Arcturus Therapeutics (NASDAQ:ARCT) stock has made some investors rich lately while causing headaches for others -- all depending on when they opened their positions. Those who bought shares last January and are still holding them are sitting on notional returns of more than 350%, while some who sold at the right time in the months that followed might have even booked returns of more than 1,100%. On the other hand, those who made their initial investments just a month ago have watched the stock tumble by a painful 50%.

Much of the stock's volatility stems from the company's flagship messenger RNA (mRNA) coronavirus vaccine candidate, ARCT-021. How is it that a potentially life-saving vaccine could cause such heartaches for investors?

Stock photo of coronavirus vaccine vial.

Image Source: Getty Images.

What happened?

On Dec. 28, the company released data from its phase 1/2 clinical trial of ARCT-021 that showed that 100% of the 44 volunteers who were inoculated developed immunological responses with no serious adverse events. However, the level of neutralizing antibodies among those patients -- a critical metric for demonstrating immunity against the SARS-CoV-2 virus -- was far lower than the coronavirus vaccines BNT162b2 and mRNA-1273, manufactured by Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA), respectively.

At this point, one cannot rule out the possibility of Arcturus' vaccine candidate not being able to meet the efficacy threshold of 50% set by the U.S. Food and Drug Administration (FDA) for approval of a COVID-19 vaccine. If the vaccine eventually gets approved, it may not generate enough sales if its efficacy levels falls way short of the 90% demonstrated by BNT162b2 and mRNA-1273. Conversely, it's possible that more doses may be required to provide efficacy levels similar to those of competing vaccines.

Is there any hope left? 

There remain a few reasons to be hopeful about ARCT-021 though. First, Arcturus has been testing its vaccine primarily in a single-dose regimen, and at far lower concentrations than Pfizer's and Moderna's vaccines. If the company pivots to studying it in a two-dose regimen, and possibly at higher concentrations, it could markedly improve on its neutralizing antibody generation and produce competitive efficacy results. On the other hand, upping the dosage or concentration could push the candidate outside of its therapeutic window and lead to serious adverse events. There are no guarantees that modifying the trial design would produce more favorable outcomes.

Right now, ARCT-021 is in phase 2 clinical trials in Singapore and will begin phase 2 trials in the U.S. soon. The company expects to have at least one phase 3 study in the U.S. and European Union by the second quarter of 2021. If the vaccine candidate proves successful in that study, Arcturus would seek an emergency use authorization near the end of this year.

Given that the Pfizer and Moderna vaccines could be widely available in developed countries by spring, since these have already received regulatory approval, Arcturus may have difficulties recruiting patients for late-stage studies who would have a 50% chance of being given a placebo. As a result, it may have to conduct its efficacy trials in other jurisdictions, and then seek regulatory clearance from the FDA and/or the European Medicines Agency.

What's the verdict? 

The underwhelming level of neutralizing antibodies in ARCT-021's phase 1/2 trial could put at risk the $175 million and $275 million vaccine preorders from Singapore and Israel, respectively. Even though Arcturus has $1 billion in potential milestones and royalties from its collaboration with various large-cap pharmaceutical companies, it only has two other therapeutics in early-stage studies. Furthermore, the subpar performance of ARCT-021 could cast doubt on the potential effectiveness of the company's other mRNA vaccine candidates.

At the end of the day, valuation is a significant factor in determining whether or not Arcturus is a good investment. The company's market cap has dropped to $1.2 billion since the sell-off, and its enterprise value has shrunk to $911 million with $307 million cash in hand.

Overall, Arcturus is now a high-risk, high-reward biotech stock. If you think that the company has a chance of turning its experimental coronavirus vaccine candidate around, then, by all means, open a stake. However, for investors who don't like the level of volatility and risk involved in stocks that will have their fates decided by binary events, it would be better to instead pick COVID stocks that can be held long term

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.