Gaithersburg, Maryland based clinical stage vaccine firm Novavax has been in a fair bit of trouble over the current month or so. The reason behind the stock’s nosedive is due to several factors.
The troubles facing the company are varied and it started when one of its drugs failed a late-stage clinical trial. As with many micro cap stocks, bad penny stock news can trigger a big downside move. The drug in question is ResVax and is supposed to be a syncytial virus vaccine. However, the late-stage clinical stage failure proved to be a body blow for the company.
In this regard, it is also important to point out that a late-stage failure implies that the company in question had sunk in enough capital towards research and development. Such a failure can often prove to be extremely damaging for the short term well being of any drug company. This happened in February and triggered a sell-off that brought the penny stock price to level lower than a dollar.
Reverse Stock Split
However, the drop in share price opened up another crisis for Novavax. The company then had to perform a 1 to 20 reverse stock split earlier this month in order to make sure that is was not delisted from the Nasdaq.
In an industry in which companies need to spend a lot of their capital on research and development, this can be a crippling problem. NanoFlu, its flu vaccine development could be in jeopardy if the company cannot get hold of fresh capital and hence, it would have to raise fresh capital. However, raising capital from such a precarious position is always a tough ask for smaller companies and therein lies the immediate problem for Novavax.
Short sellers have descended on the stock as well but the stock split seems to have given Novavax some leg room for the immediate future. That being said, there are still some positives that could point to the possibility of a quick recovery.
ResVax, the drug which failed in clinical trials did, in fact, show some level of effectiveness, which is rare for a vaccine of nature. The company can ask the regulators to take a second look at the drug. On the other hand, Novavax is also looking for a fast track approval process for NanuFlu. That being said, these scenarios are unlikely to make the stock regain its earlier position in the short-term.
NVAX’s stock has tumbled almost 85% since the beginning of 2019.