You might like roller coaster rides, but probably not when the roller coaster is a stock (unless you get on and off at just the right time -- and we all know that's pretty tricky).
Novavax (NASDAQ: NVAX) has offered investors just such a ride over the past few years. The stock soared more than 2,700% in 2020 but dropped nearly 93% last year. Initial gains came as investors bet on Novavax's chances of bringing a coronavirus vaccine to market; declines occurred after the vaccine entered the market later than rival products did.
Now, as we start a new year, you might be wondering what to do about Novavax. Should you buy the shares after their big decline and bet on recovery? Or is it time to sell -- or avoid -- this biotech stock? Let's check out one reason to buy and two reasons to sell.
Reason to buy: a potential game changer ahead
Novavax missed out on the enormous demand for coronavirus vaccines in the earlier stages of the pandemic. Its vaccine entered the market a year or more later than those of its rivals did. But the biotech might have what it takes to become a champion in the coronavirus market over time.
That's because Novavax is working on a combined coronavirus-and-flu vaccine. This sort of vaccine could be a game changer because it could easily appeal to those who regularly go for a flu vaccine. In the U.S., that's about half of the population.
Moderna also is working on a combined shot, but Novavax is farther ahead in development. The company started a phase 2 trial at the end of last year and expects to report data around the middle of this year. Novavax has the expertise to develop this sort of product, having already brought a flu candidate, NanoFlu, successfully through phase 3 trials.
So if you buy Novavax today, you might benefit if the company launches this combined shot in the coming years. It could be first to market and could therefore gain significant share.
Reason to sell: today's market share problem
As mentioned above, Novavax's coronavirus vaccine entered the market late. By the time it arrived, most people who wanted a vaccine had already gotten one. Still, Novavax forecasts about $2 billion in revenue for 2022. That's significant for a company that didn't have any product revenue just a short time ago.
But looking ahead a year or two, Novavax's revenue growth potential might be limited. Rivals Moderna and Pfizer have vaccinated most of the population, and healthcare providers and those seeking vaccination might want to stick with boosters that match their primary series. So Novavax could have trouble carving out significant market share.
Yes, generating even some revenue is a big step for Novavax. But it might not be enough to boost the share price.
Reason to sell: a limited pipeline
Novavax relies on the coronavirus vaccine right now. It's the company's only product. The potential combined vaccine also would be part of the coronavirus portfolio.
Outside of the coronavirus and flu candidates, Novavax's pipeline includes about five other drugs, and they're in earlier stages of development. All of this means Novavax probably will depend on the coronavirus and flu programs for quite some time. This will be fine if the company truly is able to carve out market share. But that isn't guaranteed, and the path seems complicated until the combined candidate makes it closer to market.
So you might consider selling Novavax shares right now because the company is heavily dependent on one market -- a market in which it doesn't even dominate.
So should you buy or sell?
The answer depends on a couple of elements. Let's consider the idea of selling first. If you've already made money on your Novavax investment and are looking to reduce risk in your portfolio, you probably should consider selling now. But if you've lost on your Novavax investment, it might be a good idea to hold on for a while and see if news from the combined vaccine program boosts the share price.
If you're thinking of buying Novavax, consider your comfort with risk. If you're a cautious investor, you're probably better off investing in a company with a broad, late-stage pipeline and more visibility regarding future earnings.
But if you're an aggressive investor, you might consider adding a few shares of Novavax to your holdings. Yes, the stock is risky right now, but data from Novavax's current vaccine and combined candidate has been positive. Novavax's science is strong, and that could help the company and investors win over time.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.