In early pandemic days, Novavax (NVAX -1.64%) shares soared as investors bet on the company’s ability to bring a coronavirus vaccine to market. But as the biotech fell behind in the race and commercialized its vaccine later than expected, the shares suffered. Earnings also weren’t as bright as investors had hoped, due to this late market entrance. Moving forward, the company aimed to bring a potentially game-changing product to market: A combined coronavirus and flu shot.

Rival Moderna is also working on such a vaccine, but with almost half of the U.S. adult population often going for an annual flu shot, the combined flu/COVID vaccine market offers potential for more than one participant. However, recent news represents a setback for Novavax’s combined vaccine candidate. The U.S. Food and Drug Administration (FDA) ordered a temporary halt to the program and to the company’s stand-alone vaccine candidate this past week — and Novavax shares slid almost 20% in one trading session.

How bad is this news for Novavax? Let’s find out.

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Novavax’s combined vaccine program

Novavax has brought together its coronavirus vaccine with its expertise in flu to create a candidate that would protect people from both flu and COVID for the season. This could be particularly attractive to those who regularly go for flu vaccines, because it offers them protection against two viruses with just one shot. About 45% of adult Americans went for a flu vaccine during the last season.

Moderna recently reported positive phase 3 data for its combined vaccine, so it’s a step ahead. If Novavax brings such a product to market even a bit later than Moderna, both companies are likely to carve out an interesting market share and pave their way to significant recurrent revenue every flu season.

Novavax successfully completed a phase 2 trial of its candidate, and recently applied to the FDA for authorization to move on to phase 3. But just this week, the company said the FDA placed a clinical hold on its application to move forward with a phase 3 trial. This followed a report of a serious adverse event — motor neuropathy — in a participant in the phase 2 trial outside of the U.S. The participant received the vaccine in January 2023 and reported the event last month.

In a clinical hold, the FDA halts further development of a candidate while it investigates a particular issue. Once the issue is resolved and the candidate is considered safe for use, clinical development may continue. Novavax issued a statement saying it doesn’t “believe causality has been established” for the participant’s adverse event, but the company plans on working quickly and efficiently to provide the FDA with all necessary information.

A risk for Novavax

Clearly, this isn’t good news for Novavax — but how bad is it, exactly? It’s impossible for us to predict the outcome of the FDA’s investigation, but we do know that no other cases of motor neuropathy have been reported in prior Novavax coronavirus and flu vaccine candidate trials. That’s a positive point. Still, the clinical hold represents a risk for Novavax, since it’s delaying what could become a major product for the biotech.

It’s important to keep in mind, though, that Novavax isn’t depending solely on this candidate. It recently launched its latest coronavirus vaccine for the current season. The company said it’s available at major pharmacies across the U.S. Novavax might get a boost this time around because its vaccine is available in double the number of locations compared to last year and comes in a prefilled syringe. This makes the vaccine easier to find and easier to administer. After last year’s disappointing vaccine season, it will be key to watch how this season progresses. Novavax also said during its latest earnings report that it would unveil an “expanded clinical pipeline” by year-end.

So, what does all this mean for investors? Novavax remains in a period of uncertainty. We don’t yet know if the company’s revenue will gain momentum during this flu season. We also don’t know if the FDA clinical hold will result in a serious setback or a quick and harmless halt for the combined vaccine program. All this makes the stock a risky bet for most investors right now, meaning it’s probably best left on your watch list unless you’re an aggressive investor looking for a potential recovery story.