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Here's Why the Best Is Yet to Come for Novavax, Inc.

Synthetic vaccine maker Novavax (NASDAQ: NVAX) has fallen on hard times. The dramatic failure of its closely watched respiratory syncytial virus fusion (RSV F) vaccine in elderly adults last year has caused investors to reconsider whether its platform is even viable. 

Novavax's stock has lost over 90% of its value in the past year, and its shares are currently bumping up against the Nasdaq's $1 minimum bid requirement. Put simply, this clinical-stage biotech is essentially on life support at this stage. 

Image source: Getty Images.

In the company's recent third-quarter release, however, Novavax's management laid out two clear reasons why investors may want to change their minds. Let's take a look.

A major RSV vaccine is still an attainable goal

The complete wipeout of Novavax's elderly adult RSV vaccine hasn't deterred the company from pursing this multibillion-dollar indication in the least. Most biotechs would have shuttered a clinical program that showed absolutely no efficacy whatsoever in a late-stage trial, but Novavax has instead doubled down on RSV by going forth with its phase 3 trial of the RSV F vaccine for infants via maternal immunization, and begun planning for another trial in older adults that's reportedly on track to kick off in 2018.

Why? Well, one obvious reason is that the ongoing phase 3 maternal immunization study is supported by an $89 million grant from the Bill & Melinda Gates Foundation. Second, Novavax isn't all that far off from getting a sneak peak at these all-important data. Specifically, the biotech expects to unveil an interim data analysis from this trial in perhaps late 2018 (assuming enrollment goes as planned).

And in a rather brave pronouncement, management said during the company's recent quarterly conference call: "We expect that this interim analysis will determine if we have successfully met our primary endpoint, thus allowing us to halt the trial and file a [Biologics License Application]." Biotechs usually try to underplay interim data readouts, but Novavax is going the exact opposite route, perhaps to drum up investor interest. 

A second major value driver has emerged

After reporting some encouraging pre-clinical results for experimental flu vaccine NanoFlu in ferrets, Novavax has decided to take on Sanofi's (NYSE: SNY) market-share-leading flu vaccine, Fluzone High-Dose. Novaxax is presently conducting a combined phase 1/2 trial pitting its NanoFlu vaccine against Sanofi's Fluzone High-Dose.

With 330 older adults already enrolled in this trial, the biotech expects to release a top-line readout by the end of this year. Equally as intriguing, Novavax suggested that a positive readout could lead to an accelerated approval pathway that "could push the program into pre-[Biologics License Application] status by the end of 2018."

Why should investors pay attention to Novavax's flu vaccine efforts? According to a report by Research and Markets, the U.S. flu vaccine market is forecast to reach $3 billion in annual sales by as early as 2024. And Sanofi is widely expected to gobble up the bulk of these sales with Fluzone High-Dose. In short, Novavax's flu vaccine could be a really big deal if it can outperform Sanofi's product.

Is the best yet to come for Novavax?

With a share price of around $1 and a market cap of only $330 million, Novavax certainly could be a steal at these prices. The biotech, after all, is pursing two different megablockbuster vaccine candidates simultaneously. 

Before you pull the trigger on this stock, though, it's critical to consider two additional points. First off, how likely is it that Novavax's R&D platform will ultimately be validated by a late-stage success? Second, how will Novavax fund its operations with only about three-quarters of its cash remaining, and a current share price that isn't amenable to large secondary offerings? 

The good news is that these two pivotal issues are probably going to be resolved at the same time -- namely, once Novavax unveils its upcoming flu vaccine results later this year. If positive, the biotech's shares should appreciate substantially, giving management wiggle room to raise capital and not trigger a delisting notice from the Nasdaq. These funds should then get the company to its next major RSV readout in late 2018, or early 2019 at the latest.

All told, Novavax isn't dead quite yet. The company still has a viable path back from the brink of bankruptcy, but it will need some good old-fashioned luck to do so. While that's not the kind of value-creation scenario that's generally attractive to conservative-minded investors, there is the chance that Novavax's best days are indeed yet to come.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.