Novavax (NASDAQ:NVAX) marched relentlessly to new highs daily since May. By the beginning of August, the stock topped $189.40, up above the $3.54 yearly low. Suddenly and without warning, NVAX stock began its descent throughout the last month. What changed?

Source: Ascannio/Shutterstock.com

Negative sentiment for the Covid-19 vaccine plays might explain part of the selling pressure on NVAX stock. Investors need to dig in deeper into Novavax’s fundamentals before panicking at the disappointing performance on the stock market.

Novavax announced on Aug. 24 the initiation of the Phase 2 portion of its Phase 1/2 clinical trial of the Covid-19 vaccine. In the press release, the company said its first volunteers enrolled in the ongoing trial. The purpose of the study is to evaluate the immunogenicity and safety of the vaccine, NVX-CoV2373.

Per Wikipedia, “immunogenicity is the ability of a foreign substance, such as an antigen, to provoke an immune response in the body of a human or other animal.”

So, a strong immunogenic response would validate Novavax’s vaccine work while a weak one would undermine it.

“We expect this Phase 2 portion of the trial to expand on the encouraging Phase 1 safety and immunogenicity data for NVX-CoV2373, and we will now look for robust immune responses in older adults,” said Novavax’s President of Research and Development, Gregory Glenn, M.D.

 A Closer Look at NVAX Stock

Vaccine safety is also a critical component of the study. By including older subjects in the study (60-84 years of age), Novavax may evaluate the vaccine’s safety in the target market. After all, the coronavirus is lethal to those with a pre-existing medical condition and the older population.

Investors should understand that Novavax will compare the Phase 2 interim readout to Phase 3 results. Results from Phase 2 will allow the use of the vaccine through the Emergency Use Authorization during the Phase 3 study.

In the second quarter, Novavax said that it secured $2 billion in funding through Coalition for Epidemic Preparedness Innovations ($388 million), U.S. Department of Defense (up to $60 million), and Operation Warp Speed ($1.6 billion).

In return, the company will provide the U.S. with 100 million doses of the experimental vaccine. As Novavax stock sold-off, markets forgot those funding amounts. This will give the company the capital it needs to develop and commercialize the vaccine.

NVAX Stock Q2 Results

In the second quarter, Novavax partnered with Takeda Pharmaceutical (NYSE:TAK) for the development, manufacture, and commercialization of the vaccine in Japan. Once sales commence, it will have a profit-sharing plan. It will also receive payments as it meets various development and commercial milestones negotiated with its partners.

The company also partnered with Serum Institute of India to develop the vaccine for the low- to middle-income population.

Once it is given the go-ahead from the government, Novavax has the global manufacturing capacity ready for ramping up vaccine production.

On Wall Street, analysts are extremely bullish on the company’s future value. The average price target is $227.60, albeit based on five analysts (per Tipranks).

Similarly, investors may apply a five-year discounted cash flow EBITDA exit model. Assuming the following revenue growth, with a nearly 20-fold increase this year, the stock has a fair value of around $150.00:

Data courtesy of finbox

Your Takeaway

Novavax is not an investment for the faint of heart. The stock could still double, settle at current levels or it could fall in half.

No one knows.

That will not deter traders to speculate. Investors should continue looking for strong data read from the studies. Analyzing the data is critical in assessing Novavax’s future fair value. Next time, markets could react favorably and lift the stock price.

Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.