Embattled biotechnology firm Novavax (NASDAQ:NVAX) — which previously incurred serious business viability risks — received much-needed positive news. On Friday after market close, the Canadian government announced that it will pay $349.6 million to settle a dispute surrounding its forfeiture of certain doses of Novavax’s Covid-19 vaccine previously scheduled for delivery. Today, NVAX stock has shot up 30% so far.
According to a Reuters report, the vaccine specialist also reached an agreement with Canada’s public works and government services department to amend the underlying advance purchase contract. This development follows a sharp erosion in global demand for Covid-19 vaccines, leaving several doses unused.
Per the news agency, “[t]he number of vaccine doses due for delivery has been reduced and the schedule for remaining doses to be shipped revised under the amended terms.”
Regarding the aforementioned payment, it will be made in two equal installments this year. Further, the original value of the contract remains unchanged. Still, one wrinkle for NVAX stock exists: If the underlying biotech fails to achieve regulatory approval for vaccine production at Canada’s Biologics Manufacturing Centre, the government can terminate the contract.
Though present sentiment for NVAX stock implies that investors see relatively little risk, Reuters points out that after 35 years in business, Novavax’s Covid-19 vaccine is the company’s only marketed product.
NVAX Stock Fights Back Against Value Trap Concerns
Although NVAX stock may be winning the day, it suffers from a severe credibility crisis. Since the beginning of this year, Novavax shares remain underwater, to the tune of more than 6%. In the trailing one-year period, their market value stumbled over 86%, an utterly staggering figure. Nevertheless, the company is fighting hard to revamp operations.
In late February of this year, Novavax raised doubts about its ability to remain in business. At the time, management stated significant uncertainty clouded its 2023 revenue prospects, as well as funding from the U.S. government. However, in announcing its first-quarter 2023 earnings report, NVAX stock jumped as the biotech unveiled promising new vaccine data along with a broad cost-cutting initiative.
Through its cost controls — which involves slashing about 25% of the company’s workforce — and new vaccine products, Novavax wagers that it may stay afloat. Significantly, during the Q1 disclosure, management forecasted 2023 sales to land between $1.4 billion and $1.6 billion.
To note, in the trailing month, NVAX stock popped up over 18%. However, it still faces value trap concerns, according to investment resource Gurufocus. While NVAX trades at 0.55 times trailing-12-month (TTM) sales — thus ranking below 97.82% of its biotech peers — the top line has been noticeably declining.
For example, in Q1 2023, Novavax posted revenue of only $81 million, below analysts’ estimate of $87.6 million. In the year-ago quarter, the company rang up $704 million in sales.
Why It Matters
According to TipRanks, NVAX stock carries a consensus analyst rating of hold. Over the past three months, this assessment breaks down as two buys, two holds and one sell. Overall, the average expert price target lands at $22, implying nearly 135% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
