As Optimism Wanes, the Ride May Be Over for Novavax stock

It has been a great year for shareholders in biotechnology company Novavax (NASDAQ:NVAX) which is working on a vaccine against the novel coronavirus. So far in 2020, NVAX stock is up over 3,200%.

Novavax (NVAX) logo surrounded by medical supplies

Source: Ascannio/

Put another way, if you were brave enough to invest $1,000 in the company in March, you would now have over $33,000.

Recent research led by John Billington of Belgium-based GSK Vaccines, a division of GlaxoSmithKline (NYSE:GSK), one of the most important vaccine manufacturers worldwide concludes, “Vaccine development involves a substantial investment and a high risk of failure. Typical vaccine development programs from discovery to licensure can cost companies upwards of a billion dollars, can take over a decade to complete, and on average have a 94% chance of failure.”

In the past several months, markets have seen a range of biopharma companies rush in to produce a therapy against COVID-19. And shareholders in those companies, such as Novavax, have for the most part been handsomely rewarded. Therefore today I’ll take a closer look at what investors can expect of NVAX in the coming weeks.

Why NVAX Stock Keeps Making Headlines

Gaithersburg, Md.-based Novavax is a late-stage biotechnology company. It specializes in the development and commercialization of vaccines to prevent serious infectious diseases, such as seasonal influenza, Ebola, MERS, SARS, and most recently COVID-19.

In an article on the legal side of vaccine development, Emily Lockey of global law firm FieldFisher summarizes the various stages in vaccine development:

“Vaccines can take more than a decade to develop in a safe and effective manner. Candidate vaccines must first demonstrate efficacy in laboratory-based studies prior to toxicity testing in animals. In early-phase clinical trials, the vaccine must be tested for safety (Phase I), and efficacy and adverse events (Phase II) before entering large-scale clinical trials (Phase III). There is a high level of attrition as vaccines pass through the various stages of clinical trials because of either safety concerns or lack of efficacy, or both. It is thus difficult to fast-track vaccine development.”

Since March, every time, Novavax management has put out a press release on the potential development of the COVID-19 vaccine, the stock price has reacted, mostly positively. For example, in early July the group secured $1.6 billion in funding from Operation Warp Speed. And investors were delighted.

The Phase 1 portion of the company’s trial will be placebo-controlled and observer-blinded in around 130 healthy adults and will include assessment of dosage and vaccination. Recruiting for the trial began in May. Therefore, the company is still a long way away from delivering a final product. Investors are waiting for encouraging clinical results data.

What Could Derail NVAX Stock Short-Term?

Not many investors knew of Novavax six months ago. In mid-March, NVAX stock was around $6. Now it is hovering at $130. And the biotech company is in the limelight in the race to develop a coronavirus vaccine.

At present, in addition to Novavax, a wide range of companies are working on a therapy against the novel coronavirus. They include both big pharma names as well as smaller biotechnology companies such as AstraZeneca (NYSE:AZN), GlaxoSmithKline, Inovio Pharmaceuticals (NASDAQ:INO), Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), and Sorrento Therapeutics (NASDAQ:SRNE).

Governments and individuals worldwide are ready to welcome the news that a vaccine or drug is ready for global use. However, it is unlikely that a therapy will be ready shortly or that all these companies will cross the finishing line. If Novavax cannot deliver on the initial excitement of the past several months, NVAX stock may easily fall as fast as it went up.

It is also important to remember that Novavax is currently loss-making. It doesn’t have any products on the market, yet. In early May, Novavax released its Q1 earnings and reported revenue of $3.4 million and a net loss of $25.9 million. Thus, the market seems to have already bought the potential revenue from a possible COVID-10 vaccine.

If you are an investor who has participated in the mouth-watering gains in Novavax shares, you may want to take some money of the table.

Alternatively, if you currently own the stock, you may also consider initiating a covered call position with approximately a four-week time horizon — so Aug 21 expiry. Such a covered call position would enable to you to participate in a potential up move and also offer you some downside protection.

The Bottom Line

According to Gerardo Ortiz and Ida Tobiasson of University of Gothenburg who have researched “stock market reactions to announcement of drug development outcomes [by U.S. biotechnology firms, a company’s] stock price reacts strongly to  … announcements.”

The price action of NVAX stock mirrors the outcome of this analysis. And since March, a great deal of potential positive news has already been built into the price. In the short-term, market participants should be ready to embrace increased volatility.

In the long-run, if the company can successfully reach the finish line and develop a therapy that is accepted by global authorities, then early shareholders are likely to be rewarded even further. Potential investors should appreciate the given risk/return profile of a relatively young biotechnology company and remember that NVAX is a highly volatile stock. It makes rather substantial moves, both up and down on a daily basis.

Finally, in case the company’s efforts are successful, it could easily find itself a takeover candidate. Needless to say, such a development would benefit investors in NVAX stock.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.

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