Novavax’s future hinges on Sanofi deal and following milestones (NASDAQ:NVAX)

Introduction

of Novavax (NASDAQ:NVAX) stock is up nearly 40% since my upgrade to “maintenance” in May. The upgrade followed a collaboration with Sanofi (SNY), granting the pharmaceutical giant a license to Novavax adjuvanted COVID-19 vaccine for use in combination with Sanofi influenza vaccines. Sanofi paid Novavax $500 million upfront, with a potential $700 million in milestone payments, as well as double-digit percentage royalty payments on sales. The deal allowed Novavax to drop its doubts about the “cooperation” from its financial statements, breathing life into the company. Both Novavax and Sanofi, however, are entering a race toward a combined flu/COVID vaccine that has other runners. Modern (mRNA) and Pfizer (FE) are also competing for market share and are already in later-stage trials, although the latter company had a recent setback after missing a key endpoint.

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

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Sanofi’s Novavax deal: a lifeboat amid vaccine market turmoil

There have been some developments since my last look. Novavax received emergency use authorization (EUA) from the FDA on Friday for its updated COVID-19 vaccine targeting the JN.1 variant. This subvariant of Omicron was rampant last season, causing up to 60% of all COVID cases. The JN.1 has since been replaced by other Omicron sub-variants such as the KP.3.

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

This at a time when the cases of COVID are starting to increase. CDC data reveals increases in positivity tests, hospitalization rates and deaths from COVID-19 since April.

Despite the EUA, I don’t think there’s any reason to believe that Novavax will suddenly gain share over much larger companies and household names like Moderna and Pfizer. In fact, Novavax recently lowered its 2024 revenue outlook 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 of regulatory approval, while commercial success would lead to royalty payments. The company anticipates commercialization in time for the 2025/2026 flu season. With this outlook, the company expects to unveil 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 estimates by $1.36. However, this is a significant improvement over previous performances. Net income was $162.381 million for the quarter. Research and development expenses fell to $107 million, down from $219 million in the same period last year. SG&A expenses increased slightly to $101 million due to charges associated with the Sanofi deal.

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 were equal to $1.157 billion. This means their current ratio is just over 1, which isn’t ideal, but should reasonably cover short-term liabilities. Novavax owes $533.431 million in “deferred revenue” and $168.848 million in “convertible notes payable.”

The company’s revenue is variable and now depends heavily on referral 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 significant additional payments that will help offset operating costs (see table below). So, for now, I’ll hold off on estimating the cash runway, assuming the expected milestone payouts 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 outlook following the Sanofi deal. Clearly, they have not been able to go 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 (eg, flu vaccines, pediatric vaccines, and travel vaccines), makes the company viable. As discussed in a previous article, although Novavax’s “handing over” of their technology makes this much less like a lottery ticket, we can now have reasonable expectations of returns (keep the “YOU“). Relative to my previous risk/reward analysis, I’ve slightly reduced NVAX’s potential returns due to its 40% rise in shares 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 relies heavily on the Sanofi partnership for revenue, and if the clinical trials are successful, Sanofi will face competition from Pfizer and Moderna in the combined COVID/flu vaccine market. Importantly, any development that threatens even Novavax’s receipt of milestone payments could cause its stock to drop sharply and significantly. Still, for those looking to get in on a piece of the potentially lucrative flu/COVID combination vaccine market, NVAX, as a Quadrant 1 (high risk/high reward) stock, can serve its purpose in a barbell portfolio.