Furthermore, the deal will allow Novavax to have a leaner operating model as Sanofi helps with some of the heavy lifting on the commercial side, as well as providing cost reimbursements and supply agreements. Thus, allowing Novavax to devote more of their resources and attention to their R&D efforts along with their current pipeline programs that are in the clinic.

To summarize:

1. Legitimate Partner
2. Immediate Cash Infusion
3. Long-term Revenue Streams
4. Narrowed Focus

Sounds like a major win for Novavax.

Revitalized NVAX

The Sanofi deal has rejuvenated my outlook on NVAX and altered my bull thesis. Admittedly, I didn’t have much hope for the company going into their Q1 earnings, and their results confirmed that they were struggling with the COVID-19 vaccine hangover. The company’s only reported $94M total revenue in Q1 and they were in a cost-cutting mode to conserve their cash position.

It appears the company was just trying to be as prudent as possible but still maintain operations to get the 2025 COVID-19 vaccine ready for the season, while hopefully moving some of their pipeline programs closer to the finish line.

Now, Novavax can essentially go full-bore by focusing their efforts on advancing its pipeline. They are already working on the initiation of Phase III clinical trials for their COVID-19-Influenza Combination (CIC) vaccine and their standalone influenza vaccine program in the second half of This. If all goes well, those products could have potential launches by 2026.

Moreover, the company can put the pedal down on the development of innovative vaccines. For instance, Novavax is developing mucosal vaccination and high-density nanoparticles. This is important because mucosal immunity should improve the likelihood of fighting off an infection, while also demising the ability to transmit the virus. Furthermore, it would be a needle-free option.

What is more, the company mentioned that they were looking into a potential return of an RSV vaccine candidate. Admittedly, most of these developments might have happened without the Sanofi partnership on the table, but I am confident investors are more accepting of an expanded pipeline now that there is partnership revenue coming in to help unlock the company’s full R&D abilities.

Prior to the Sanofi deal, I was simply hoping we would hear an update on the 2024-2025 COVID-19 vaccine candidate and some improved commercial trends in the earnings report. Don’t get me wrong, I am happy that they are moving ahead with a potential EUA for their updated JN.1 COVID-19 vaccine for this vaccine season in August/September, and that they are going to go with a pre-filled syringe. However, that was probably going to be the highlight of the earnings call… because $94M in revenue and a reduction of current liabilities of $831M was not going to move the needle for the ticker. Now, investors don’t have to wonder if strong financial management strategies are going to be the headline moving forward. I will be looking forward to earnings calls in order to hear about new pipeline programs, Sanofi payments, royalties, or other indicators of pending growth.

The company went from “Going Concern” to exponential growth potential, signaling an abrupt change in the sentiment around the ticker.

Risks To Consider

While the Sanofi partnership should be celebrated, there are several potential downside risks that investors should consider when managing their position.

I believe the biggest risk is the dependence on Sanofi’s ability to execute their end of the deal. Surely, I am not doubting Sanofi’s ability to develop and commercialize a vaccine. However, investors need to accept that Sanofi is going to have to integrate Novavax’s COVID-19 vaccine into their portfolio and also figure out a way to combine it with their influenza vaccines. It is possible Sanofi will run into some challenges in executing these ideas or fail to hit some goal dates or projected milestones. Remember, revenue beyond the initial ~$1.3B from the Sanofi deal is largely contingent upon various milestones, including development, regulatory approvals, and product launches. So, any delays or setbacks could result in lackluster revenue and hurt the overall outlook of the partnership.

Another major concern is market competition for COVID-19 and flu vaccines. The vaccine market is highly competitive with multiple approved COVID-19 and flu vaccines already available. It is possible that the emergence of new variants or a big shift in vaccine demand could have a dramatic impact on the sales potential of Novavax’s vaccine, even with Sanofi’s backing.

Investors also need to consider regulatory risks regarding the potential approvals for the combined vaccines or the use of Novavax’s adjuvant technology in Sanofi’s products. It is possible that Sanofi will find some hurdles using Novavax’s tech that could pose a risk to the partnership.

