With the surge of the new Covid variant – Eris – Covid plays may see a run over the coming weeks. One such play is Novavax, Inc. (NASDAQ: NVAX) which recently climbed 37% after announcing that its new Covid vaccine is effective against the Eris variant. In this way, demand for the company’s vaccine might increase dramatically which would reflect on its revenues eventually. That said, NVAX stock is highly shorted at the moment and the resurgence of Covid may see it witness a short squeeze soon – which makes going long on the stock a potentially profitable decision.
NVAX Stock News
COVID-19 made it abundantly clear that vaccine producers are a vital component of our healthcare apparatus. That said, demand for COVID-19 vaccines has been waning ever since the end of the pandemic. Major vaccine producers such as AstraZeneca PLC (NASDAQ: AZN) recorded sharp declines in revenue due to this waning demand as it reported a 64% YoY decline in revenues in its Q2 earnings. Similarly, NVAX experienced a steep fall in revenue from $703 million in Q1 2022 to $80 million in Q1 2023. NVAX is currently struggling due to this decrease in demand and may even face bankruptcy with the company stating that it is operating as a going concern in its Q1 report.
Bankruptcy Risk
Due to the decline of COVID-19 vaccine demand NVAX suffered a significant blow to its revenue stream as its product sales declined more than 100% in Q1 due to declining demand and a $65 million revenue reversal associated with doses delivered in 2022 that are scheduled for future replacement. Additionally, NVAX has a cash balance of $624.9 million which would fund the company for 2 quarters at its current cash burn rate. Looking to cut expenses to navigate through this dire financial state, NVAX laid off 25% of its workforce, however, this might not be enough as the company’s cash burn rate is significantly high.
EMA Endorsement
Despite this, there might be a ray of hope for NVAX as its Nuvaxovid Covid vaccine was endorsed by the EMA for full authorization. This move might save the company from bankruptcy since full authorization could be critical for NVAX as the EU is stockpiling Covid vaccines and the EMA’s endorsement could be the first step for inclusion in the stockpile. Currently, the EU has a population of 748 million and the EU’s efforts to stockpile vaccines could provide NVAX with substantial revenues if its vaccine is included. In this way, the potential revenues could offset the company’s costs which would eliminate the risk of bankruptcy.
Short Data
Considering the company’s financial woes, NVAX stock is witnessing a strong short selling activity with a short interest of 38.6%, 38.7% of its float on loan, and a 100% utilization rate. If Nuvaxovid is fully authorized and is included in the EU stockpile, NVAX would be able to stave off bankruptcy which might trigger a short squeeze thanks to NVAX stock’s short data.
*Updated August 23rd, 2023
Eris Variant
COVID is no longer an international health crisis, however, growing concerns surrounding the Eris variant are spreading like wildfire garnering domestic and international attention. Due to its likelihood of evolving, the WHO recently designated Eris as a “variant of interest” which means that it is currently closely monitored.
Eris’ ability to spread quickly is also an issue of concern as recently the CDC estimated that 20% of all COVID cases in the US at the end of the third week of August were due to Eris. This means that, at the moment, the Eris variant is the most dominant strain of COVID in the US. The U.K. Health Security Agency (UKHSA) published similar data which indicated that Eris is currently the second most prevalent strain in the UK as it is responsible for 14.55% of cases.
In response to this COVID resurgence, the Biden administration and other institutions of governance have recently advised their populace to take booster shots. That along with the strains’ high rate of infections could serve as significant motivators which could boost demand for vaccines substantially.
So far NVAX, Pfizer Inc. (NYSE: PFE), and Moderna, Inc. (NASDAQ: MRNA) have conducted trials that prove the efficacy of their boosters towards the Eris variant. This means that all of these stocks may run on their discoveries. Having said that, NVAX has a major advantage over these stocks which is its float. As is, the stock has a float of 82 million which dwarfs both PFE whose float is 5.6 billion, and MRNA which has a float of 343 million.
Short Squeeze Potential
In addition to its low float, NVAX stock is a prime short squeeze candidate given its extremely high short interest rate. As is, the stock has a short interest of 47.8% and 55% of its float on loan. Given the results of the company’s latest study on its Covid vaccine, the stock could soar over the coming weeks due to the potential demand the company’s vaccine may see due to its efficacy against the Eris variant.
NVAX Stock Financials
Q1 2023
According to its latest Q1 earnings NVAX’s total assets sharply declined QoQ from $2.2 billion to $1.5 billion QoQ with its cash on hand declining from $1.3 billion to $624 million. However, liabilities decreased QoQ from $2.8 billion to $2.4 billion with current liabilities declining to $124 million from $216 million.
In terms of revenues, NVAX reported a steep YoY decline from $703.9 million to $80.9 million due to declining demand for Covid vaccines and a $65 million revenue reversal associated with doses delivered in 2022 that are scheduled for future replacement. At the same time, operating costs decreased YoY from $494.6 million to $393.7 million. Despite this, NVAX’s net profit of $203.4 million in Q1 2022 turned into a net loss of $293.9 million in Q1 2023.
Q2 2023
According to NVAX’s Q2 2023 report, its assets substantially plummeted from $2.2 billion at the beginning of the year to $1.6 billion in Q2 2023. This was mainly due to its cash balance decreasing from $1.3 billion to $505.9 million as a result of burning through $497 million in the quarter. On the other side of the balance sheet, the company’s liabilities also decreased from $2.89 billion to $2.43 billion due to the termination of liabilities concerning convertible notes which accounted for $324 million.
When it comes to revenue, NVAX experienced a substantial YoY increase from $185.9 million to $424.4 million due to product revenue increasing from $55.4 million to $285.1 million. Expenses on the other hand substantially decreased from $668.8 million to $368.9 million, which is mainly due to cost of sales decreasing from $271 million to $55.7 million. As a result, the company’s net loss of $510 million a year ago turned into a net income of $58 million.
Media Sentiment
@Malone_Wealth is eyeing NVAX’s short squeeze potential.
@linzy_long_hold is bullish on NVAX Stock’s price movement.
Technical Analysis
NVAX stock is in a neutral trend with the stock trading in a sideways channel between $8.61 and $9.67. Looking at the indicators, the stock is currently trading above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is approaching overbought at 67 and the MACD is curling bearishly.
As for the fundamentals, NVAX recently discovered that its Omicron booster is effective against the Eris variant which could see demand for its vaccines climb – improving its revenues in the coming quarters. Given that a short squeeze is likely to occur due to the stock’s high short interest, investors could wait for a break of the resistance with a pullback to go long on the stock to profit from a potential run.
NVAX Stock Forecast
After revealing that its Omicron booster is effective against the rising Eris variant, NVAX stock may witness a short squeeze soon given its high short interest. This would be due to the current industry-wide catalyst that could see demand for vaccines skyrocket – especially after the White House urged people to get booster shots. For these reasons, going long on the stock may prove to be profitable for traders.
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