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The Biotech Sphere and the Coronavirus

The premise here is simple: biotech investing is just as it was before COVID-19 and as it will be when the pandemic is finally over. It will always be a somewhat risky proposition to plow money into start-ups involved in Coronavirus-fighting efforts. That money might be better allocated – at least in part – to larger companies for which Coronavirus R&D is a small piece of the whole.

Finally, investing in the sector in general will carry overall elevated risk as it always has.

This piece by Casey Murphy in Investopedia lays out the risks of biotech investing:

“Biotechnology is a sector where traders seek out these huge profits. For smart traders, this sector can present an incredible area of opportunity, but for those who are not willing to do their homework, it can be a train wreck waiting to happen.”

In other words, biotech is a target zone for speculation. Certain noted success stories whet the appetites of such prospective buyers. For instance, Novavax Inc. (NVAX) rose from a low of $0.74 in August 2005 to a high of $8.31 in March 2006 – an amazing 1,023% in seven short months (shown here):

Such tantalising prospective gains are tempered by the risk of a sector in which many biotech products never make it to market. A great product is no guarantee of stock success, given that a great biotech product is just that, and not necessarily a marker proving that the company developing it is a solid investment.

Biotech investing is even more challenging given the many regulations these companies’ products face when developing new drugs. Testing is rigorous and approval is only obtained after passing through multiple trial phases. Failure at even a late stage can derail a product or technology that underpins an entire biotech product line.

Biotech investors have a lot to understand: scientific principles, the specific sub-sphere in which a company operates, the business side of the company, and assimilate and accept the high level of risk associated with biotech investing. This is true of any sector or single investment, but confident investing in the space likely requires a hefty dose of knowledge.

Three Areas of Coronavirus Biotech: Testing, Treatment and Vaccines

The war on the Coronavirus is a war conducted on three fronts – testing, treatment and vaccination. Each has a vital role to play and each front is active simultaneously.

Testing R&D (Research & Development)

The first sphere of the Coronavirus combat, or the first stage, front-line effort, is testing. Testing can be done in different contexts and at differing levels of intensity. This Wikipedia article describes two branches of testing.

COVID-19 testing involves analyzing samples to assess the current or past presence of SARS-CoV-2…Tests for viral presence are used to diagnose individual cases and to allow public health authorities to trace and contain outbreaks. Antibody tests instead show whether someone once had the disease (and are) used to assess disease prevalence, which aids the estimation of the infection fatality rate. Positive viral tests indicate a current infection, while positive antibody tests indicate a prior infection. Additional techniques include a CT scan, checking for elevated body temperature and for low blood oxygen level.”

Reverse Transcription Polymerase Chain Reaction

Covid-19 only contains RNA, not DNA. RNA is present in all cells, acting as a messenger carrying instructions from the DNA to control protein synthesis. Polymerase chain reaction (PCR) is a process that amplifies (replicates) a small, well-defined segment of DNA many hundreds of thousands of times for analysis.

Real-time PCR (qPCR) has become the preferred method. It includes automation, greater throughput and more reliable instrumentation. Samples can be obtained by a variety of creative methods. The RT-PCR technique is also described in this Newswise article that covers Rover Diagnostics’ rapid-testing platform:

“A promising new COVID-19 rapid-testing technology platform…has been selected by the National Institutes of Health (NIH) to enter Phase 1 of the Rapid Acceleration of Diagnostics (RADx) initiative to support new COVID-19 testing technologies. The…point-of-care Rover platform provides reverse transcription polymerase chain reaction (RT-PCR) results in eight minutes…with targeted accuracy to match laboratory-based tests…”

Rover has emphasized the speed of the results its platform produces. This is obviously important when determining whether an individual has the infection or not affects many aspects of his immediate life course.

