3 Reasons Novavax Stock Could Double in 2018

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Charles Dickens' introduction to A Tale of Two Cities sort of applies to Novavax's (NASDAQ: NVAX) experience in 2017 so far: "It was the best of times, it was the worst of times..."

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At two different points this year, the biotech stock sat on year-to-date gains of 20% or more. But at three other times, Novavax's share price was down 20% or more for the year. 

Despite its topsy-turvy moves over the last 11 months or so, next year could shape up to be much better for Novavax. I even think there's a realistic chance that the stock could double in value by the end of 2018. Here are three reasons that could happen.

1. Success for NanoFlu

Just a few months ago, Novavax's nanoparticle influenza vaccine NanoFlu wasn't even on most people's radar screens. After all, the vaccine was only in pre-clinical testing, with any path to approval seemingly a long, uphill battle. The story is different now, with NanoFlu emerging as a hidden gem in Novavax's pipeline.

Based on overwhelmingly positive pre-clinical results announced in August, the biotech quickly moved NanoFlu into a phase 1/2 clinical study in immunizing older adults. The results from that study are expected to be reported by the end of this year. If the early data is positive, I think Novavax stock will get a nice immediate boost.

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More important, though, it would pave the way for the company to start a pivotal late-stage study in 2018. The good news is that Novavax is able to complete the clinical studies for NanoFlu really quickly. The biotech thinks it could have late-stage results as early as late 2018, assuming all goes well. 

Should NanoFlu prove to be as successful in the late-stage study as it was in pre-clinical testing going up against Sanofi's (NYSE: SNY) leading flu vaccines, Fluzone and Fluzone HD, Novavax could have a huge winner on its hands. My view is that positive results for NanoFlu could lead to the biotech stock doubling next year, even if the company doesn't have any other successes. 

2. Positive results from RSV F vaccine late-stage study

There's a pretty good chance Novavax will have another success in 2018. The company currently has a late-stage clinical study underway for RSV maternal immunization of infants. This study is being funded by a grant from the Bill and Melinda Gates Foundation. Novavax anticipates interim data analysis from the study next year.

There are two reasons I suspect this study will go well. First, Novavax reported impressive results from its phase 2 study of its RSV F vaccine for maternal immunization of infants. Second, the company shouldn't have the complicating issues associated with studies of the vaccine in older adults, particularly the potential impact of varying RSV attack rates (a measurement of the spread of the virus). Novavax believes significantly lower attack rates could have made a difference in the disappointing late-stage results of its RSV F vaccine in older adults last year.

Although immunizing older adults is a bigger opportunity (and one Novavax hasn't abandoned), there's still a lot of potential for the vaccine in maternal immunization. RSV is the leading cause of hospitalization among children less than one year old in the U.S., and globally, it's the second-highest cause of death for children less than one year old. Because of this market opportunity, good news from Novavax's late-stage study next year could light a fire under the stock. 

3. Potential deal

Another possible catalyst that could lead to Novavax stock doubling in 2018 is a big deal -- either a major licensing deal with a big pharma company or an acquisition by one. How likely is such a deal? It depends.

The prospects for a licensing agreement for Novavax's NanoFlu and/or RSV F vaccines hinge on the clinical results. Big pharma companies would probably prefer positive late-stage results, which would make the possibility of a licensing deal in 2018 seem more likely for the RSV F vaccine. But overwhelmingly positive early results for NanoFlu could catch the eye of one of Sanofi's rivals looking to dethrone Fluzone.

If U.S. corporate tax reform efforts are successful, especially repatriation of cash parked overseas at a low tax rate, there could be a wave of acquisition activity in 2018. Novavax just might find itself courted by a large drugmaker looking to bolster its vaccine pipeline.

Double trouble?

Obviously, a serious clinical setback for NanoFlu or the RSV F vaccine could wipe out any chance of Novavax stock doubling next year. There's also another factor that could present a big hurdle for the stock: the need for cash.

Novavax reported $172.6 million in cash, cash equivalents, and marketable securities at the end of September. My guess is that the biotech will need to raise more cash by mid-2018. Its most likely route to getting this cash will be a stock offering. That means existing shares will be diluted in value. The path to doubling is a steeper one in the face of such dilution.

This is a clinical-stage biotech, so the stock won't be a good fit for many investors. There's not only a risk that the stock won't double, there's a risk that the stock will drop in 2018 as it has so far this year. However, I'm cautiously optimistic about Novavax's chances. I wouldn't bet the ranch on the stock doubling next year, but it certainly won't surprise me if it does.

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Keith Speights 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.