In the early days of the pandemic, Vaxart (VXRT 3.35%) mesmerized investors after beginning development of a tablet-based, room-temperature-stable coronavirus vaccine. The stock subsequently soared to a multiyear high of $24.90 per share in February, becoming a ten-bagger over a 12 month period.

Fast-forward three months later, though, and the stock is down an astonishing 71% from its highs. What's behind Vaxart's massive roller coaster ride?

Doctor showing a ten-pack of pills to a patient

Image source: Getty Images.

A major disappointment

On Feb. 3, Vaxart announced that its oral coronavirus-vaccine candidate, VXA-CoV2-1, did not induce neutralizing antibodies after a one-dose regimen. That is despite 75% of participants in the phase 1 trial demonstrating a T-cell response. The discrepancy here puzzled many investors since the two should be in tandem with one another, as with of the coronavirus vaccines currently on the market.

Since then, variants of SARS-CoV-2 that are more antibody-resistant and more infectious than the original have become dominant in certain places around the world. Therefore, the study would be likely to have a worse outcome if repeated today.

Despite the lackluster results, many investors still hope that Vaxart could become a cheap bet on the coronavirus vaccine industry. The company has a market cap of only $833 million, and about $177 million in cash. After all, if it manages to secure just a few supply agreements, that would be enough to justify its enterprise value of $628 million, right?

Vaxart's dilemma

Wishful thinking simply won't cut it. Adding insult to injury, Vaxart postponed the launch of its phase 2 clinical trial to late June because of a scandal involving its contract manufacturing partner. The company has no vaccine manufacturing capacity of its own, and instead outsources production to Emergent Biosolutions (EBS 4.66%).

As it turns out, that biodefense company was never really qualified to produce coronavirus vaccines at its Baltimore manufacturing plant. It instead allegedly relied on its ties with a key official in the former Trump administration to secure vaccine contracts. Emergent Biosolutions has ceased production, pending a resolution of defects ordered by the U.S. Food and Drug Administration (FDA).

The delay had a disproportionate effect on Vaxart's vaccine candidate. Low likelihood of clinical success aside, its commercialization potential is now seriously in question. There is currently an oversupply of coronavirus vaccines in the U.S. What's more, the Biden administration is already on track to vaccinate every adult who wants a shot by the end of July.

Even if VXA-CoV2-1 somehow lands an Emergency Use Authorization (EUA), its earliest rollout would likely be in late 2022 or early 2023. By then, there may be little demand for coronavirus vaccines, especially ones that have neither robust efficacy nor protection against emerging variants of concern.

What's the verdict?

Low probability of success aside, Vaxart's red flags were apparent from the beginning. It is still under investigation for allegedly allowing insiders to trade on VXA-CoV2-1's clinical data release, and for misrepresenting its role in Operation Warp Speed.

If Vaxart's science were really promising, then reputable coronavirus vaccine makers like Pfizer and Moderna would probably be bidding hand-over-fist for Vaxart's intellectual property rights by now -- to integrate an oral administration route to their own vaccine pipelines. But that's not what's happening here. I think the time to make money off Vaxart's stock is over. This is one of the riskiest bets on coronavirus vaccines in the biotech industry.