JPM | Deep Guidance Cut Reflects Delays, Perhaps Worse; Initial 2Q TakeawaysNovavax reported 2Q loss per share of $6.53 driven by a remarkable topline miss (total revenue of $186M vs. cons of $1,017M), and halving in FY22 revenue guidance to $2B-$2.3B. After printing its first profitable quarter in 1Q on the heels of initial APA drawdowns, this quarter’s weak performance is not all too surprising, and dovetails with the broader backdrop of COVID vaccine oversupply in high income countries and low Nuvaxovid administration rates to date (per third party data). Notwithstanding Novavax’s characterization of cut guidance as shift in the expected timing of APA drawdowns / revenue recognition (much of which now expected in 2023), we struggle to see the levers that would drive meaningful new orders in the near-term. Further, in the absence of any new / renewed APAs thus far into 2022, despite multiple being announced by mRNA competitors, Nuvaxovid prospects as a meaningful player longterm COVID vaccine market are increasingly in doubt, in our view. While omicron variant vaccine data has the potential to level the playing field from the standpoint of product/platform attractiveness, and in turn could help sentiment, we expect product demand trends to continue as the primary focus over the mid-term, with share expected to trade rangebound.Key takeaways from quarter update and conf callIn 2Q total revenue was $185.9M (vs. cons of $1,017M), comprised of $55M in Nuvaxovid products sales (~3M doses across EU, Canada, Australia and NZ), $23M in royalties and adjuvant sales to Serum Institute, and $108M in grant funding. Additionally, the company noted that it has delivered ~73M doses of Nuvaxovid and Covovax globally to date.Guidance cut primarily reflects a delay in the expected drawdown of volumes in existing APAs. Keeping with this, the company noted $400M in 3Q related to a ~23M dose delivery to the EC that was initially expected to be recorded in 2Q. That said, there is limited line of sight into what might catalyze additional dose orders under the existing APAs given the current Nuvaxovid surplus in most EU countries (only 2% of delivered dose administered to date). Further, emblematic of this issue in our view is the renegotiated APA deal with the UK, now optioning delivery of a total 16M doses of vaccine down from 60M doses under its original agreement.We are watching for Omicron data and additional filings next. In our view, Omicron data expected near the end of 3Q22 (with an expected EUA filing in 4Q22) could help to close the gap in the perceived attractiveness around NVAX’s product offering and contracting potential in 2023+ relative to the mRNA vaccine manufacturers. More relevant to the currently authorized prototype strain vaccine, Novavax recently completed administration of homologous third-dose booster for adolescents aged 12-17 in the PREVENT-19 trial. Adolescent booster data remains and important lever for improving Novovax’s competitive positioning in the COVID-19 landscape.Balance sheet. Novavax ended 2Q22 with $1.4B in cash and equivalents.Reiterate Neutral rating.
