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Novavax, Inc Is Rising Today, but You Should Still Stay Far Away

By Brian Feroldi – Updated May 9, 2017 at 11:42AM

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Shareholders cheered the company's first-quarter earnings report, but there are still plenty of reasons to steer clear of this stock.

What happened

In response to reporting first-quarter earnings, shares of Novavax (NVAX -6.50%), a clinical-stage biotech focused on vaccines, jumped 22% as of 11:25 a.m. EDT on Tuesday.

So what

Here's a look at the key highlights from the company's earnings release that drove today's gains:

  • Revenue grew 35% to $5.7 million as a result of BMGF grants related to the company's ongoing phase 3 Prepare trial. This result was slightly better than the $5.69 million in revenue that Wall Street had projected.
  • Net loss fell by 43% to $43.9 million or $0.16 per share. The drop was primarily owed to lower spending on R&D and overhead. This result was in-line with what market watchers had predicted.
  • Novavax ended the quarter with $211 million in cash.
  • Enrollment continued in the company's global Phase 3 Prepare trial. This study is evaluating Novavax's respiratory syncytial virus (RSV) vaccine in infants via maternal immunization.
  • Novavax stated that it has kicked off a Phase 2 RSV F vaccine study aimed at immunizing adults age 60 or older.

And here's what Novavax's CEO Stanley Erck had to say about the quarter:

"We continued to make significant progress in the execution of our two key clinical trials of our RSV F vaccine for both infant via maternal immunization and in older adults. We look forward to reporting important clinical data from our older adult trial in the next 90 days. We've also been in discussion with the FDA about conducting an informational analysis of the Prepare trial that would provide an indication of our vaccine's potential efficacy. From these discussions, we believe we can conduct this analysis in late 2017" 

Traders appear to be quite pleased with the company's upbeat commentary and results, which is why shares are jumping today.

picture of a microscope in a lab

Image Source: Getty Images.

Now what

Novavax provided investors with a list of important events that are expected to occur in 2017:

  • Top-line data from the Phase 2 RSV F vaccine in older adults is expected within the next 90 days.
  • Initiate a Phase 1 trial of the company's experimetanl influenza vaccine.
  • Initiate a Phase 1 trial of the company's experimental Zika vaccine.
  • File revised study documents and conduct an informational analysis of the Prepare trial.

While this list sounds promising, I think it is important for investors to keep the big picture in mind. Remember that Novavax's stock plunged 85% in a single day last year after the company's Phase 3 RSV F trial in older adults failed to meet its primary endpoint. While Novavax chose to push forward with its maternal immunization program anyway, I think that the risk of another failure is unfortunately quite high.

Another potentially thorny issue is the company's cash needs. While $211 million in cash sounds like a lot Novavax set fire to nearly $280 million in 2016 alone. There's also $316 million in notes payable and capital lease obligations on the balance sheet to worry about. How is the company going to raise additional capital given that its stock price has been crushed? 

With so many questions up in the air, I'd caution potential shareholders from assuming that today's jump is a sign that the company's troubles are over. Your best bet is probably to remain keep your capital away from Novavax and cheer on the Prepare trial from a distance.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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