Biotech stocks that crumble on poor clinical results or an unexpected regulatory setback can be literal gold mines. The key is to spot beaten-down biotechs with the assets necessary to facilitate a full-blown comeback. 

The clinical-stage synthetic vaccine developer Novavax (NASDAQ:NVAX) seems to tick off all the boxes. Novavax's stock was obliterated roughly two years ago when its experimental lung infection vaccine failed miserably in a late-stage trial. Long story short, the vaccine failed to effectively prevent cases of respiratory syncytial virus (RSV) infection in elderly adults, when pitted against a placebo injection. 

An open road with the word Recovery written across it.

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However, the biotech could be gearing up for an enormous comeback over the course of the next 12 months. Here's what you need to know right now.

Novavax is nearing a key clinical catalyst

During its second-quarter earnings release, Novavax noted that the Prepare trial assessing the company's RSV vaccine in infants via maternal immunization was set for a pivotal data readout in the first quarter of 2019. If successful, the company plans to file for the vaccine's regulatory approval in both the United States and Europe in early 2020

This upcoming clinical catalyst is a big deal for two reasons. First off, Novavax has already performed an initial efficacy analysis for this trial. This preliminary analysis -- while far from definitive -- reportedly showed that the trial shouldn't be stopped for futility. That's particularly encouraging news in light of just how poorly the vaccine performed in its last late-stage trial.

Secondly, this vaccine is targeting an absolutely enormous market. Novavax estimates that the infant RSV market inside the United States is presently worth upwards of $750 million in annual sales, and the European and Asian markets could tack on another $750 million per year in combined annual sales for the vaccine. That's a sizable commercial opportunity for a company with a market cap of $570 million at present.  

However, Novavax does have a clear and present danger lurking in the background. Apart from the fact that this vaccine has already missed the mark in a pivotal trial, Novavax will eventually have to raise funds -- most likely through a secondary offering at shareholders' expense.

After all, the company is planning on launching another mid-stage trial for its experimental flu vaccine NanoFlu soon, which won't help with its stately burn rate that's been exceeding $44 million per quarter of late. As things stand now, the biotech appears to have a cash runway of less than 12 months at present, underscoring its need for another cash infusion in the near future. 

Is this stock worth buying now?

Under a scenario where all the stars align, Novavax's shares should easily double from current levels over the next 12 months -- even if the company chooses to execute a large secondary offering. This vaccine's commercial opportunity, after all, flat out dwarfs the company's present market cap.

That's the optimistic outlook. A more pessimistic view -- assuming this high-value RSV vaccine flames out yet again -- has the company raising capital at depressed levels in order to pivot toward NanoFlu as its sole value driver. In that worst-case scenario, Novavax's shares would almost certainly be trading under $1 a share within a year's time. 

With this extremely volatile outlook in mind, Novavax's stock is arguably only suited for investors comfortable with exceedingly high levels of risk.

  

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