A coronavirus vaccine candidate and billions in government-backed funding to develop it have propelled Novavax (NASDAQ:NVAX) shares around 2,300% higher this year. But with that spectacular run in the rear-view mirror, investors would be right to wonder if there's any more fuel in the tank.

The short answer is yes -- the stock could climb further if the company's SARS-CoV-2 vaccine candidate, NVX-CoV2373, performs well in clinical trials. Before new investors dive in, though, they need to measure the potential upside against a great deal of risk. 

Gloved hand holding a vial of blood labeled coronavirus.

Image source: Getty Images.

Reasons to buy Novavax

Right now, Novavax has NVX-CoV2373 in a phase 1/2 study, and it won't have any trouble covering the costs of the gigantic 30,000-subject phase 3 trial it has scheduled to begin this fall. In March, the global Coalition for Epidemic Preparedness Innovations (CEPI) agreed to invest up to $384 million to help the company develop the vaccine candidate. More recently, the U.S. government's Operation Warp Speed initiative promised another $1.6 billion to fund NVX-CoV2373's pivotal phase 3 trial and to allow the company to begin manufacturing 100 million doses that should be ready later this year.

Novavax stock made incredible gains this year in part because the company began 2020 with an extremely modest $129 million market cap. That has climbed to $6.4 billion at recent prices -- so it's not likely to repeat its 2,270% rise from here. However, success for NVX-CoV2373 could easily push the stock to several times its current value by this time next year.

Reasons to be nervous

Novavax has been developing new drugs since the 1980s, but it still doesn't have a late-stage clinical trial success under its belt. The closest it came was with ResVax, a respiratory syncytial virus vaccine candidate. It produced encouraging results in mid-stage clinical trials, but flopped at great expense in phase 3 -- twice

Novavax is also developing NanoFlu, a seasonal flu vaccine that demonstrated non-inferiority to a similar vaccine in terms of the immune responses investigators measured in patient blood samples taken during a phase 3 trial. Novavax didn't measure how well NanoFlu actually did at preventing test subjects from coming down with serious cases of the flu, so marketing it in that highly competitive vaccine niche could be extremely difficult if it's eventually approved by the FDA.

Since its founding in 1987, Novavax has lost a whopping $1.5 billion, and if NVX-CoV2373 doesn't become the company's first success, shareholders can expect to lose a lot more. Without any products generating revenue, Novavax has to fund the development of its non-coronavirus vaccines with the proceeds from secondary share offerings. Those have inflated the company's outstanding share count by 299% over the past three years, and by 993% over the past decade. 

Two scientists examining a slide.

Image source: Getty Images.

With everything riding on NVX-CoV2373, investors should probably wait for some sign that it works in humans. Novavax began the phase 1 portion of a clinical trial with NVX-CoV2373 in May; results are expected at the end of July. 

Since researchers can't intentionally expose people to SARS-CoV-2, it will be some time before we know if any coronavirus vaccine candidates actually prevent infections effectively. In the meantime, companies have been posting data regarding how well their candidates induce the human immune system to produce antibodies that bind to SARS-CoV-2, and hopefully prevent it from entering host cells. On that score, BNT162b1 -- being developed by partners BioNTech (NASDAQ:BNTX) and Pfizer (NYSE:PFE) -- set the bar for immunogenicity pretty high. Seven days after receiving the second of two injections of BNT162b1, all 24 volunteers tested at the time showed high concentrations of neutralizing antibodies.

Also, even if NVX-CoV2373 earns FDA approval, it's tough to calculate how much revenue that might mean for Novavax, because the dozens of companies and institutions working to deliver coronavirus vaccines could lead to an unprecedented level of competition in the market. At last glance, there were 155 vaccine candidates aimed at the novel coronavirus, 23 of them already in clinical trials. 

A buy now?

Shares of Novavax could surge much higher if NVX-CoV2373 succeeds in its upcoming clinical trials, but we don't know enough about it to wager a guess at its chances, either of clearing the bar for FDA approval or of being one of the more effective (and thus sought after) vaccines. Since hope for its coronavirus candidate is the only thing pushing up Novavax's stock, investors thinking about opening positions now should wait for human immunogenicity data that will be available near the end of July or in early August.

If NVX-CoV2373 still looks like a front-runner after we've learned what it does when injected into people, it might be time to consider adding shares of this biotech stock to your portfolio. At the moment, though, it's far too risky.