Is Novavax still a buy after doubling in two days?

Novavax (NASDAQ: NVAX) climbed more than 2,000% in 2020 as investors bet on the future of its coronavirus vaccine candidate. Then he extended the gains at a reasonable rate at the start of the new year. But even if you are very optimistic about this biotech action, you may not have expected what will happen next. After reporting data from its Phase 3 vaccine trial, Novavax shares doubled in just two trading sessions.

Now the question is: does Novavax have enough fuel in its engine to keep climbing? Or has this two-day rally used up the last few drops? Before we answer, let’s take a look at what Novavax has reported and what’s on the horizon.

The original coronavirus

Novavax said its investigational coronavirus vaccine showed an overall efficacy of 89.3% in its Phase 3 trial in the UK. But investors looked past that number to examine exactly how well the vaccine worked against the original coronavirus and emerging variants. The Novavax candidate demonstrated an efficacy of 95.6% against the original coronavirus. This is slightly higher than the 95% efficiency of the Pfizer (NYSE: PFE) vaccine and the efficacy of 94.1% of Modern (NASDAQ: ARNM) a.

New strains such as the one that originated in the UK and the one that developed in South Africa are cause for concern as they spread more easily. And the South African strain is known to escape the antibodies produced after vaccination. The Novavax candidate demonstrated 85.6% efficacy against the British strain in the UK trial.

At the same time, Novavax reported data from a phase 2b trial in South Africa. There, the vaccine candidate showed 60% efficacy against the South African strain. While the efficacy against the newer variants is not as high as that against the original virus, this is still great news. After all, the United States Food and Drug Administration has set the bar for emergency clearance at a minimum of 50% effectiveness.

Investors applauded the Novavax report. The stock went from $ 134 to over $ 268 in two trading sessions. Since then, Novavax has continued to earn, reaching over $ 280 per share. It topped Wall Street’s 12-month average price estimate by around $ 205 – but it’s still lower than the higher forecast of $ 334.

Novavax against its rivals

You might wonder if the recent surge of Novavax has been overdone. Probably. The latest news does not completely distinguish Novavax from other players. Pfizer and Moderna both said their vaccines can handle the new strains. Yet, as we have heard from White House medical adviser Dr Anthony Fauci, new strains are reducing the effectiveness of these vaccines. And looking at the data from Novavax, we can see that its experimental vaccine is in the same situation.

Moderna and Novavax could however take the lead in the coming months. Moderna is studying a strain specific booster that it could possibly adapt to any new strain that might arise. And Novavax plans to test a booster or a combination vaccine to treat new strains.

Looking ahead, the success of the recall study could clearly push stocks even higher than the current level. And other catalysts can do the same. Novavax is preparing to seek regulatory approval for NanoFlu, its investigational influenza vaccine. NanoFlu hit all endpoints in a pivotal test last year, so I’m optimistic. Novavax is also exploring the possibility of a combined influenza / COVID-19 vaccine.

As for its position in the coronavirus vaccine market, Novavax could become a leader. The company’s capacity will reach 2 billion doses per year by the middle of this year. It is among the highest compared to its rivals. And it doesn’t need ultra-low storage temperatures like the Pfizer vaccine.

What does this mean for investors?

From a long-term investment perspective, I’m still optimistic about this biotech company. Over time, I expect shares to rise further if the FDA clears the coronavirus vaccine candidate and ultimately approves NanoFlu – and maybe even the combination vaccine planned later. All of this represents billions in revenue per year.

Yet the recent increase in Novavax was too early. As mentioned above, Novavax has reported favorable data. But, like its rivals, it has yet to achieve extremely high levels of vaccine efficacy against the new strains. The management of new variants is a work in progress.

Will the share price drop a bit in the coming days? If you are an aggressive investor, you might not want to risk missing the train. So you might want to buy now. But if you’re a cautious investor, it’s best to wait and see if this price point is sustainable – or if you can buy on a downside.