Vaxart (NASDAQ:VXRT) ranked as one of the hottest coronavirus stocks of 2020. Its share skyrocketed over 1,500% last year as investors became increasingly excited about the biotech's oral COVID-19 vaccine candidate, VXA-CoV2-1. As of the market close on Tuesday, Vaxart's share price had more than quadrupled year to date.

Then the dam burst. Vaxart stock lost more than half its value on Wednesday after the company announced disappointing preliminary phase 1 results for VXA-CoV2-1. What's next for Vaxart after its massive meltdown?

Blue line trending downward sharply next to a coronavirus virion and stock data in the background

Image source: Getty Images.

The spin zone

The headline of Vaxart's press release announcing the preliminary results from the early stage study of VXA-CoV2-1 referred to the data as "positive." Vaxart stated that the primary and secondary endpoints related to safety and immunogenicity of the experimental vaccine were achieved.

CEO Andrei Floroiu said, "These results, together with recent data from our peers, further raise our confidence in the success of VXA-CoV2-1 and the broad potential of our platform." He especially pointed out that the company's tablet vaccine candidate could provide protection against current and future coronavirus variants.

Vaxart's announcement emphasized that VXA-CoV2-1 "induced potent CD8+ T-cell responses." These T cells play an important role in the body's immune system defense against viral infections.

So why did the stock plunge on such seemingly good news? Vaxart included one other detail from the study that was sort of buried in its press release: No neutralizing antibodies were found in most participants. Neutralizing antibody levels are one of the most important things that researchers look at to determine how effective an experimental vaccine might be.  

The reality is that Vaxart did its best to spin its phase 1 data in the most positive light possible. However, the absence of neutralizing antibodies in study participants is without question bad news. 

What's next?

Vaxart could double down on VXA-CoV2-1. The company stated that it "expects to broaden its COVID-19 vaccine development plans." These efforts will likely include advancing the experimental vaccine into phase 2 testing with individuals who haven't had COVID-19.

The biotech could also test VXA-CoV2-1 in individuals who have been previously vaccinated or exposed to COVID-19. Exploring the potential for the tablet vaccine candidate as a booster shot might be a promising path for Vaxart to take.

It's way too soon to write off Vaxart's prospects based on its preliminary phase 1 data. However, the odds of success for the company's COVID-19 vaccine certainly appear to be much lower with little if any production of neutralizing antibodies. 

Vaxart does have other clinical-stage tablet vaccine candidates in its pipeline targeting influenza and norovirus. The biotech also has preclinical vaccine candidates for the respiratory syncytial virus (RSV) and human papillomavirus (HPV).

But all of the company's programs have a long way to go. Should VXA-CoV2-1 fail in additional clinical studies, it would likely cause investors to sour on the rest of Vaxart's pipeline candidates. The bottom line is that the chances the biotech stock will rebound ride largely on the success of its experimental COVID-19 vaccine. And those chances don't appear to be nearly as promising as they looked before the preliminary phase 1 results were announced.

An important lesson

There's an important lesson for biotech investors to learn from Vaxart's rise and fall. Simply put, clinical-stage biotech stocks are very risky. You shouldn't invest any money that you aren't willing to lose.

A few weeks ago, I was asked if Vaxart was still a good stock to buy after its huge gains. My response then was that it depended on what kind of investor you are. Only aggressive investors willing to take on enormous risk should even consider a stock like Vaxart.

I noted that Vaxart's oral vaccine was promising. However, I also said: "It's still really early and a lot of things can happen along the way. Their vaccine might not pan out as well as everyone hopes. Keep that in mind."

What I said then is applicable to any clinical-stage biotech stock. Remember the risks. 

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.