What happened

Shares of Novavax (NASDAQ:NVAX) were soaring 14.6% higher as of 11:23 a.m. EDT on Wednesday after jumping as much as 25.5% higher earlier in the day. There have been no new developments for the biotech since it provided an update on its fourth-quarter results after the market closed on Monday. So what lit a fire beneath Novavax stock?

The most likely reason for the rise is that some investors think the company's chances of success aren't accurately reflected in its share price. Novavax stock tanked in February after experimental respiratory syncytial virus (RSV) vaccine ResVax failed to meet the primary endpoint in a phase 3 clinical study. However, the biotech still thinks there's a path to approval for ResVax and also has high hopes for its experimental flu vaccine NanoFlu.

Businessman pulling red line that's going down back up.

Image source: Getty Images.

So what

A big jump on no news for a stock that trades below $1 per share isn't unusual. The best thing for investors to do is ignore the volatility and focus on the realistic prospects for Novavax.

Despite its failure to meet the primary endpoint in the phase 3 study, there were two bright spots for ResVax. First, the vaccine reduced severe RSV hypoxemia (low concentration of oxygen in the blood) in infants who initially received the vaccine while in their mothers' wombs. Second, ResVax reduced hospitalizations associated with RSV by a statistically significant level.

The results for ResVax were promising enough that Dr. Keith Klugman, director of the Bill & Melinda Gates Foundation's Pneumonia Program, remained optimistic about the vaccine. Klugman pointed to the "great potential for reducing RSV-associated deaths in young babies" with ResVax. The Bill & Melinda Gates Foundation partially funded Novavax's phase 3 study.

Novavax plans to meet with regulatory agencies to discuss a potential path to approval for ResVax. It's possible that the biotech will be able to file for approval using its phase 3 data (although not based on the primary endpoint of the study). Novavax will also meet with the U.S. Food and Drug Administration (FDA) soon about advancing experimental flu vaccine NanoFlu to a pivotal phase 3 clinical study.

Check out the latest earnings call transcript for Novavax.

Now what

Investors will definitely want to monitor what happens with Novavax's discussions with regulatory agencies. While the chances for moving NanoFlu to a pivotal study appear to be pretty good, the odds are probably against Novavax being able to file for approval of ResVax without conducting another study first.

Novavax's biggest problem is staying afloat while it tries to move its experimental vaccine programs forward. The company had only $103.9 million in cash (including cash, cash equivalents, marketable securities, and restricted cash) at the end of 2018. Since then, Novavax has raised another $41 million through issuing new shares. However, the company will run out of cash within a few quarters based on its current spending levels unless it generates additional cash.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.