Now that the first approved coronavirus vaccines are rolling out worldwide, investors everywhere are scanning the horizon for signs of which biotech stock will be the next to hit it big. You've already heard about how Moderna impressed the world with the speed at which it developed its COVID-19 vaccine. But you may not have heard of Arcturus Therapeutics (NASDAQ:ARCT), a smaller company that took a similar scientific approach, though without striking gold -- at least, not yet.

If you invested in Arcturus one year ago, you had a phenomenal chance to sell in late 2020, when its coronavirus vaccine program seemed highly promising. Since then, its price has collapsed, which could make this an opportune moment to buy in -- assuming there's a credible chance that a catalyst that could push the stock back up again.

A doctor loads a syringe with a coronavirus vaccine.

Image source: Getty Images.

Why it might be worth buying Arcturus

Arcturus is still in an early stage of its public life, with plenty of room to grow. Investors who open stakes now would therefore have the opportunity to enjoy many years of upside as it matures and carves out a (hopefully profitable) niche. Right now, there's little that stands in its way, other than the standard steep hill for every pharmaceutical company: proving that its candidate products are safe and effective.

At the time of its third-quarter earnings report, it had more than $300 million in cash and a minimal $20.43 million in debt on the books. Arcturus' raised this cash hoard by issuing new stock twice last year, concluding its most recent offering for around $150 million in early December.

Based on its trailing 12-month operating cash outflows of $43.7 million, it should be able to sustain itself for at least the next few years before it needs to raise more money again, which is good news considering the two equity dilutions of 2020. Nonetheless, for a biotech company without any recurring revenue, it's in remarkably decent financial shape.

Arcturus's coronavirus vaccine candidate is its most likely path to profits. The company plans to initiate phase 2 clinical trials for LUNAR-COV19 this quarter. A phase 3 study is scheduled to launch in the second quarter, and management hopes to get emergency regulatory approval for it in the second half. If it succeeds, the vaccine would be Arcturus's first product to reach the market, and would be a proof of concept for the company's treatment-development methodology.

Why I won't be investing

Arcturus has been testing LUNAR-COV19 in a single-dose regimen. Nearly every other candidate in development -- and both of the ones that the U.S. Food and Drug Administration has approved for emergency use -- require two shots, given some weeks apart. So if LUNAR-COV19 passes muster, that fact alone could give it a leg up in capturing a decent share of the COVID-19 vaccine market.

There's one big problem though. The interim clinical trial data that Arcturus has released so far suggests that LUNAR-COV19 could be less effective than the vaccines of Pfizer and Moderna. In the phase 1 trial, it didn't produce nearly as strong of an immune response, based on the levels of neutralizing antibodies found in the study participants.

The picture could change as the vaccine proceeds further in clinical trials, but there probably won't be much enthusiasm for it in the marketplace if it doesn't protect people from COVID-19 as well as competing jabs.

The company could potentially adjust LUNAR-COV19's formulation or dose size, or switch to a regimen that includes a booster shot, so it isn't necessarily the least effective of our options. Nonetheless, the relatively tepid immune response is a major red flag that's enough to dissuade me from investing.

Then there's the fact that Arcturus' pipeline is fairly small, and mostly comprised of products in early stages of testing. Thus, it could be years before it has any other source of sales revenue. And a vaccine flop would be quite discouraging. Most of the company's eggs are in this one basket.

In summary, Arcturus needs to prove that LUNAR-COV19 is effective, and effective enough to book significant sales, before I'd recommend buying its stock. In the meantime, if you're still thinking of investing, keep a sharp eye out for interim updates from its clinical trials to see if things are moving in the right direction.

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.