There's a strong argument against investing in speculative stocks, especially given the current state of the market. In recent weeks, investors have largely shifted away from these stocks due to perceived marketwide issues, most notably impending interest rate increases in the U.S.
On the other hand, picking a stock others have largely abandoned could yield impressive returns if the company manages to get back in the good graces of investors. With that in mind, let's look at a biotech company whose shares have been pummeled lately: Vaxart (VXRT -1.62%). Can this clinical-stage vaccine maker turn back the tide?
The case for Vaxart
Vaxart takes a different approach to vaccination: The company focuses on developing oral vaccines. The biotech's candidate has some obvious advantages over those of competitors. Oral tablets can be kept at room temperature and transported relatively easily without stringent storage requirements. Thus, Vaxart's candidate would ease some of the logistical challenges of storing and transporting vaccines.
Also, oral tablets are easier to administer, not to mention they are less painful. Even many of those who don't mind needles would likely prefer an oral solution if, of course, it was proven as effective as other vaccines. That's to say nothing of the vaccine-hesitant, many of whom might reconsider their position if there were an oral vaccine available.
If Vaxart's vaccine ends up earning approval, it could carve out a decent niche for itself. The company currently sports a market cap of about $618 million. At these levels, any good news regarding its coronavirus-related program could send the company's shares soaring.
Image source: Getty Images.
The case against Vaxart
Here's the other side to the story. Vaxart's vaccine is only in phase 2 testing while others are already approved and have come to dominate the market. Vaxart will have to show that its candidate is at least close to being as effective as the current market leaders -- and at this point, there is not yet the data to make that assertion.
It is also worth understanding how Vaxart's vaccine works. The SARS-CoV-2 virus that causes COVID-19 has several major structural proteins, including the spike (S) protein and the nucleocapsid (N) protein. Vaxart's vaccine uses an adenovirus delivery system -- that is, a non-infectious virus that contains the gene coding for both the S and N proteins of the virus.
By contrast, most competing vaccines target only the S protein, triggering the body to make antibodies against it so that once in contact with the actual SARS-CoV-2 virus, the patient would be protected against it. Vaxart thought it would gain an advantage by targeting both the S and N proteins since the former is more prone to mutation (and therefore eluding vaccines). Vaxart's vaccine could have higher efficacy against new variants of the virus by also targeting the N protein.
However, the company's phase one clinical trial for its experimental vaccine that targeted both the S and N protein was a bit of a disappointment. As a result, in phase two clinical trials the company has been testing two forms of the vaccine: one that targets only the S protein as well as the original version that targets both the S and N proteins.
The good news is that the S-only construct of the company's vaccine produced a stronger antibody response than the other construct. Still, Vaxart has some ways to go before even starting late-stage studies, let alone getting it to market. It could also run into clinical and regulatory headwinds -- something that companies in the biotech industry constantly have to keep in mind, especially those like Vaxart which do not have any products on the market.
All of Vaxart's other candidates are (at best) in phase 1 clinical trials. If the company's coronavirus candidate flops, its stock will plunge.
The verdict
While Vaxart's oral vaccine could be a game-changer if approved, it is nowhere near reaching that milestone. A lot can still go wrong for the company, and since it does not currently have any products on the market and is consistently unprofitable, that makes the company's shares very risky. That's why most investors would do well to stay a safe distance away from Vaxart for now.
