When Merck (NYSE:MRK) announced last week that it had an inexpensive antiviral oral drug to treat Covid-19, Vaxart (NASDAQ:VXRT) plunged by almost 10%. For much of the year, VXRT stock moved nowhere. Bears have a short float of 13% and stand to profit greatly if the company fails.
What does Vaxart have going for it and what are its issues?
Buying Interest Wanes on VXRT Stock
In the second quarter, Vaxart touted the development of its oral tablet vaccine. Much has changed since the Aug. 5 business update. Merck beat Vaxart by announcing that its Covid-19 pill cut the risk of death and hospitalization. In the study, Merck tested people who were not vaccinated. It found that 7.3% of subjects taking molnupiravir faced hospitalization or death, compared to 14.1% for those getting a dummy pill.
Although Merck only studied unvaccinated people, the Food and Drug Administration may authorize the drug for broader use. Vaccinated patients who get breakthrough Covid-19 symptoms would qualify for the drug.
Merck’s news headline undermines Vaxart. The company is working on an oral tablet vaccine. Subjects could use the Vaxart tablet as a booster.
Investors may consider ImmunityBio (NASDAQ:IBRX), which is also studying an oral vaccine. The latter has a bigger market capitalization and holds no debt. Similarly, Vaxart has no debt. In Q2, it raised $36.2 million. It also signed licensing agreements to develop a broad-spectrum antiviral.
The firm spent $10.7 million in research and development, compared to the $5.1 million spent last year. It lost 13 cents a share on a GAAP basis.
To support the infrastructure needed to further its research, Vaxart added staff. It bolstered its management team, strengthened its research, clinical, and manufacturing groups, and invested in R&D. Its R&D employee count rose by 36% to 49 full-time employees.
In its norovirus vaccine work, Vaxart enrolled its first subjects. The vaccine candidate will study subjects in the 55-80 age group. The study is a Phase 1b placebo-controlled, dose-ranging, repeat dose trial.
Near-term Headwinds For VXRT Stock
On Sept. 16, Vaxart filed a $100 million stock sale. This will add to the approximately $200 million of cash on hand. The company needs the funds to work on its Covid platform. If it can get regulatory approval and enter high-volume production, then shareholders will be rewarded.
Merck’s clinical results offer hope for Vaxart. The oral drug works better than a placebo. This suggests that oral vaccines for respiratory viruses are a possibility. Vaxart needs to report positive clinical results as the next step to getting a product on the market.
The saturation in the vaccine market is another near-term headwind for Vaxart. Already, countries are administering the jab from vaccines made by Moderna (NASDAQ:MRNA), Johnson & Johnson (NYSE:JNJ), and BioNTech (NASDAQ:BNTX).
On Wall Street, analysts failed to update their ratings on Vaxart. Piper Sandler is the last firm to issue a price target of $18.00 over two months ago, according to Tipranks.
Investors could speculate that Vaxart’s oral drug would appeal to hesitant people unwilling to get a jab. Still, this group may not take the oral drug for other reasons. The anti-vax group will refuse to take any vaccine. This implies that Vaxart’s market share for the Covid vaccine is shrinking over time.
Moderna and BioNTech will lead the booster shot plans, too. Unless Vaxart demonstrates better clinical results, investors have a binary outcome with VXRT shares. This is like flipping a coin. The firm either has a well-received vaccine or it is too late to capture any market share. In the latter case, Vaxart would need to end its Covid vaccine study to preserve cash. It would have the excess infrastructure and staff costs for studying vaccines outside of Covid. The firm would have to cut costs to lower its cash flow burn rate.
In that scenario, markets will treat the stock as speculation with low growth potential.
Vaxart is not worthwhile speculation for cautious investors. Biotech investors who missed the rally in Merck, Moderna, or BioNTech should not expect Vaxart to rally anytime soon. The company still has to prove itself with the scientific and investment community. That will come if the company posts positive clinical results supporting the efficacy of its oral vaccines.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.