Investing for a Coronavirus CureÂ
If and when vaccines are commercialized, stocks will hit the roof. There’s mad money waiting for savior stocks, and investors are already fishing for them with an ethical urge to back the businesses working to save the world!
It takes millions in cash burn before a jackpot drug eventually gets approved for sale, so investors are very important in biotech. You need an investor to pay for your lab experiments, and urgently. It makes sense to skip exchange requirements and go the backdoor route to market (reverse merging into a shell company– DraftKings did that!).
Your progress in the lab affects your stock price. You can keep going if you can keep investors interested in you, raising cash by issuing new shares at strong market levels. The new shares dilute the old shares, though, making them less valuable to own. It’s a tough gig to talk your laboratory up while also racing to find a coronavirus cure.
Some labs are making a heroic effort of this with funding secured in government grants and from prior successful drugs. However, weakening bull-bear relations show that any enthusiastic biotech lab can make a headline. If a biotech is deliberately hyping a cure while issuing new shares ‘at-the-market’ price (ATM) to raise funds, run or go short!
Investors should also be cognizant of the stage of research. If there’s a breakthrough in vitro, that means in a petri dish, not in a human (vivo). There’s also likely to be only one patented ‘cure,’ but dozens of testing tools (like Abbot’s toaster-size saliva searcher) and therapeutic treatments. This is good, but the fabled vaccine itself will have to pass through four sets of trials successfully before it can be sold. Investors are watching these;
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Preclinical |
Do mice, pigs, and monkeys keel over and die from the drug? |
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Phase I |
Do 10 people get any embarrassing side-effects from the drug? |
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Phase II |
Does the drug work on 200 people that actually have the virus? |
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Phase III |
Will the drug work even better if the dosage is fine-tuned? |
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FDA Review |
Will thousands of pages of data from these phases get stamped? |
The approval pipeline can last between ten and twelve years, which is why it takes millions in cash burn before anything happens. However, the US Food and Drug Administration (FDA) is fast-tracking promising innovations amid this crisis.
Moderna’s well-publicized jab is in stage I, Pfizer’s candidate is in stage II, and the University of Melbourne has a vaccine in stage III. AstraZeneca would profit from distributing Oxford University’s phase III ‘ChAdOx1 nCoV-19,’ but there’s apparently not enough people catching the virus anymore for a large enough test group!Â
In sum, this is an exciting trade. Some stocks are exploding on talk, others are getting fast-track approval on the down-low. It’s hard to tell real from fake, and there’s always an element of the unknown with hundreds of competitors in the mix. This space is moving fast, though, and assuming sound diversification; any investor can take a dip.
