If you watched after-hours trading of Novavax (NVAX -5.11%) stock on Wednesday and pre-market trading of the stock on Thursday, you'd probably expect the biotech would have been one of the past week's biggest winners. And you'd have been wrong.

It's true that Novavax shares soared after the company reported top-line results from a phase 1 study of its nanoparticle-based flu vaccine, NanoFlu. Novavax stock spiked nearly 28% higher than its previous close at one point on Thursday. But it went downhill from there. 

Was this merely a textbook case of "buy the rumor, sell the news?" Or is there more to the story with Novavax?

Men holding signs with up and down arrows and "buy" and "sell" written above the signs

Image source: Getty Images.

Up on anticipation

To understand what's going on with Novavax, we have to look back to last August. That's when the biotech announced encouraging results from pre-clinical testing of NanoFlu of in ferrets, which experience flu reactions that closely resemble those in humans. Based on those results, Novavax quickly moved forward with a phase 1 clinical study.

Novavax initially hoped to have immunogenicity data from the phase 1 study in the fourth quarter of 2017. In December, however, the biotech announced that the results wouldn't be available until February. Novavax stated that the delay stemmed primarily from difficulty in obtaining, growing, and maintaining genetic stability for the wild-type viruses needed to evaluate the immunogenicity of NanoFlu with currently circulating flu strains.

Earlier this year, investor interest in Novavax picked up significantly. The stock skyrocketed in early January, after the biotech presented an "informational analysis" from a late-stage study of its experimental respiratory syncytial virus (RSV) vaccine. And as the date grew near for Novavax to announce the phase 1 results for NanoFlu, enthusiasm among some investors grew even more, especially as the U.S. experienced an especially rough flu season.

Novavax waited until after the market closed on the last day of February to reveal the results from that early-stage study of its flu vaccine. The fireworks began almost immediately.

Down on reality

Those top-line phase 1 results for NanoFlu were very good. In the study, the company evaluated NanoFlu against Sanofi's Fluzone HD, one of the leading flu vaccines on the market. Novavax reported that NanoFlu induced significantly higher hemagglutination inhibition (HAI) antibody responses than Fluzone HD did in two flu strains, H1N1 and H3N2. NanoFlu also induced comparable HAI responses in another strain known as B/Brisbane. 

But while Novavax stock initially soared, the euphoria quickly evaporated. Why? I suspect there were three primary reasons.

First, some investors probably did decide to abide by the old investing maxim of "buy the rumor, sell the news." It certainly had to be tempting to take profits after Novavax stock jumped so much so quickly.

Second, it's likely that reality set in about the road ahead for NanoFlu. While the top-line results for the vaccine looked great, the details of the study haven't been released yet. Novavax stated that it has submitted results to a peer-reviewed medical journal and would discuss the results after publication. Also, we're still talking about an early stage study. There are many more hurdles to jump before NanoFlu could potentially reach the market.

Third, all you have to do is look at Novavax's financial statements to recognize that the company will soon need more cash. Another stock offering in 2018 is highly likely, which would dilute the value of existing shares. Some investors who like Novavax's chances with NanoFlu and its RSV vaccine could prefer to wait to buy shares after the seemingly inevitable stock offering occurs.

Looking ahead

There are several key developments for investors to watch with Novavax in the next year or so. The detailed results from the phase 1 study of NanoFlu ranks high on the list. However, Novavax didn't provide any specifics on when the data would be published. The biotech did state, though, that it plans to move forward with a phase 2 study of NanoFlu in the third quarter of this year. 

Novavax also expects an interim analysis from its late-stage study of its RSV vaccine in maternal immunization of infants in mid-2018. Results from the study should be available by early 2019. If all goes well, Novavax hopes to submit the vaccine for FDA approval by late next year.

In my view, Novavax continues to be a highly speculative stock with too much risk for many investors -- but not necessarily all investors. If either NanoFlu or the RSV vaccine prove successful in pivotal clinical studies, the biotech will be worth a lot more than its current market cap of around $680 million.

The time will come when there's more news for Novavax than there are rumors. This biotech stock could then be a huge winner -- or a huge loser.