What happened

Shares of coronavirus vaccine hopefuls ModernaNovavax, and Dynavax Technologies tumbled by double-digit percentages in August, according to data provided by S&P Global Market Intelligence.

Moderna's shares were down 12.4% for the month, while Novavax and Dynavax notched steeper declines of 22.9% and 26.3%, respectively, as the race to develop the first approved vaccine heated up. Despite August's losses, Moderna's shares are still up a healthy 220% for the year. Meanwhile, Novavax's shares have risen a jaw-dropping 2,230% year to date.

While Dynavax's shares started the year strong as well -- doubling in price between Jan. 1 and July 20 -- it's since lost all of those gains and then some; its stock price is now down almost 15% for the year.

A girl wearing a mask gets an injection in her arm.

Image source: Getty Images.

So what

In the rough-and-tumble world of small biotech companies, speculation is the name of the game. As a company's product -- in this case, a potential vaccine for COVID-19 -- moves through the various stages of clinical trials, it can encounter all kinds of potential setbacks, even critical ones, at any point in the process. 

Not only do Moderna, Novavax, and Dynavax have to deal with all the usual potential pitfalls of the process, they're also racing against other companies -- some of which have very deep pockets, like Pfizer and AstraZeneca. While the anticipated demand for a coronavirus vaccine is likely to be so high that even a third- or fourth-place finisher will see an ample return on its investment, there are more than 150 different potential vaccines being developed. Every step forward by a competitor is seen as a threat, and every setback is almost instantly reflected in a company's stock price. We saw this on Aug. 24 and 25, when all three stocks' prices fell after the Financial Times reported the possibility that AstraZeneca's vaccine might be fast-tracked by the Trump administration.

Another major hit to all three companies' shares came on Aug. 11, when Russian president Vladimir Putin announced that his country had approved the first coronavirus vaccine for human use. Novavax's shares, which had been outperforming the others', were hit particularly hard by the news, plunging 16.3% that day alone. However, Russia's vaccine, developed by its Gamaleya Institute, hadn't even begun a phase 3 trial yet, and Putin did not provide any scientific data about its performance, making many experts skeptical.

Now what

If you're not an investor who thrives on high-risk companies, investing in biotech start-ups probably isn't the right strategy for you. If you don't mind the risk, it's likely at least one of the smaller coronavirus vaccine makers is going to make a lot of money. Which one, however, is anyone's guess. In this regard, Dynavax may be a (slightly) safer bet than the others: It isn't developing a vaccine of its own. Instead, Dynavax is providing the CpG 1018 adjuvant -- basically, a vaccine enhancer -- from its approved hepatitis B vaccine to a handful of other companies that are developing COVID-19 vaccines of their own.

Here's a quick outline of where these three companies' coronavirus vaccine development efforts stand:

Company Vaccine Type Development Stage Other Products
Moderna (MRNA -2.21%) m-RNA phase 3 clinical trial None
Novavax (NVAX -5.62%) Protein-based phase 2 clinical trials None
Dynavax Technologies (DVAX -2.34%) & Partners Various, incl. plant-based phase 1 clinical trials hepatitis B vaccine

Moderna's vaccine is the furthest along, having already begun enrollment in its phase 3 clinical trial. However, the m-RNA vaccine Moderna is developing has some drawbacks, including requiring subfreezing storage temperatures, and the fledgling Moderna has never successfully brought a vaccine to market.

Speaking of companies that have never brought vaccines to market, while Novavax's protein-based vaccine uses a more traditional production method, it has never successfully brought a vaccine to market in its 33-year history as a company.

Meanwhile, Dynavax's partners are even further back in the trial phase, although at least it has a successful product on the market in Hepislav-B, its hepatitis B vaccine. Also, its CpG 1018 adjuvant -- if it proves beneficial in these trials -- could easily find its way into other vaccines to boost immune response. 

With 33 coronavirus vaccines currently in clinical trials, and many more in pretrial development, the likelihood of any one vaccine maker being the first to successfully get regulatory approval is fairly low. Be aware of that risk before buying in.