Don’t Blame the Bear Market for the Breathtaking Selloff in This Growth Stock

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The pandemic has sparked an intense race among pharmaceutical companies to produce effective vaccines against COVID-19. Pfizer and Moderna turned out to be the leaders. But other companies like Novavax (NVAX -1.18%) have also been hard at work in the lab.

Yet despite approval for the sale of its Nuvaxovid coronavirus vaccine in the US, EU, Japan and a host of other places, Novavax has seen its stock fall by more than 93% in 2022. More losses may well be on the way, and that should cause discomfort for shareholders and potential buyers. Here’s why.

Old problems remain more disruptive than ever

Novavax’s critical weakness remains its manufacturing operations, which since mid-2021 have struggled to scale to meet the company’s ambitions – let alone purchase orders for which it has already received payment from customers.

In short, the company uses a more complicated vaccine manufacturing platform than its competitors, and the platform appears to be considerably more difficult to scale. And it costs him (still) valuable business.

According to its 2021 annual report, the biotech had an advance purchase agreement with Gavi, a global nonprofit vaccine procurement group, for 350 million doses. Similarly, at the end of 2021, it had agreed to deliver between 20 and 100 million doses to the EU

Other major international buyers have signed deals for similarly large quantities in 2020 and 2021, pushing Novavax’s last 12-month revenue to more than $1.8 billion, though it remains unprofitable. Management said it would be able to produce up to 2 billion doses per year once the scale-up of its manufacturing is complete.

But as of its third-quarter update in mid-November 2022, Novavax had only produced and shipped around 94 million doses worldwide to all of its customers since vaccine approvals. Its agreement with Gavi fell at the end of November. This news left a big dent in his stock price, and now the two appear to be heading for a legal showdown to settle the matter.

Meanwhile, Novavax was forced to return $112.5 million to the UK government in December after its order for up to 15 million doses was halved because it failed to get approval. for their vaccine before a specified deadline.

Novavax also said it would pay one of its foreign-contracted vaccine makers termination compensation of up to $185 million in installments in 2023 because the company was unable to find a claim. enough for the entrepreneur’s production capacity – also a curious turn of events.

These fees and reimbursements also mean less money for research and development programs and commercialization infrastructure.

Is a recovery underway?

As you can see, the 2022 bear market was not the key issue for Novavax as it experienced a series of significant setbacks that far exceeded market factors. The company’s management team is hard to trust at the moment, but it could still stabilize after its free fall under the right conditions.

Righting the ship will take money, if only to keep the lights on while manufacturing issues are ironed out. As of December 28, the company was bolstering its cash reserves, raising a total of $250 million by issuing approximately $175.2 million in convertible debt notes and making a new offering of its shares worth 74, $7 million. This will dilute shareholders while adding to the existing debt of $697.1 million announced in the third quarter.

But that could make 2023 in biotech a little different from 2022, and maybe things will be a little sunnier for shareholders as well. A new CEO is expected to take control on January 23, which could greatly improve the final settlement of its manufacturing issues. Commercially, the focus will be on finding a market for Novavax’s vaccine formulated as a booster, as well as advancing an updated version of Nuvaxovid effective against circulating viral variants.

Of course, it might be difficult to convince potential buyers that the company is capable of delivering these doses – and that’s the ultimate reason why it’s probably best to avoid buying these stocks.

Alex Carchidi has no position in the stocks mentioned. The Motley Fool fills positions and recommends Pfizer. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.

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