Novavax (NVAX -5.17%) has been a highly volatile stock in recent years, and that volatility is on full display again this month. Shares of the healthcare stock are up 200% since the start of May. Investors are feeling bullish on the stock once again as it has soared to a new 52-week high.

What's behind this recent rally, and is it a reason to be optimistic about Novavax for the long haul?

Deal with Sanofi sparks a turnaround

On May 10, Novavax announced a co-exclusive licensing agreement with healthcare giant Sanofi. The companies are going to work together on commercializing Novavax's adjuvanted COVID-19 vaccine worldwide, excluding areas where the company already has existing agreements. Sanofi will also be able to use Novavax's Matrix-M adjuvant to develop its own products. It will take a minority stake of less than 5% in Novavax's business.

In return, Novavax will get an influx of cash. Sanofi will pay $500 million upfront, and Novavax could get another $700 million depending on development and regulatory milestones. Novavax coulf also receive up to $200 million, plus royalties, "for each additional Sanofi vaccine product developed under a non-exclusive license with Novavax's Matrix-M adjuvant technology."

The cash gives Novavax a lot more stability. It has previously raised a "going concern risk" about its business, which means there are doubts about its ability to survive. But with the payments it will receive from Sanofi, the company has now removed that warning.

Novavax is safe for now -- but what about in the long run?

Novavax isn't in imminent danger, which is good news. But that doesn't mean that all the risk has been eliminated from the business. Demand for COVID products has been declining significantly over the past year. Pfizer experienced an 88% decline in revenue for its popular COVID vaccine, Comirnaty, during the first three months of 2024. Rival Moderna announced earlier this year that it would be pausing plans to build a plant in Kenya for vaccine development due to a drop in demand for its COVID vaccine.

The problem with Novavax and other COVID vaccine stocks is that their growth prospects may not look as promising in the future -- and that's why their shares have been falling as concerns relating to COVID have been subsiding. While Novavax will get an influx of cash this year, the other payments it will receive depend on COVID sales and Sanofi's success in using the company's Matrix-M adjuvant. Novavax is working on a combination COVID and flu shot which is in phase 2 trials, but that could be a highly competitive area, and that too could be dependent on how big a concern COVID is for the public.

This year, Novavax projects that its revenue will come in between $970 million and $1.2 billion, which includes approximately $570 million from Sanofi. The deal with Sanofi does buy Novavax some time to bring new products to market, but without anything besides COVID-related products in its portfolio, the company's financials could still be in trouble in a few years.

Novavax isn't any safer a buy

Short-term investors may see the recent agreement involving Sanofi as a reason to be bullish on Novavax, due to its stronger revenue numbers this year. But the long-term picture for Novavax remains concerning. This development simply pushes the risk down the road, but it's still there. There may not be a going concern issue for Novavax right now, but that doesn't mean it won't come back at a later point.

Meanwhile, with the healthcare stock now trading at levels it hasn't been at since around late 2022, there could be a lot of room for shares of Novavax to fall back down in the future should investor sentiment around the stock cool. At a market capitalization of nearly $2 billion, Novavax is trading at a fairly rich valuation for a business without a promising drug in development or a product it can rely on for sustainable, long-term growth.

The stock's recent rally is indicative of the volatility that comes with owning Novavax's shares. But the underlying business remains risky, and investors are better off staying away despite the hype.