Vaccine maker Novavax (NVAX -2.24%) has had a rollercoaster of a year. In May, the company's shares soared after it announced a lucrative agreement with biotech giant Sanofi. It's been mostly downhill for Novavax since then, though that's likely due to some profit taking by investors.
However, Novavax's shares recently dropped by about 20% in one day after it announced a clinical setback. The biotech's stock price is still up by more than 100% for the year, but this sell-off could represent an opportunity for long-term investors, provided Novavax can turn things around. Is that likely to happen?
Let's find out.
Novavax's late-stage trials hit a snag
Novavax successfully developed a COVID-19 vaccine that is currently its only product on the market. The company has been working on two other candidates. One is an investigational influenza vaccine. The other is a potential combination coronavirus/flu vaccine. It planned on starting phase 3 clinical trials for both in the fourth quarter.
This plan is now in doubt. The company just announced that the U.S. Food and Drug Administration (FDA) placed a clinical hold on its Investigational New Drug (IND) application for these candidates. Biotechs must submit INDs before being allowed to proceed with clinical trials. The FDA's clinical hold is based on safety concerns. There was a report of a severe adverse event in a patient in one of Novavax's phase 2 studies who experienced nerve damage.
So where does Novavax go from here?
The bigger picture
Investigators have not established that Novavax's vaccine caused this adverse event. As the company notes, this is just a single case that was reported more than a year after the trial was completed. That doesn't mean there is no causal link, but let's not jump to conclusions. It is out of an abundance of caution that regulators opt to place investigational vaccines or medicines on clinical hold in cases like these. Better safe than sorry, as the saying goes.
The problem for Novavax is that the market doesn't like uncertainty. The longer this clinical hold drags on -- and no one knows whether or when it will be lifted -- the more anxious investors will get. So, if the company can't resolve things relatively quickly, its stock price could continue to sink, especially since it might delay the projected launch date of these candidates.
Novavax wanted to run late-stage clinical trials starting in the fourth quarter, that is, during this fall/winter season -- that's peak vaccine season for the flu. The company planned to release data in mid-2025, which means it had a chance to earn approval for these vaccines by mid-2026. Unless it can get over this hump quickly, its carefully crafted plan could get pushed back by as much as a year or more, even if it turns out that its vaccine wasn't responsible for the adverse event.
What should investors do? In my view, Novavax wasn't a particularly attractive stock even before this setback. True, the company's partnership with Sanofi gave it a lifeline. But Novavax's COVID-19 vaccine -- whose commercialization rights Sanofi will soon own in most countries -- continues to be a distant third in the U.S. market.
Novavax's combined coronavirus/flu candidate looks promising since many patients would prefer this option over getting two shots to be inoculated against COVID-19 and the flu. Others are working on similar projects, though, so Novavax would face stiff competition from companies with much bigger pockets. That includes Moderna, whose combination vaccine recently aced a phase 3 study, Pfizer, and more.
Novavax could still be successful despite the competition. But then you have to factor in all the risks involved, including potential clinical and regulatory setbacks and the real possibility that even if its candidates made it to the market, they wouldn't be as successful as the company hoped.
This clinical hold only reinforces one vital point: Biotech companies, especially relatively small ones, face meaningful risks related to unforeseen clinical setbacks. So, no matter how promising their candidates look, factoring that in is crucial. Novavax might resolve this issue pretty quickly. If I were a betting man, I'd say that's the most likely outcome. But I'd still advise long-term investors to avoid the stock anyway.
