Novavax Earnings Call Reveals Surprise Profit, But Stocks Still Slide

Key takeaways

• Novavax surprised on the upside with profit, but the company’s hopes are pinned on FDA approval of its new Covid vaccine for this fall
• The biotech company downgraded its full-year revenue forecast
• Novava shares declined 3.8% on Tuesday and have lost 82% of their value in 12 months

Can the pandemic hero companies find life after Covid? That’s the main question investors are asking as the pharmaceuticals continue to convince on that front. Novavax was the latest to post earnings, which unveiled a surprise profit but not much to go on for revenue in the third quarter, as well as cutting its full-year guidance.

It’s not the only vaccine producer struggling to get by, but Novavax looked terminal earlier this year by its own admission. There are signs of life in the form of new cash flow and a South Korean company taking a stake in Novavax, but the shares closing down on Tuesday suggests Wall Street isn’t yet sold on the company’s long-term future.

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What did Novavax’s earnings report look like?

We all enjoy a pleasant surprise, and Novavax’s second-quarter earnings delivered on that front. The vaccine producer recorded a net income of $58 million for the quarter, translating to 58 cents per share. It’s a sizable improvement from last year’s second quarter, which saw a $510.5 million net loss. Wall Street analysts had pegged a loss of $1.39 per share for Q2.

Novavax’s second-quarter sales reached $424.4 million, way up from the $185.9 million year-over-year figure. The forecast was for $239.2 million in revenue.

Novavax is preparing to launch a new Covid vaccine in the fall, with Novavax CEO John Jacobs noting the company will see “little to no sales” in the third quarter as the FDA won’t decide whether to approve the new vaccine until September, with Novavax’s revenue mainly relying on grants in the quarter.

But the cracks in Novavax’s armor are still there. The biotech company revised its full-year revenue forecast from $1.4-1.6 billion to $1.3-1.5 billion as it continues its restructuring plan to cut costs. Novavax intends to slash its 2024 R&D and operating expenses by 40% to 50% compared to 2022.

Is anything else going on with Novavax?

It’s been a turbulent year so far for the vaccine maker. In February, Novavax said there was “substantial doubt” about its ability to continue trading throughout the year and that its 2023 revenues were “subject to significant uncertainty”. The company reported a full-year net loss of $658 million for 2022. In May, Novavax announced it was slashing 500 jobs across the business to save costs.

There was a glimmer of hope in July when the Canadian government confirmed it would repay $350 million to Novavax or forfeited vaccine doses meant to be delivered, with the news sending Novavax shares surging 30%. The repayments likely played a large part in Novavax’s profit this quarter.

Now it appears Novavax has a string of good fortune heading its way. SK Bioscience announced on Tuesday, coinciding with Novavax’s earnings report, that it was buying a 7% stake in Novavax instead of payment owed from the vaccine maker. Novavax confirmed it was issuing 6.5 million shares to SK Bioscience for $84.5 million and renegotiated its debt to the South Korean pharmaceutical company to $154 million. It now owes SK Bioscience $65 million in cash.

Talk about a rollercoaster.

Wall Street’s reaction

As you can imagine, Novavax’s share price has been through the wars. After reaching a high of $290 in February 2021, the stock steadily declined from the start of 2022 and is now worth just $7.23 after losing 82% of its value in the last 12 months.

Unfortunately for Novavax, the earnings beat didn’t help with clawing back some of those massive losses. Initially, the share price jumped to $8.46, but Wall Street focused on the fact Novavax has had to slash its full-year revenue forecast for 2023. The stock closed 3.8% down on Tuesday at $7.23.

Tuesday was a bad day overall for the stock market due to Moody’s downgrading 10 regional banks, warning bigger lenders could face the same situation. The S&P 500 dipped 0.4%, the Dow Jones declined 0.45% and the Nasdaq fell nearly 0.8%.

How is the pharma industry holding up in 2023?

Vaccine producers, after riding high on the pandemic profits, have struggled to find their way after the crisis was over – and that’s reflected in the poor stock market performance in 2023.

Moderna is in a similar position to Novavax; its revenue hopes are pinned on the upcoming fall vaccine to combat a particular strain of Covid. The company’s share price closed at its lowest point in three years this week as the entire sector’s share prices suffered as BioNTech’s second quarter missed revenue expectations. Throughout 2023, Moderna shares have declined 44%, and BioNTech is down 31.5%.

Pfizer, which partnered with BioNTech on the Covid vaccine and enjoyed record sales in the pandemic, has suffered a similar fall from grace. The pharmaceutical giant’s share price has plunged 31% since the start of the year, with the company’s valuation losing $144 billion since its 2021 peak.

What do companies do when they’re down but not out? Turn to M&A. That’s what’s starting to happen in the sector: back in March, Pfizer agreed to acquire biotech cancer drug specialist Seagen for $43 billion to diversify away from the vaccine. In July, Biogen confirmed it was purchasing Reata Pharmaceuticals for $7.3 billion to add its pioneering new neuromuscular treatment to its line-up. We’ve unlikely seen the end of deal announcements in this sector.

At the other end of the spectrum, Eli Lilly and Novo Nordisk shares hit all-time highs as excitement mounts over weight loss drugs. Eli Lilly shares climbed 14.9% after a stellar earnings beat, while Novo Nordisk was up 17.2% at the news its obesity drugs also cut the risk of strokes and heart attacks.

The bottom line

Novavax is just one example of many companies needing help finding a path forward. As all hopes lie on the FDA approval in September, that pivotal moment will send the stock soaring or plummeting depending on the outcome.

The reality is Novavax’s share price is far from the 2021 highs. With what looks like the worst of the pandemic behind us, pharmaceuticals will need to refocus their attention on new growth areas or risk dying out.

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