By Michael Brush, MarketWatch
The companies won't make a lot of money even if they are successful
If stock market volatility has drained your account, and you're searching for relief in biotechnology-company plays -- step away from the keyboard and stop right now.
It can be a total loser's game. That's a bold statement.
But biotech experts offer compelling logic to support their case for avoiding COVID-19 therapy and vaccine plays.
First, it's tough to pick winners in biotech. I use a system in my stock letter () that has pointed me to a lot of successful investments in the space. But this is generally not easy to do, and it took me about a decade of trying and many mistakes to figure out my system.
Second, if you do pick a winner in COVID-19, this won't help you make money, for several reasons. These stocks are still juiced from all the virus hype. So you'd be buying after much of the potential has been priced in.
Next, it will be at least 12 to 18 months to get products through testing, notes Brad Loncar, the CEO of Loncar Investments and creator of the Loncar China BioPharma (CHNA) exchange traded fund. By that time, so many people may have gotten COVID-19 that there will be less demand for vaccines and therapies. Besides, a lot can happen to biotech companies in that stretch of time -- and not all of it good.
Read: Here's one analyst's take on the coronavirus drugs for today and the future ()
No Pharma Bros
Finally, COVID-19 vaccines and therapies are not going to be big money makers. The leading companies in this space are mostly run by ethical managers -- not price-gouging Pharma-Bro types. They're not going to charge too much for anything that would help resolve a public health crisis.
Even the companies acknowledge this. While studies suggest Gilead's (GILD) COVID-19 drug may well work, the company cautions that coronavirus won't be a key stock catalyst "since it is mostly humanitarian and unlikely to drive any material benefits," says Michael Yee, a biotech analyst at Jefferies.
It's also unclear how much the Gilead drug would help shareholders for other reasons. Its use would be one time only -- no recurring revenue. By the time it comes out, many more people will be immune to COVID-19 because it spread. And other therapies and vaccines may be on the market.
"The financial implications are modest," concludes Yee.
To see how bad COVID-19 speculation in biotech might turn out badly for you, Loncar suggests considering what happened to investors during the last big virus scare -- when Ebola threatened to spread in 2014.
If you were smart, or lucky, enough to know during the speculative frenzy that NewLink Genetics (NLNK) would find a successful vaccine, you'd probably have purchased the stock in the $20 to $45 range.
It then took five years to get the vaccine through testing and approval. Yet today, NewLink shares trade for about $1.
"The odds of picking a winner are low, and even if you do pick a winner, the odds are making a lot of money are low, too," says Loncar.
Breakthrough would benefit broader market
There may well be developments on the COVID-19 front that help investors and in a big way.
Any kind of progress on Gilead's therapy could bring substantial relief to troubled investors and the public. This would help reverse fear and panic. Gilead may release early results in two weeks.
Based on early study results and one-off stories of treatment success, Yee is cautiously optimistic.
"We're hopeful for signs of modest efficacy, which could help relieve market jitters," says Yee.
"Any headline that could dial the fear down could provide a huge psychologic boost to the stock market," agrees Loncar.
Potential end to biotech backlash
There's also a hidden silver lining for biotech investors. A lot of politicians think biotech companies are evil because they "charge too much" for drugs. This overlooks the sky-high cost of developing drugs, in my view. But if biotech companies come to the rescue in COVID-19, it will be tougher for politicians to rail against them.
It's also encouraging that, so far, the COVID-19 virus is relatively stable. This bodes well for vaccine developers. It's easier to create a vaccine when a virus doesn't change a lot, says Yee.
Here's a quick look at four of the leading vaccine and therapy companies, what they are doing in COVID-19, and the challenges which may keep investors from benefitting from their efforts.
Company's potential solution: Known for its hepatitis-C and HIV therapies, Gilead also has a drug called remdesivir, which inhibits the replication of viruses that act like COVID-19. Remdesivir is currently being tested in five clinical trials in China and the U.S. Data are expected as early as April, says Yee.
Challenges for investors: Remdesivir showed early promise in Middle East Respiratory Syndrome (MERS) because it seemed to work in camels. But it did not work well in humans. Some analysts say Gilead would have to stop trials to give placebo patients the drug if it seemed to work exceptionally well against COVID-19 -- for ethical reasons. We haven't seen that yet. This suggests remdesivir is no silver bullet. Even if it works, remdesivir won't be a big money maker for Gilead because it will be reluctant to charge much.
Company's potential solution: Vaccines fight viruses by putting an inactive version of it in the body to develop an immune response. This gets reactivated in case of actual infection. Moderna has a technology that shaves months, or maybe even years, off the development of vaccines, says Loncar. The National Institute of Allergy and Infectious Diseases (NIAID) is carrying out a streamlined study of Moderna's potential coronavirus vaccine.
Challenges for investors: NIAID is running early tests for safety in humans concurrent with animal studies to save time. (Animal studies are normally done first.) But it will still take at least a year to prove the vaccine works. Another problem here: Even though Moderna's technology holds promise, it has never successfully developed a vaccine.
Company's potential solution: Targeted antibodies can bind to surface proteins on a virus and take it out. Regeneron develops antibodies like these by injecting neutralized forms of viruses into mice customized to have human immune systems. They create antibodies that then can be deployed into humans to fight viruses, theoretically at least. The result may be both a vaccine and a therapy for COVID-19.
Challenges for investors: Long delays for testing. Use as a vaccine would be one-off, so no recurring revenue. And like Gilead, Regeneron would be reluctant to charge much for this high-profile treatment and vaccine.
Inovio Pharmaceuticals (TICKER:INO)
Company's potential solution: Inovio has a technology platform that may develop DNA-based vaccines against viruses, including COVID-19.
Challenges for investors: Long lead time to market, and unproven track record. A MERS vaccine looked good in animals, but did not work in humans, for example. A virologist I spoke with said the company's drugs don't tend to pan out.
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested GILD and INO in his stock newsletter, Brush Up on Stocks (). Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School.
-Michael Brush; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
March 18, 2020 08:45 ET (12:45 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.