Novavax falls on production delay report, but this analyst expects good sales in the future

Oppenheimer analyst Hartaj Singh discusses the latest developments in the vaccine space, the state of biotech and why he thinks despite the recent selloff in Novavax, the company will deliver good sales in 2023 and beyond.

Video transcript

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JULIE HYMAN: Shares of Novavax are down sharply today after a report in Politico that some, perhaps, manufacturing issues were going to delay the company's application for its COVID-19 vaccine approval or its emergency use authorization. Let's bring in Hartaj Singh now, who is at Oppenheimer and covers biotech companies, including Novavax competitor, Moderna.

And Hartaj, this is a good reminder to us that there are still some experimental vaccines in the pipeline and that there is still sort of a race to come out with the next one. So, does this tell us-- or what does this tell us about the difficulty in not just finding a successful one, but in making it successfully?

HARTAJ SINGH: Yeah, no, Julie, a very good point by you. You know, there are two broad issues here that are sort of going on. One is that, you know, now we've got, I believe, four or five vaccines approved here in the United States, you know, more through the rest of the world. The regulators are sort of going back and tightening their criteria.

And by tightening, I mean, you know, last year, we were in a 80-year pandemic. So they had to get vaccines onto the market as quickly as possible, the FDA, EMEA, and the EU. So they gave these emergency use authorizations, and they wanted to get things done as quickly as possible within the boundaries of scientific inquiry.

So now, they're going back to the old-fashioned way of approving these vaccines because we already have quite a few on the market. And that's what we're seeing. You know, we're just seeing a more important, a more higher bar, you know, the bar that regulators have had before the pandemic.

The second issue is just simply that, you know, these are different types of vaccine. mRNA, you know, Moderna, which we cover, Pfizer, BioNTech, which we don't, Novavax, which we don't, but mRNA is different from the adenovector, which is AstraZeneca and J&J. We don't cover them, which is different from protein subunit for Novavax. And each has its own complexity. And we're seeing that a little bit with Novavax. You know, and we'll see that with others also, you know, going forward.

BRIAN SOZZI: Hartaj, Moderna shares, they've been hit, really, since the latter part of September. Now you were out in front of this. You downgraded your rating. Are you thinking now we're at the point where this weakness is a buying opportunity?

HARTAJ SINGH: Yeah, you know, it's difficult to call. We got lucky. And the biggest reason I think we downgraded was that, you know, other biotech stocks historically, you see this sort of step function approach, right, where on really good news, you see a huge increase in the share price. The Street investors give them sort of full credit for the franchise. And then because there's some time, 6, 12 to 18 months, till the next big catalyst, you see the stock sort of have volatility and kind of dribble down a little bit. Moderna did that even last year, actually.

So I think we're just going to wait and see. We need another quarter or two quarters worth of earnings calls to see a progression in their pipeline. But I do believe that Moderna is starting to get very interesting again, simply because of the range of breadth of mRNA and the fact that they're clearly in the lead with mRNA and other diseases, kind of like Genentech was 20 years ago and became a pretty massive company in the antibody space.

BRIAN CHEUNG: Hey, Hartaj, Brian Cheung here. Now, when it comes to, coming back to the production of the vaccine kind of issue, it's not just Novavax that's had issues, right? We recall that Johnson & Johnson had about, what, I think it was 75 million vaccines that were botched in its production chain there. So even for the ones that are manufacturing vaccines right now, what is the risk and the challenges, especially, as we know, supply chain across the board has been an issue for many types of other industries as well?

HARTAJ SINGH: Yeah, I mean, look, the single biggest-- there are two risks actually, right? So one is the risk is essentially, you know, the different complexities in each one of these vaccine approaches. The protein subunit of Novavax, again, we don't cover Novavax, but we've done a lot of research, primary research, with physicians, secondary research looking into COVID-19 in general and vaccines.

But Novavax, you know, we discovered last year through a physician call, a couple of them, that they really liked the Novavax approach because it's easy to store, easy to transport relative to mRNA, also very efficacious. But, you know, they use an adjuvant. There would be some complexity of manufacturing, which is showing up this year. So there is-- each approach has complexity, and investors have to be aware of that. They just kind of assume that because one got approved, the others, you know, it will be the same way.

And then, secondly, you know, we are actually under huge constraints for raw materials. One of the big reasons that Novavax got delayed early in the summer was because there were these raw material constraints because everybody's trying to manufacture vaccines. And worldwide, there's been this huge rush to get the raw materials and the manufacturing devices needed for that. And so that's leading to some delays also.

So between these two things, I think what's going on with Novavax today shouldn't be much of a surprise to investors. I would expect that company to deliver, you know, in the future and deliver good sales, you know, probably 2023 and going forward.

JULIE HYMAN: Even if it's just pushed back a bit. Hartaj, thank you so much. Great to catch up with you today. Hartaj Singh of Oppenheimer.