Gaithersburg, Maryland-based late-stage biotechnology company Novavax (NASDAQ:NVAX) has been working on a vaccine against the novel coronavirus. So far in 2020, NVAX stock is up over 2,500%. In other words, $1,000 invested in the company in early spring would now be worth over $26,000.
On Aug. 5, Novavax stock reached a 52-week high of $189.40. As I write, it is hovering at $110. Therefore, investors are wondering if now would be a good time to invest in the shares. As of Aug, 26, the number of globally reported Covid-19 infections has passed 24 million. The outbreak has already killed close to 850,000 people. Therefore individuals and governments 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 all biopharma companies that are working on a cure against the virus will cross the finishing line. Thus investors in Novavax stock should be ready for more volatility in the shares.
The Phase 2 Study Is Underway
Novavax 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.
Since March, whenever 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. Later on Aug.4, it announced positive Phase 1 data for its COVID-19 vaccine candidate. the next day, the stock soared.
On Aug. 24, Novavax said it initiated Phase 2 portion of Phase 1/2 Clinical Trial of COVID-19 vaccine. It will enroll up to 1,500 volunteers in US and Australia, with approximately 50% between the ages of 60 and 84. Novavax expects interim data from this trial in the fourth quarter of 2020.
Shareholders are hoping that if all goes well with Phase 2 testing, management then could quickly move into the late-stage testing. Thus the results of the current pivotal study could change the fortunes of investors. But the company is still a long way away from delivering a final product. And the stock has been under pressure the past several trading sessions.
What Could Derail NVAX Stock Further?
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.”
Not many investors knew of Novavax six months ago. In mid-March, NVAX stock was around $6. Now it is hovering at $110. 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 Amgen (NASDAQ:AMGN), AstraZeneca (NYSE:AZN), BioNTech (NASDAQ:BNTX), Gilead (NASDAQ:GILD), GlaxoSmithKline, iBio (NYSEAMERICAN:IBIO), Inovio Pharmaceuticals (NASDAQ:INO), Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), Sanofi (NASDAQ:SNY), and Sorrento Therapeutics (NASDAQ:SRNE).
If Novavax cannot deliver on the initial excitement of the past several months, Novavax stock may easily fall as fast as it went up. In fact, the 52-week high of early August seems quite far away in the back mirror.
It is also important to remember that Novavax is a loss-making firm. It doesn’t have any products on the market, yet. On Aug, 10, Novavax released its Q2 earnings and reported revenue of $35.5 million and net loss of $17.5 million. The market seems to have already bought the potential revenue from a possible COVID-10 vaccine.
The Bottom Line
In the coming weeks, shareholders will pay close attention clinical updates from various vaccine developers like Novavax. Even if successful clinical trials finalize soon, that does not necessarily mean the U.S. Food and Drug Administration (FDA) will accept a vaccine application. Therefore, more stomach-churning volatility is possible in Novavax stock.
If you are an investor who has participated in the mouth-watering gains in Novavax shares, you may want to take some money off the table.
Alternatively, if you currently own the stock, you may also consider initiating a covered call position with approximately a six-week time horizon — so Oct. 16 expiry. Such a covered call position would enable to you to participate in a potential up move and also offer you some downside protection.
If your portfolio can handle a high risk/high return investment, then you may want to consider investing in NVAX stock, especially if the price dips below $100.
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. She also publishes educational articles on long-term investing. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.
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