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This stock has more than doubled in one day: is it a buy?

Vaccine maker Novavax (NASDAQ: NVAX) After all, it’s not dead in the water. Although the past 18 months have been difficult – and management warned investors that the company could sink quickly – Novavax reported positive developments in its latest quarterly update, causing its share price to double in just one day. The biotech sector has come a long way since its less-than-successful attempt to dominate the coronavirus vaccine market. But do more recent developments make Novavax stock a buy?

Good news and more good news

Novavax has struggled to generate enough sales from its COVID-19 vaccine – called Nuvaxovid outside the US – to make the stock attractive. Given the uncertainty in this market and the fact that the next biotech product would not come to market for at least two years, Novavax seemed far too risky an investment. Enter Sanofi (NASDAQ: SNY)a France-based biotech with a growing vaccine portfolio.

Sanofi will pay $500 million upfront to Novavax for the right to co-commercialize Nuvaxovid worldwide (except in a few select countries). The vaccine has been approved in the US but has not yet received full approval, although Novavax has filed an application to that effect with the US Food and Drug Administration.

But that is not everything. Novavax is granting Sanofi an exclusive license to its patented Matrix-M adjuvant technology – designed to increase vaccine efficacy – for use in its flu vaccines. The agreement also includes a non-exclusive license for Novavax’s adjuvant technology for Sanofi’s non-flu vaccines. Finally, Sanofi made a $70 million investment and acquired a 4.9% stake in Novavax.

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Plus, the money should continue to flow in for Novavax. It is entitled to up to $700 million related to various clinical and regulatory milestones for vaccines developed by Sanofi using its Matrix-M adjuvant technology, plus royalties on approved products. Novavax is still developing a combination vaccine against COVID-19/flu. It plans to start a Phase 3 trial in the second half of the year, with a possible launch in 2026.

Elsewhere, the biotech sector has sought to reduce spending and costs; efforts that are paying off. Novavax said it is withdrawing its going concern declaration. Translation: Management no longer thinks the company is going bankrupt.

Are Novavax shares a buy?

This set of good news follows Novavax’s announcement about three months ago that it had settled a dispute with Gavi, the Vaccine Alliance, over canceled advanced purchasing agreements, which posed a significant risk weighing on the company. In other words, Novavax has become a much more attractive stock in recent months, but is that enough to make it a buy? My view is that biotechnology remains a high-risk, high-reward game.

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The company’s new strategy has a lot of moving parts, many of which could go wrong, and if they do, the stock will sink. Novavax aims for full approval for Nuvaxovid in the US. It will probably deserve credit, but how much sales will the product generate? Modern And Pfizer continue to dominate this shrinking market, leaving little room for Novavax.

Elsewhere, while the company’s COVID flu vaccine combination looks exciting, that would be a blow to Novavax’s prospects if it fails to deliver positive results in its upcoming late-stage clinical trial. But what if it works? Moderna, Pfizer and now Sanofi are developing competing combination vaccines; the first two have an edge over Novavax.

That doesn’t mean Novavax can’t be successful in this market, but it’s still a long way off as it hasn’t even started its Phase 3 trial yet. And while Sanofi is using its technology to develop vaccines, milestones and royalties will depend on positive clinical and regulatory developments. If all goes well for Novavax, the stock will deliver excellent returns.

However, it wouldn’t take much for biotechnology to lose significant value. There is a possibility that Sanofi will acquire Novavax. The France-based biotech giant has been conscientiously trying to ramp up its vaccine business. It acquired Provention Bio, which last year developed a product to slow the onset of type 1 diabetes called Tzield, after initially making an equity investment in the company.

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Will Sanofi do the same with Novavax? Only time will tell, but I wouldn’t invest in the smaller biotech waiting for this outcome. Bottom line: While Novavax has improved its prospects, long-term conservative investors should still avoid the company.

Should you invest $1,000 in Novavax now?

Consider the following before buying shares in Novavax:

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.

This stock has more than doubled in one day: is it a buy? was originally published by The Motley Fool

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