Medical syringes and the Novavax logo shown in the background are seen in this illustration photo taken in Krakow, Poland on December 2, 2021.

Jakub Porzycki | NurPhoto | Getty Images

Novavax has a clear message for Wall Street: The cash-strapped Manufacturer of covid vaccine he sees a way to survive.

Maryland-based Novavax said as much last month when it reported financial results for the first quarter and revealed a broad pressure to cut costs along with a higher-than-expected 2023 revenue forecast of $1.4 billion to $1.6 billion. The news was in stark contrast to the previous quarter, when the biotech company raised doubts about its ability to stay in business.

Shares of Novavax jumped about 30% on the news, but Wall Street hasn’t fully bought into the recovery plan: The company’s stock price is still down about 18% year-to-date after shedding more than 90% of its value in 2009. 2022.

Novavax’s market capitalization has fallen to about $700 million from about $1 billion six months ago and $3 billion a year ago.

And staying afloat through 2023 and beyond may not be an easy task.

The thirty-six-year-old company will continue to rely on its own protein vaccine Covid — its only commercially available product — for most of its revenue this year.

Sales of the Covid shot will depend heavily on Novavax’s ability to deliver an updated version of its shot in time for the fall, when the U.S. government is expected to vaccine distribution shift to the private sector. Even if Novavax can meet that timeline, it will face stiff competition from mRNA rivals Pfizer and modern.

Wall Street is also waiting to see how Novavax executes on its cost-cutting plan and how a pending arbitration for $700 million it could take place despite the canceled contract for the purchase of the vaccine.

The company will have to deal with these short-term challenges before it can focus on it promising vaccine systemwhich includes a combination vaccine targeting Covid and flu, a stand-alone flu vaccine and a new high-dose Covid vaccine.

“The next six to nine months will be a really critical period for the company,” Cowen analyst Brendan Smith told CNBC.

Competition in the commercial market

Novavax, now led by a new CEO, John Jacobswas an early pioneer in the Covid vaccine race, but the company’s two-dose regimen won the US emergency use approval just last year due to regulatory and manufacturing delays.

Now Novavax’s biggest priority is to produce an updated Covid shot by the fall and gain commercial market share after falling so far behind Pfizer and Moderna. Some analysts believe the company has a reasonable chance of doing so, but note that competing with the two mRNA giants could remain a challenge.

“Granted [Novavax’s] financial situation, they really need to be able to bring in some commercial sales this fall and winter,” Smith said. “That will ensure they remain a viable entity in future cycles.”

Once the US government’s supply of free Covid vaccines runs out, all three companies will run out sell updated footage directly to healthcare providers.

Those shots will target a variant of the virus — selected by a group of Food and Drug Administration advisers on Thursday — is expected to cycle most prominently this fall and winter.

Novavax is getting a “head start” on developing this updated shot because the company’s protein-based vaccine takes longer to develop and produce — about three to six months in total — than its messenger RNA counterparts, he said. Silvia Taylorexecutive vice president of a drug manufacturer.

Analysts estimate that it typically takes about six months to deliver a protein-based vaccine and three months to produce an mRNA vaccine.

Novavax is working closely with global regulators on strain selection guidelines to start development as soon as possible. Taylor added that Novavax is already developing shots that target different strains, including the omicron subvariant XBB.1.5the worldwide dominant strain of the virus.

The World Health Organization last month recommended the new one Covid shots are targeting XBB variants, which Taylor called “extremely encouraging” guidance ahead of the FDA panel meeting.

FDA staff on Monday as well recommended the same tension before the meeting.

Jefferies analyst Roger Song said he expects Novavax to be able to ship its updated vaccine in time for the fall if FDA advisers select a strain “within the current library” the company has been evaluating. Advisers are unlikely to choose an entirely new strain, he noted.

A healthcare worker prepares a dose of the Novavax vaccine as the Netherlands Health Organization launches the Novavax vaccination program on March 21, 2022 in The Hague, Netherlands.

Patrick Van Katwijk | Getty Images

Another advantage for Novavax could be its use protein-based technologya decades-old method of combating viruses used in routine hepatitis B and shingles vaccinations.

The Novavax vaccine works differently than Pfizer and Moderna’s mRNA vaccines, but it achieves the same result: it teaches your body how to fight Covid.