Last but not least, IP concerns… It is possible that Novavax and Sanofi run into intellectual property disputes or legal challenges related to rights to products, or simply technology transfer. Obviously, this would lead to complications, delays, or possible termination of the partnership.

Indeed, Novavax has ways to mitigate these risks along with strong contingency plans in their own pipeline. The company is weighing their options about what they will do with current and future programs, which should diversify their revenue streams and not be solely reliant on Sanofi for income. Still, investors have accept that the market is going fixate on the success of the Sanofi partnership for the foreseeable future. Any indication that the partnership is not going smoothly will likely have a severe impact on NVAX’s performance.

My Plan

Seeing that Sanofi could provide Novavax with billions in revenue in the coming years and NVAX’s market cap is around $623M, I would say that the ticker is undervalued for the initial payments from the Sanofi deal alone. As a result, I am looking to reanimate my NVAX position after years of waiting for signs of a solid reversal.

At the moment, NVAX is trading around $8.80 per share, which is above Buy Threshold is $8.00 per share. My Buy Thresholds are the highest share price I am willing to pay for a ticker based on a combination of fundamental and technical analysis. The fundamental outlook for NVAX has changed following the Sanofi deal, so I am upgrading my Buy Threshold to $25 per share. I must make note that $25 per share will be the limit, but it does not mean I am always willing to buy. I must see that the ticker’s technical conditions have changed and a clear setup is forming on the Daily Chart.

Looking at the monthly chart, we can see that NVAX tested the downtrend ray from the 2021 high… but it failed to hold above that line following the deal’s announcement.

I am looking for NVAX to break and hold above that downtrend ray before clicking the buy button.

When Will That Happen?

Looking at the Daily Chart, we can see that the share price spike above that line briefly, and has retreated in the second half of the trading day. Typically, I would say this is a red flag, but I am assume there are a lot of investors that have been sitting on NVAX shares that were looking to unload to either book some profits or lighten the load. So, I think it is possible that NVAX sees a continuation at some point next week as the market digests the news.

In addition, the ticker is now trading above the 200-day EMA and the anchored VWAP from the proximal high. Furthermore, it is bullish on the Go-No-Go indicator. I am not saying a break of that downtrend ray is imminent, but some signs of bullish momentum might finally break the multi-year downtrend.

Once the ticker breaks and holds above that line, I will consider making a hefty addition to my NVAX position. Subsequently, I will set sell orders around $60 per share to book some profits and return my position to “House Money” status.

Long term, NVAX will remain in the Compounding Healthcare “Bio Boom” speculative portfolio for at least five more years, or until it graduates to my growth portfolio.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NVAX, SNY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Thank you for reading my research on Seeking Alpha. If you want to learn even more about my method and how I discover these investment opportunities, please check out my subscription marketplace service, Compounding Healthcare, and sign up for a free trial.  

The post Novavax: Sanofi Partnership Revitalizes My Magnum Opus appeared first on Up2info.com.

• Novavax, Inc.’s Sanofi partnership provides much-needed financial support via upfront and milestone payments, stabilizing its finances.
• Combination vaccines are set to be an essential market, but competitors like Pfizer and Moderna are further along.
• The deal shifts Novavax’s strategy to licensing technology, reducing risk but surrendering potential competitive advantages.
• The Sanofi agreement moves Novavax from “Strong Sell” to “Hold,” indicating a cautious improvement in its outlook.

Novavax Secures Lifeline with Sanofi Collaboration, Recalibrates Strategy

Novavax, Inc. (NASDAQ:NVAX) stock is up more than 100% after the company released its first-quarter earnings report, which included a welcomed surprise. The company announced a major agreement with pharmaceutical giant Sanofi (SNY). The two will co-commercialize Novavax’s COVID-19 vaccine, and Sanofi was granted:

“a sole license to Novavax’s adjuvanted COVID-19 vaccine for use in combination with Sanofi’s flu vaccines while Novavax retains the right to and is developing its own COVID-19-Influenza Combination vaccine candidate.”

Sanofi will invest approximately $70 million in equity and pay $500 million upfront. There could be another $700 million in milestone payments for COVID-19 and combination vaccine development. After this development, Novavax removed their “going concern” notice that indicated their business was once in jeopardy.

