Shares of Novavax (NASDAQ:NVAX) have retreated from their recent peaks, but this biotech stock is still up over 2,610% in 2020, and investors want to know if it can jump higher once again. 

On one hand, investors are right to be worried about the future of any 33-year-old vaccine developer that hasn't produced any successful vaccines yet. That said, governments around the world are supporting the development of Novavax's experimental coronavirus vaccine. 

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Will shares of Novavax rocket higher again, or will the bottom fall out from under this risky biotech stock again?

Reasons to expect more gains

Instead of setting up shop in Cambridge, Massachusetts, or another global biotechnology hub, Novavax is headquartered in Gaithersburg, Maryland, next to the world's largest source of coronavirus vaccine funding. 

Novavax's contacts in Washington D.C. are proving invaluable. In July, the U.S. government awarded Novavax $1.6 billion to develop and deliver 100 million doses of NVX-CoV2373, a potential new coronavirus vaccine that recently began phase 2 clinical trials.

Most of the funding Novavax has received is committed to mass-produce this protein-based vaccine candidate before we know if it safely prevents SARS-CoV-2, the virus responsible for COVID-19 from spreading. Overall, the company has raised more than $2 billion to pay for manufacturing and a pivotal phase 3 study that could start before the end of the year. 

In addition to NVX-CoV2373, Novavax is also developing a next-generation flu vaccine. The company's NanoFlu program successfully completed a phase 3 study in March and Novavax could submit an application to the FDA before the end of the year.

Potential problems

At the beginning of 2020, Novavax was in a tight spot and boasted a tiny market cap of $129 million. Now that this is a $6.6 billion company, more gains like those experienced this summer will be a lot harder to come by. 

Phase 3 results that prove NVX-CoV2373 prevents the spread of COVID-19 could send Novavax shares rocketing higher, but investors need to consider the risks. So far we've seen relatively good phase 1 trial results, but they really don't tell us much. Less than 10% of new drug candidates that succeed in phase 1 eventually earn approval from the FDA. 

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At least two dozen coronavirus vaccine candidates are currently in clinical-stage development, and candidates from AstraZeneca (NASDAQ:AZN), Pfizer (NYSE:PFE), and Moderna (NASDAQ:MRNA) have already begun phase 3 trials that could produce interim results in the fall. Moderna's been developing drugs for a decade without a successful pivotal study under its belt, but AstraZeneca, Pfizer, and other pharma giants actually have loads of experience developing, and marketing successful vaccines.

Unfortunately, the closest Novavax came to success was an experimental respiratory syncytial virus vaccine candidate that showed some promise in a phase 2 trial but failed to reduce the risk of infection in larger phase 3 studies. If NVX-CoV2373 takes the same, well-worn path there won't be anything of significant value left in the company's late-stage pipeline.

This spring, NanoFlu hit predetermined goals in a phase 3 trial, but those goals didn't include actually lowering patients' risk of getting the flu. The safety and immune response data that Novavax has now will probably be sufficient to convince the FDA to approve its seasonal flu vaccine, but it's hard to see how Novavax will distinguish NanoFlu from competing vaccines marketed by competitors.

Frightening with a chance of sunshine

There is a slight chance that NVX-CoV2373 can outperform an increasing list of competing coronavirus vaccines but that doesn't make this stock worth the risk. If we find out later that NanoFlu is the only new vaccine candidate Novavax has a chance to launch in the foreseeable future, this stock will fall hard.

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.