For the biotech industry, 2020 was all about the race for a COVID-19 vaccine. By now, several have been authorized, a few additional candidates are beginning to cross the finish line ... and others have fallen by the wayside.

After reporting preliminary phase 1 results for its tablet vaccine candidate last week, Vaxart (VXRT -10.29%) was tossed into the category of misses, and its stock was crushed. Although the results were a disappointment, a possible silver lining -- and other vaccine programs -- could still deliver for shareholders.

A matrix on a chalkboard of cost versus value and an arrow and bullseye drawn in the high value, low cost quadrant.

Image source: Getty Images.

What happened?

Despite dropping nearly 70% from their peak earlier last week, Vaxart shares still trade roughly 26 times higher than they did as 2020 began. The stock started its wild week by doubling on the news of two board members resigning and in anticipation of the phase 1 results for its COVID vaccine candidate. Then the stock collapsed when the data showed that the treatment produced no neutralizing antibodies to fight the virus.

The primary purpose of phase 1 tests is to assess the safety of a new drug candidate. Vaxart's candidate, VXA-CoV2-1, achieved this goal, having been given to 495 people with no serious side effects. The pill also spurred a type of short-term protection in the sinus and respiratory tract, but it failed to generate the immune response that provides long-term protection. 

What comes next?

Vaxart's founder and chief scientific officer believes its drug could be more resilient to variations in the virus than injectable vaccines are, and the company plans to proceed with phase 2 trials. The goal will be to determine the best dosing schedule, and to study the drug in vaccinated individuals and those who have had the coronavirus to see whether it provides an immunity booster.

Beyond COVID, Vaxart will continue the push for a tablet vaccine for several other diseases. The first is the norovirus, which currently has no vaccines on the market. The stomach bug mostly causes severe sickness in children under age 5 and adults over 65.

There's also flu; the company's phase 2 trial of a monovalent seasonal flu vaccine (which protects against one virus) compared favorably to the leading flu vaccine made by Sanofi (SNY 2.00%). Its quadrivalent flu vaccine, which protects against four different flu viruses, is being developed in partnership with Johnson & Johnson (JNJ 1.49%) Also still in the pre-clinical stage is the company's program to develop a vaccine for the human papillomavirus (HPV).

What is it all worth?

Given the company's $1 billion market capitalization, current shareholders are counting on at least one of these vaccine programs to make it to approval. Using the National Institutes of Health's historical percentages for successfully moving a vaccine from phase to phase, and considering the market opportunity for each condition, we can get a rough estimate of Vaxart's potential for sales years from now.

Progression NIH Success Rate for Vaccines
Preclinical to approval 7%
Phase 1 to approval 17%
Phase 2 to approval 21%
Phase 3 to approval 67%

Data Source: National Institutes of Health

If we apply those probabilities to each of the company's development programs, we see it's likely that Vaxart will succeed in getting a revenue-generating drug to market. If we multiply that probability by estimates for the addressable market and an assumed market share, we arrive at an expectation for future sales. Remember, this is a number weighted by the likelihood of success. If the company is actually successful, sales will be higher.

Disease Current Phase Estimated 2027 Market Size Assumed Market Share Estimated 2027 Sales
COVID-19 Phase 2 $10 billion 33% $464 million*
Norovirus Phase 1 $0.3 billion 80% $80 million
Influenza Preclinical $7.6 billion 50% $752 million**
HPV Preclinical $12.7 billion 50% $1.2 billion

*Reduced probability based on phase 1 results. **Projected revenue split with Janssen.

Applying the current average price-to-sales multiple of about 4 times sales for a basket of vaccine makers, we can add up the sales figures in the above table and multiply by 4 to project a market capitalization for Vaxart of about $3.7 billion in 2027. Of course, that calculation is full of estimates and assumptions, but it serves as a guide.

At first glance, it looks like today's investor could realize fantastic returns. A $3.7 billion market capitalization in 2027 would be a 20% annual return based on the current share price.

Unfortunately, it takes a lot of money to shepherd a drug from the lab through approval -- anywhere from $500 million to $5 billion. Either number is far more than the $127 million in cash the company has on its balance sheet. 

Assuming the lower estimate for program development and the current stock price, management would have to increase the share count by about a third to see just one of the programs to the finish line. In that scenario, we can see the return potential varies greatly depending on which program the company pursues. Of course, any return would still require successful commercialization of the drug.

Target Market Cap (if successful) 2027 Share Price (diluted)* Rate of Return
COVID-19 $13 billion $86 38%
Norovirus $240 million $2 (22%)
Seasonal flu $4 billion $26 16%
HPV $6.4 billion $42 25%

Source: Company data and author calculations.
*The company will need to issue more shares for any of these programs to make it to market, so a diluted future share price is assumed.

Whether Vaxart shareholders take advantage of the recent huge price drop is really about whether they think the company's tablet-based vaccine platform can work. As the rough estimates show, a vaccine for COVID isn't the only way for shareholders to realize solid returns over the next several years. However, any return will require success in at least one major program, and the recent results from the company's phase 1 trials of VXA-CoV2-1 raise doubts about that likelihood.

While the calculations are just estimates, they provide investors with a framework to determine whether the potential reward is worth the risk.