How did your investments perform in 2020? Hopefully, quite well.

Last year turned out to be an easy one for investors to make money. The S&P 500 index jumped 16%. If you bought stocks during the market meltdown in March or shortly afterward, you could have enjoyed exceptionally strong returns.

But exceptionally strong returns doesn't begin to describe what two COVID stocks delivered last year. Initial investments of $100,000 in Novavax (NVAX 2.31%) and Vaxart (VXRT -3.67%) would have grown to well over $1 million in 2020 -- nearly $2.8 million for Novavax and close to $1.7 million for Vaxart. 

COVID vaccine vial and syringe on top of an ascending stock chart

Image source: Getty Images.

How they did it

These two biotech stocks followed similar paths to achieve their tremendous returns last year. Both Novavax and Vaxart announced early in 2020 that they were initiating coronavirus vaccine programs.

Vaxart beat Novavax to the punch. The tiny biotech announced on Jan. 31, 2020, that it planned to develop an oral coronavirus vaccine. Novavax followed less than a month later with the news that it was evaluating multiple nanoparticle coronavirus vaccine candidates in preclinical studies.

But Novavax made much more rapid progress than Vaxart did in the subsequent months. It also picked up major funding deals along the way, including $388 million from the Coalition for Epidemic Preparedness Innovations (CEPI) and $1.6 billion from Operation Warp Speed.

By early August, Novavax had interim results available from its phase 1/2 study of experimental COVID-19 vaccine NVX-CoV2373. And those results were overwhelmingly positive.

Meanwhile, Vaxart didn't select a lead COVID-19 vaccine candidate until May. The company began a phase 1 study of that candidate in October.

Vaxart also stirred up some controversy in June by announcing that its COVID-19 vaccine candidate had been "selected for the U.S. government's Operation Warp Speed." Technically, that was true: OWS picked Vaxart's tablet vaccine for inclusion in a preclinical challenge study. However, unlike Novavax, Vaxart didn't receive any funding from the federal initiative.

Still, Vaxart's promising preclinical results and the potential for its oral vaccine were enough to excite investors. As of mid-July, Vaxart's shares had skyrocketed more than 4,700% year to date. 

Can they do it again?

Repeat performances are extremely difficult after the kinds of returns generated by Novavax and Vaxart last year. Could the stocks do it again in 2021? It's possible, although not necessarily probable.

I think that both of these coronavirus stocks are poised to soar this year. The key ingredient required to make that happen for both biotechs is positive clinical data. Novavax expects to report interim results from a late-stage study of NVX-Cov2373 conducted in the U.K. early this year. Vaxart completed enrollment in its phase 1 study of VXA-CoV2-1 in November. The company has been quiet since then, but results from that study are likely on the way soon.

Vaxart theoretically has a better chance of becoming a 10-bagger or better again in 2021. The biotech's market cap stands below $750 million, compared to Novavax's market cap of roughly 10 times that amount. Good news for VXA-CoV2-1 could fuel another tremendous run for the stock. It's not hard to imagine Vaxart's market cap jumping to $7.5 billion or more if its experimental tablet vaccine delivers impressive clinical results.

However, envisioning a near-term future where Novavax grows to a market cap in the ballpark of $75 billion isn't as easy. COVID-19 vaccines already on the market in the U.S. have set a very high bar for efficacy. Even if NVX-Cov2373 looks great in its late-stage study, Novavax's upside appears to be more limited going forward, compared to where things stood at the beginning of last year.

High-risk, high-reward propositions

Again, though, I think both Novavax and Vaxart could potentially deliver tremendous returns over the next 12 months. But those tremendous returns are far from a sure thing. There's a not-so-insignificant chance that neither of these biotechs' vaccines will meet investors' expectations. 

The bottom line is that both Novavax and Vaxart offer high-risk, high-reward propositions. Investors would be remiss to focus too much on the potential rewards without considering the potential risks. No stock will turn $100,000 into more than $1 million within a year without being exceptionally risky.