Vaccine developer Novavax (NASDAQ:NVAX) has been one of the year’s craziest stories. NVAX stock is up — this isn’t a misprint –more than 3,000% year-to-date.
What’s behind the company’s remarkable run? Up until recently, it was just another scale biotech firm toiling in obscurity. This year, however, it struck the big time.
All that success flashed before the company’s eyes for a second on Tuesday, however. In a blink, NVAX stock plummeted more than 30% during Tuesday’s after hours trading session. And then, almost as quickly, it recovered those losses. Here’s what happened, and what it means for the company going forward.
Novavax’s Frenzied Tuesday Afternoon
Novavax had a calm Tuesday. After a morning dip, the stock rebounded to close up $1.30 per share, for a 0.8% gain on the session. All seemed normal.
At 4:15 Eastern Time, however, everything went wild. Within minutes, Novavax’s stock had plummeted from $155 to as low as $103 per share. Trading activity exploded; in the ensuing hours, several million shares would trade hands. On a $150 stock, we’re talking a huge sum of money involved. What sparked all this?
Damian Garde, a reporter for StatNews, published a report about Novavax’s Covid-19 vaccine. The original version of that story said that eight people enrolled in the trial had to be hospitalized as a result of severe side effects from the vaccine. Novavax called Garde and told him that none of the vaccine recipients in fact had been hospitalized. It turns out that Garde had misread the Food and Drug Administration guidelines around side effects; the patients in question had suffered significant side effects, but none that had required hospitalization.
Once Garde clarified this bit of information, NVAX stock roared back. In fact, Novavax recovered all its previous losses and closed the after hours session in the green after falling 35% at one point. It’s pretty remarkable that an error of this nature could cause a 35% move and subsequent rebound in a company of Novavax’s size. We’re talking a multi-billion dollar market capitalization swing here in minutes.
The Bigger Picture
With the incorrect StatNews article out of the way, the attention turned back to Novavax’s true safety numbers. Some analysts view them as significantly more promising than rival Moderna’s (NASDAQ:MRNA).
That’s not the only thing in play here though. Novavax’s vaccine may not be first to market. With the Phase 3 trial starting in October, that may leave room for other vaccine players to get to market faster. There’s still a lot of twists and turns to play out before one (or more) of the vaccine candidates starts generating major commercial revenues.
We do know that Novavax is cashed up. While its balance sheet had been a little thin earlier in the year, it scored an unprecedented $1.6 billion commitment from the federal government via Operation Warp Speed in July. Still, with the market capitalization now running at around 5x that level, the vaccine will need to reach significant commercial success for the stock to trade higher from this level.
The Verdict on NVAX Stock
Tuesday’s frenzied trading in NVAX stock should serve as a reminder for investors. Know what you own and do your own due diligence before bad news hits. These sorts of jitters tend to hurt short-term traders the most, as they don’t know the company’s story well enough to make a judgment on the fly when this sort of shock hits.
From a broader perspective, while Novavax has surged in recent months, at its core this is still a highly speculative situation. This was a $5 stock at the end of 2019. As recently as May, it was still going for less than $20 per share. So when you see the stock at $150 now, know that the Covid-19 vaccine is the make-or-break event for the entire firm.
That’s why the stock went crazy on Tuesday. For a split second there, it looked like the company’s key product might be a bust. And as we saw, there’s virtually no floor under the stock in the event that the vaccine doesn’t work.
Fortunately for both Novavax shareholders and the general public, the initial StatNews report was incorrect. I hope for everyone’s sake that the product continues on the road toward commercial success. Regardless, Novavax will remain a highly volatile situation in coming weeks until we have more concrete information about the vaccine’s effectiveness.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.