B. Riley Securities analyst Mayank Mamtani said Novavax could leverage the unique advantages of the company’s protein-based platform as part of its commercial marketing efforts.

“They have a theoretically compelling message that says, let’s try something new,” Mamtani told CNBC. “We’re going to try a new vaccine that won’t work for you in some cases because of the chills, fever, or other side effects you might have with mRNA.”

Data from clinical trials of the Novavax vaccine suggest that it does less likely to cause side effects compared to the Pfizer and Moderna missiles. The data also suggests that it has a similarly high rate of effectiveness – around 90% – as with its mRNA competitors.

However, Smith noted that the company will have to compete with the “tremendous brand recognition” of Pfizer and Moderna, which dominate the US market for the FDA’s Covid vaccines. approved their shots for emergency use in late 2020.

Those vaccines have received full FDA approval, while Novavax’s jab has not.

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The U.S. administered more than 360 million vaccines and boosters from Pfizer and more than 230 million from Moderna, reports Centers for Disease Control and Prevention. Novavax’s late entry into the game led to significantly lower usage: the US provided just under 90,000 shots from the company.

Novavax will also have to compete at a time of “record low public interest” in getting Covid boosters, Smith added.

According to the CDC only about 17% the US population received Pfizer and Moderna’s bivalent omicron boosters, which have been available since September.

“There are still a number of headwinds working against it [Novavax,]” Smith said, adding that cost-cutting efforts could potentially hinder the company’s ability to compete in the commercial Covid vaccine market this fall.

Novavax is scaling back spending while also needing to bolster its commercial sales team, so the timing is “unfortunate in a much broader context,” he said.

Cost reduction plan

Novavax is working to drastically cut costs with plans that include cutting roughly 25% of its global workforce. The company had just under 2000 employees towards the end of February.

The drugmaker will also consolidate its facilities and infrastructure. These moves are intended to reduce the company’s research and development expenses in 2023, as well as selling, general and administrative expenses, which together amounted to approx. 1.7 billion dollars last year.

Novavax expects a cost-cutting plan to reduce that number by about 20% to 25% this year and 40% to 50% by 2024.

Jefferies’ Song said he was most focused on the 2024 cost reduction target, but noted that the company had to be careful how much it decided to cut costs.

“I hope they can cut a little faster and bigger,” Song told CNBC. “But they also don’t want to overshoot what they need to limit and compromise their capabilities.

But Taylor emphasized that the plan will help Novavax refocus on its top priority: delivering an updated vaccine in the coming months.

“We feel we are in a good place in terms of operating with a relentless focus on our priorities and operating more efficiently to be able to meet our goal of making our vaccine available for the season,” she said. CNBC.

Gavi Arbitration

And the looming overhead is the $700 million in pending arbitration that goes along with it Gavinon-governmental global vaccination organization.

Novavax last year terminated the purchase contract for the Covid shot with Geneva-based Gavi citing Gavi’s failure to procure 350 million doses of vaccine agreed to purchase in May 2021 on behalf of the COVAX Facility — a global program which aims to more equitably distribute Covid vaccines in lower income countries.

As part of the Gavi deal, Novavax said it received nearly $700 million in nonrefundable upfront payments.

Gavi is now trying to recover those deposits. The organization argued in Reuters Conversation last year, Novavax breached the agreement and did not provide COVAX with vaccines from the contracted locations.

An elderly woman receives a dose of the Covid-19 vaccine at a clinic on December 12, 2022 in Hohhot, China’s Inner Mongolia Autonomous Region.

Ding Genhou | Visual China Group | Getty Images

Song called the Gavi arbitration the biggest uncertainty surrounding Novavax. He said the company “may be in trouble” if it has to pay back the full $700 million to Gavi this year.

But he said there’s a good chance Novavax and Gavi will settle in arbitration on middle ground. That could mean Novavax repays less than the full amount or sets up a repayment plan through 2024, Song added.

Cowen’s Smith said, “If there’s one thing the market typically doesn’t like, it’s uncertainty.”

“We don’t know how the arbitration is going to play out or the timing of it, so I continue to categorize this as a big overhang on the stock,” Smith added.

Novavax’s Taylor declined to comment on the status of the pending arbitration, but said “we feel pretty good about our position.”

“We’ll soon know what happens to it,” she added.

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