The agreement breathes new life into Novavax. Furthermore, Sanofi is entering the race for the COVID-19 influenza vaccine market, which is expected to be worth more than $8 billion. Because COVID is expected to join influenza as a seasonal risk, these combination vaccines are expected to become standard and eventually replace a large share of the standalone seasonal influenza vaccines.

There are a few players vying for this market. I recently penned an article on Moderna’s (MRNA) Phase 3 mRNA combination vaccine. The vaccine could be on the market within a couple of years. Pfizer (PFE) and BioNTech (BNTX) are also developing a mRNA combination vaccine. Their vaccine received Fast Track designation from the FDA after reporting positive Phase 1/2 data. The vaccine is currently in Phase 3.

By entering into this agreement, Novavax forfeits a competitive advantage. However, the massive upfront payment and the potential for “tiered double-digit percentage royalty payments on sales” were enough to entice Novavax to license their technology.

This represents a shift in strategy for Novavax (licensing their technology rather than developing and commercializing its own vaccines), which failed to secure a significant share of the COVID vaccine market during the pandemic due to scaling production challenges and competition. This is a reasonable evolution for a company that clearly didn’t have the capacity to develop, market, and scale a COVID vaccine on their own.

Turning to the income statement, total revenue for Q1 was $93.855 million. The cost of sales was $59.209 million, implying a gross margin of only approximately 37%. R&D and SG&A expenses were $92.679 million and $86.798 million, respectively. Their net loss was $147.55 million. This is a major improvement from the same period last year, in which they recorded a net loss of $293.9 million. Novavax plans on additional cost reductions to reduce R&D and SG&A expenses to below $750 million in 2024. The company’s full-year revenue guidance, now including the Sanofi deal, was adjusted from $800 million and $1 billion to $970 million and $1.17 billion.

Novavax’s Financial Health

Looking at the balance sheet, as of March 31, Novavax reported $480.586 million in cash and cash equivalents. Total current assets were $727.1 million, while total current liabilities were $804.382 million. This implies a current ratio under 1, which isn’t desirable. However, as Novavax anticipates receiving $500 million from Sanofi this month, this should be vastly improved. Novavax has $841.473 million in long-term deferred revenue and $168.432 million in convertible notes payable.

Because Novavax is not consistently profitable, I will now estimate the cash runway based on historical figures. Net cash used in operating activities was $83.555 million for Q1. Because the $500 million upfront payment is reasonably assured, their liquid assets are $980.586 million. This implies a cash runway of nearly three years. However, this historical estimate has limitations. It does not account for any liabilities that may be due, nor does it account for possible milestone payments from Sanofi.

NVAX Stock – Risk Reward Analysis and Investment Recommendation

In light of these significant developments, I need to reconsider my previous “Strong Sell” rating on Novavax, as a deal like this was not on my bingo card. Novavax was a “going concern” at the time, with a current ratio of just 0.68. Its stock was plummeting, and its cash burn appeared out of control.

The recent Sanofi deal significantly reduces the company’s financial risk, at least in the short term. Furthermore, some operational risk is eliminated, albeit at the expense of some alpha that they could have generated if they had gone it alone successfully (a very low probability). But, in light of past challenges, this seems like a prudent move.

I think the deal moves Novavax from a Quadrant 4 investment (high risk/low return) to a Quadrant 1 investment (high risk/high return), meriting a rating upgrade to “Hold.” The probability of Novavax securing sustainable returns has considerably increased following this agreement.

While Novavax, Inc. has gained visibility, this remains a risky investment. Its stock is extremely volatile (24M beta of 1.99), and its 5-year return of 49.79% does not inspire confidence. The company is still a distance from achieving consistent and reliable profitability, and it faces long-term financial challenges. Furthermore, the COVID-Influenza combination vaccine market prospects are uncertain, so I factored this into my projections for NVAX’s potential return. Sanofi’s offering appears to be years behind that of pharmaceutical behemoths like Pfizer. By the time Novavax technology is finally embraced by the market, one or more leaders may be entrenched.

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