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Why Novavax Stock Is Fading Today

By George Budwell - May 7, 2019 at 1:10PM

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Novavax's proposed reverse split has investors on edge.

What happened

Novavax ( NVAX -11.60% ), a pre-revenue vaccine company, is posting yet another forgettable day. As of 12:00 p.m. EDT, the biotech's shares were down by 10.1% on above-average volume. What's sinking Novavax's ship today?

On April 1, the company announced a special meeting to vote on a proposed reverse stock split of its common stock at a ratio of 1-for-20. With the meeting scheduled for tomorrow morning, short-sellers and day traders are undoubtedly using this upcoming event to turn a quick profit in today's ongoing session.

 

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Image source: Getty Images.

So what

Novavax basically has no choice in regard to this enormous reverse split. The company's shares have been trading under $1 since Feb. 28, which is below the Nasdaq's minimum bid requirement. In plain English, Novavax is at risk of being delisted from a major U.S. exchange -- an event that would greatly hamper its ability to raise capital and attract institutional investors on a forward-looking basis.

While an organic rise in share price would obviously be preferable to a reverse split in order to meet the Nasdaq's $1 minimum bid requirement, the company doesn't seem to have the juice to pull off such a feat. Novavax's twice-failed respiratory respiratory syncytial virus vaccine, ResVax, will have a tough time winning over regulators at this stage. Moreover, the biotech will need additional cash to carry its promising flu vaccine, NanoFlu, over the finish line.  

Now what

Novavax is in a tough spot. The company still has an intriguing candidate with NanoFlu that could radically change its trajectory. For the moment, though, it has to work through several fundamental problems to move into the next era of its life cycle. Meanwhile, this penny biotech stock is arguably best avoided by investors.

 
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.

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