Tiny Vaxart (VXRT -1.26%) was just a penny stock back in January. Few people had heard of the company. You could buy a share for only 34 cents. And then COVID-19 hit, followed by stay-at-home orders, economic shut-downs, and the current recession. The public health crisis sent the entire stock market crashing, with a few exceptions. Vaxart, a vaccine developer, was one of those few.

When Vaxart announced that it was pursuing an oral vaccine for COVID-19, the micro-cap went through the roof. In six weeks, Vaxart's stock price ran up to $3.45 a share on March 9. That's a nice 10-bagger for micro-cap investors in just a little over two months. And then the stock dropped 68% over the next week, falling all the way to $1.08 on March 16. This was just the beginning of Vaxart's roller coaster ride. Let's investigate how much you'd have today if you bought shares of Vaxart in the dark days of March.

One gloved hand and one ungloved hand hold medicine tablets over a dark table, syringe filled with the tablets sits beside them

Image source: Getty Images

Investing in biotech micro-caps is incredibly risky

A micro-cap stock is generally defined as a company valued between $50 million and $300 million. Their share price volatility is a large risk factor for investors. In the case of Vaxart, the company is an especially dangerous pick, because it's not just a micro-cap, it's a biotech stock without any drugs on the market. Vaxart currently has drugs in the pipeline that may be viable treatment candidates for norovirus, influenza, respiratory syncytial virus (RSV), human papillomavirus (HPV), and COVID-19. Although none of these candidates have yet advanced to a phase 2 clinical trial, investors are hopeful that they can go the distance, and have subsequently driven up Vaxart's shares.

In particular, investor excitement about the company's COVID-19 vaccine candidate caused an early 10-bagger in 2020. But what caused the stock to drop 68% from March 9 to March 16? The former micro-cap suffered no company-specific bad news that would cause its stock to lose two-thirds of its value in a week. This sharp decline demonstrates how a micro-cap company's share price can be manipulated by market traders, without regard to any news from the company. 

A couple of days after the stock hit $1.08 on March 16, Vaxart announced that it had signed a manufacturing agreement with mid-cap Emergent Biosolutions (EBS -2.01%) to manufacture its vaccine for COVID-19, if and when its candidate is approved. Emergent has the capacity to manufacture hundreds of millions of doses of the treatment on an annual basis. After the news hit the market, Vaxart's stock shot up 162% in 48 hours.   

Vaxart's COVID-19 candidate is unique

Vaxart's vaccine candidate is unique for one particular reason. Instead of being administered via injection like most vaccines, Vaxart's treatment candidate is an oral tablet. In terms of ease of use and popularity (not to mention distribution issues), you can't beat a pill format. The fact that Vaxart has one of the few oral tablet candidates out there is why this stock has soared more than most.

The federal government has also bought in to Vaxart's COVID-19 program -- literally. Vaxart received funding from Operation Warp Speed (OWS) to initiate a non-human primate challenge study of the oral candidate in June.

On Sept. 14, the company received an Investigational New Drug Application (IND) clearance from the U.S. Food and Drug Administration (FDA) to begin phase 1 clinical testing in healthy adults aged 18 to 55 years old. The study's primary objective will be to examine the safety and reactogenicity -- the subset of adverse reactions caused by certain properties of the treatment -- from two-doses of the oral vaccine.  

Owning Vaxart shares is an emotional roller coaster ride

Let's suppose that after that awful 68% drop in March, you bought $5,000 worth of Vaxart's stock on March 16. Now you would own 4,629 shares of the company. Buckle your seat belts. 

In April your share price would hit $4.00. You've tripled your investment in a month. And I hope you didn't sell, because by July, the stock quadrupled again to $17 a share. Your $5,000 investment was now worth $78,693. A week later, the stock would drop to $14 a share. In another week, Vaxart's price would fall under $10.

Right now, at $7.75 per share, Vaxart is still a small company with an $850 million market cap. Your $5,000 investment on March 16 would now be worth $35,874. While the stock is more than 50% off its highs for the year, that's still a fantastic return.

VXRT Chart

VXRT data by YCharts

Vaxart comes with no guarantees

Because Vaxart is still a highly speculative pick, investors may decide to take on less risk by buying several different COVID-19 vaccine companies in a basket approach. One way to play the mad dash for a COVID-19 vaccine is to buy shares in all the companies that OWS is investing in. That list would include a mix of pharma and biotech companies such as ModernaAstraZeneca, Novavax, Johnson & Johnson, Sanofi, Inovio, Pfizer, and Vaxart.

While a basket approach would likely include some vaccine candidates that are rejected by the FDA, it would reduce risk because you would also own the vaccines that are eventually approved. Even the federal government is relying on a basket approach to make sure that as many people can be vaccinated as possible in a short period of time. When it comes to betting on the most likely candidate, it might not be a bad idea for investors to follow the government's lead -- and the money.