The COVID-19 pandemic has set off a fierce race to develop vaccines and therapies to battle the disease, with investors predictably chasing after potential winners. The shares of some small biotechs have soared. One of the top performers of the year has been Vaxart (VXRT -4.29%). The company's stock soared 4,900% from the beginning of the year to its peak in July, soon after the company announced its COVID-19 vaccine would be part of an animal study sponsored by Operation Warp Speed.

Since the peak on July 14, shares have fallen 60% as initial investor enthusiasm has cooled off. Is this a buying opportunity for investors wanting to profit from a potential solution to the worst public health crisis in over a century?

It's not hard to understand the excitement. Vaxart specializes in technology to deliver vaccines in pill form, which clearly would have significant advantages over the other COVID-19 vaccine candidates in the race. Injectable vaccines require refrigeration, administration by medical professionals using personal protective equipment and syringes in a clinical setting, and a rather unpleasant experience by the patient. Pills travel well and can be taken painlessly at home.

3D depiction of coronaviruses.

Image source: Getty Images.

A unique vaccine with a lot of promise

Vaxart's approach also has another huge thing going for it: the potential for mucosal immunity. The company's pills are designed to deliver the vaccine to the patient's small intestine, which is lined with mucosal cells. The active ingredient of the vaccine is a viral vector, a common adenovirus that's been altered so that it can't reproduce and is equipped with a payload that will produce the immune response. The viral vector infects the mucosal cells in the small intestine, causing those cells to manufacture the SARS-CoV-2 antigen, provoking the body to produce antibodies to fight the infection. The payload also causes cells to express an adjuvant, a protein that amplifies the body's immune response.

The unique feature of this approach is that Vaxart's vaccine is designed to stimulate the production of a particular type of antibody (IgA) that protects mucosal membranes, and those antibodies then show up in the respiratory tract as a first line of defense. The company believes this gives the vaccine an edge in effectiveness over the injectable vaccines that rely on the virus coming in direct contact with blood.

Vaxart has reported some clinical results that support its approach. The most advanced was a phase 2 "challenge" study of its oral H1N1 influenza vaccine. Subjects were given either Vaxart's flu candidate, Sanofi's Fluzone injectable vaccine, or a placebo, and then inoculated with H1N1 flu virus. About 29% of the patients in the Vaxart cohort caught the flu, compared with 35% in the Fluzone group and 48% of the placebo group. A phase 1 test for the company's norovirus vaccine candidate met primary and secondary endpoints for immune response, with subjects showing strong production of IgA antibodies.

A small company with a lot to prove

The early indications are encouraging, but Vaxart has a long way to go to prove the approach is safe and effective. The company has yet to begin enrolling subjects for its first human trial for its COVID-19 vaccine, although it took the first step toward that on Aug. 10 when it filed an Investigational New Drug Application with the U.S. Food and Drug Administration. It will take two, three, or even more rounds of trials to resolve some important questions about the coronavirus pill.

Scientists are somewhat familiar with mucosal immunity since the oral polio vaccine produces it, but the approach is completely unproven in COVID-19. With the mechanism of action being quite different from injectable vaccines, Vaxart will need to show that the mucosal response in the respiratory tract, along with systemic immune response, is enough to fight off the virus. A recent study has also suggested that IgA antibodies to SARS-CoV-2 are short-lived in most individuals and may not provide long-term immunity.

Investors should also realize that Vaxart is a tiny company. In fact, the scientists working on the COVID-19 pill may be able to sit comfortably in your living room. At the end of 2019, Vaxart had 14 employees total, seven of which were in research and development, and since then have added just two more. This compares with 165 employees at Novavax and 830 at Moderna. Vaxart has had to drop everything to work on COVID-19, suspending its programs in influenza, norovirus, respiratory syncytial virus, and human papillomavirus, pending help from future partners.

Worth it to wait

The dip in Vaxart stock makes sense as the initial froth over the promise of a coronavirus pill subsides and investors consider the company's actual chances. The bull case for this biotech stock is that the advantages of the pill could make it a big winner, even if it's given along with an injectable vaccine to provide short-term mucosal protection. Positive trial results and a partnership would be catalysts for the stock.

But I think the situation is too risky for me to recommend a buy now, given the unknowns. Results from a phase 1 trial are months away, and investors would be wise to wait and get stronger confirmation of the safety and efficacy of the technology, even if it means the possibility of having to buy at a higher price later.