On Thursday, Novavax (NVAX 11.12%), a clinical-stage biotech, hit 52-week lows by dropping by as much as 30% over the course of the day. Although the biotech's shares did recover to a degree by ending the day down only 12.5%, this double digit plunge is noteworthy because it occurred without an accompanying material event and on 4.5 times the stock's average daily volume.
The point is that Novavax appears to be exhibiting all the classic signs of panic selling. While panic selling is sometimes warranted in extreme cases, it can also represent a compelling entry point for risk-tolerant investors. With this in mind, let's dig deeper to consider if this beaten down biotech is worth the risk.
What's driving this route?
It's no secret that Novavax's experimental respiratory syncytial virus fusion (F) protein nanoparticle vaccine candidate (RSV F Vaccine) is on the proverbial ropes. This vaccine, after all, whiffed on both its primary and secondary endpoints in a pivotal stage trial for older adults late last year, wiping upwards of a billion dollars in peak sales off the table, at least in the short-term.
And worse still, the p-value for the primary endpoint of the study -- preventing moderate to severe RSV-associated lower respiratory tract disease -- came in at a sky-high p = 0.78. Put simply, this vaccine didn't show even a hint of efficacy in this late-stage trial, casting doubt on its prospects in its ongoing maternal immunization study and its recently initiated mid-stage trial in older adults.
Equally problematic, Novavax's pipeline lacks another compelling clinical asset outside of RSV. Its experimental Ebola vaccine, after all, is years away from reaching the market, and the West African outbreak that spurred its development in the first place is finally tapering off.
In sum, Novavax's valuation is tied almost exclusively to an experimental RSV vaccine with highly dubious prospects of ever becoming a commercial stage product.
Can this biotech stock bounce back?
Novavax is in a tough position, to put it mildly. While a positive readout in the maternal immunization setting isn't impossible, obviously, this all-important trial won't readout for another three years. Moreover, the biotech's cash runway only extends to perhaps the middle of next year, and that's being fairly optimistic. The company did just launch another mid-stage trial in older adults, after all, in the hopes of discovering a more potent dosing regimen.
So Novavax is going to have to tap the public markets for a sizable chunk of capital to fund its ongoing clinical activities soon, and that's exceptionally hard to do when your share price is below $1. In fact, this stock is now below the minimum bid order for the Nasdaq, putting the possibility of a delisting notice into play.
The key takeaway is that things are almost certainly going to get worse before they can possibly get better for Novavax. At this point, there's no logical reason for short sellers to back off, and the company is probably going to be forced to execute a reverse spit (when a company reduces its share count to increase its price per share) before the end of this year to up its share price in order to meet the Nasdaq's listing requirement.
All told, this run for the exits, which picked up steam in a big way yesterday, is probably only going to gain momentum in the coming months. So bargain-hunters may want to avoid trying to catch this falling knife, despite the absolutely awe-inspiring commercial prospects of a preventative RSV vaccine.