This Biotech Penny Stock Has Huge Upside Potential
Novavax (NASDAQ: NVAX) is a clinical stage biotech that focuses on developing recombinant protein nanoparticle vaccines. The company’s vaccine candidates target seasonal influenza, pandemic (H5N1) influenza, and respiratory syncytial virus (RSV).
There’s no question that Novavax has exciting vaccine candidates in the clinic. But before you go out and buy the shares, you should understand that NVAX is a speculative penny stock.
Take a look at its 2013 financials…
First off, the company does not have any approved drugs on the market. Right now, the company derives revenue solely by performing research and development (R&D) for the government. And last year, revenues declined 5% to $20.9 million due to less activity on the clinical trials associated with its government contracts.
Second, the company spends a lot of money on R&D to move its vaccine candidates through clinical testing. Last year, NVAX spent over $50 million on research and development which was 87% more than in 2012.
The higher R&D costs in 2013 led to an 82% rise in net loss to nearly $52 million. And that worked out to a 41% increase in net loss per share, which came in at ($0.31) per share.
As you can see, NVAX does not have blue-chip like fundamentals. Revenues and earnings are not growing every year at a consistent rate.
At least, not yet…
But that doesn’t make the stock a bad investment necessarily. It just means the stock is speculative. That means it’s only appropriate if you have a high tolerance for risk and can afford to lose your investment.
With that said, speculative biotechs can grow into full-fledged pharmaceutical companies. And investors who buy shares in the early years can make huge returns on their money.
Take a look at long-term stock chart for Amgen (NASDAQ: AMGN), Gilead Sciences (NASDAQ: GILD), and Biogen (NASDAQ: BIIB) if you need convincing.
What’s more, biotechs can provide great returns even while they’re still in the clinical development stage. These stocks tend to be very volatile with broad price swings. But they will often rally around major events like the release of clinical trial results or an FDA decision.
And if the results are good or the FDA approves a drug, you’ll often see the biotech’s stock price skyrocket.
NVAX is going through this clinical testing stage right now.
The company has three vaccine candidates in mid-stage testing that are targeting widespread infectious diseases. Each one of these vaccines, if ultimately approved by the FDA, has potential to generate hundreds of millions if not billions of dollars for Novavax.
And 2014 is shaping up to be an important year for Novavax.
After raising $87 million through a public offering in September, the company’s sitting on over $130 million in cash. What’s more, Novavax is poised to earn $40 to $50 million on its government contract with the US Department of Health and Human Services this year.
In other words, the company has plenty of money to fund its operations and clinical programs for at least the next two years.
But perhaps the most exciting thing is that Novavax is expected to release important trial results by mid-year for each of its mid-stage vaccine candidates.
With important trial results on the horizon, NVAX is likely to trend higher going into the announcements. And If the results are good, the stock could really soar on the news.
However, if the results are bad, the stock could really tank. It’s not uncommon to see a high-flying biotech lose half its value or more in a single day on bad results.
I think NVAX is an exciting biotech stock with big upside potential. But you must be comfortable with the high risk involved if you’re going to trade it.
Profitably Yours,
Robert Morris
Category: Penny Stocks