Isothermal Amplification Assays

Isothermal nucleic acid amplification tests also amplify the virus’s genome – the haploid set of chromosomes in a gamete or microorganism, or in each cell of a multicellular organism. Isothermal Amplification Assays do not require repetitive heating and cooling cycles and so are faster than PCR. They detect DNA using fluorescent tags read out with specialized machines.

The test amplifies RNA directly, eliminating the RNA-to-DNA conversion step that is intrinsic to RT-PCR.

Antigen

Antigen tests look for antigen proteins, which constitute the pathogen component that elicits an immune response. Antigens are found on the viral surface.

The value of such tests is expressed in two aspects: a) antigens are detectable before the onset of symptoms, and can be scaled up to much greater levels than those that RT-PCR testing enables.

Imaging

COVID-19 can be identified with higher precision using CT than with RT-PCR. The ground-glass opacity that is part of such a scan presents a granular, detailed view of the virus in an individual.

Antibody Tests

The body responds to a viral infection by producing antibodies that assist in neutralizing it.

Blood tests (serology tests) can detect the presence of such antibodies. [Antibodies for some diseases persist in the bloodstream for many years, while others fade away.]

Antibody testing describes the fraction of a population has been infected, a statistic that enables calculation of the disease’s mortality rate.

Rover is far from the only company involved in such testing. Johnson & Johnson (JNJ) and others have also been involved in screening for the virus.

Treatment

Testing indicates whether a person has contracted the virus, which is obviously a trigger for a medical or quarantine response of some kind. Treatment – and for future cases – disease prevention through vaccination are the two remaining legs of a COVID-19 response enabled by the work of doctors, researchers and biotech product developers.

Treatment is the actual medical response to the revelation of a positive Coronavirus test. It will be fine if and when an effective vaccine is approved, but for those with the virus, it is the treatment that decides if and how quickly the virus can be repelled.

While treatment of other, somewhat similar viruses may inform researchers as they develop appropriate treatment strategies, the Coronavirus is unique. Still, past experience with similar infections are useful in informing research and treatment efforts, and may ‘push’ the development of particular drugs to be tried in various clinical settings.

This article from Johns Hopkins Medicine offers some insights on treatment. It points out that treatment depends on whether a case is mild or severe. For milder cases, resting at home and taking medicine to reduce fever is often sufficient. This is an important point, as the threat and horror of some Coronavirus case outcomes obscure the fact that nearly all those afflicted with the disease do recover from it.

The most severe cases require hospitalization, with treatment that might include supplemental oxygen, assisted ventilation and other measures. Two drugs may have a role for severe COVID-19 infection: the antiviral drug remdesivir and the corticosteroid dexamethasone. The relevant companies to consider for investment are Gilead (GILD) and a long list of companies for dexamethasone, including such names as Pfizer (NYSE:PFE), Novartis (NVS) and Merck (MRK).

A comprehensive article by Jennifer Tran of GoodRX explains three of the most prominent treatment courses involving remdesivir, dexamethasone and convalescent plasma.

Remdesivir

Remdesivir is an antiviral drug delivered to patients intravenously. Not yet approved for widespread use, it is being tested in carefully controlled environments after success against SARS, MERS, and Ebola in cell and animal models. In a recent in vitro study (done in a petri dish or test tube rather than in animals or humans), remdesivir blocked the infection of cells by SARS-CoV-2 (the virus that causes COVID-19).

Early results from a study of 1,063 patients showed that patients receiving remdesivir recovered faster than those receiving a placebo (11 days vs. 15 days, respectively). Patients that needed oxygen saw the most benefit. While these early findings support the use of remdesivir for hospitalized patients with COVID-19, the researchers concluded that treatment with remdesivir alone is likely not enough. This is because those who got the medication still experienced a high death rate. This suggests that remdesivir has limited use on its own.

Nonetheless, based on the study above, Gilead’s announcement of early results from a Phase 3 trial in patients with severe symptoms and a small study in patients who received remdesivir through “compassionate use,” the FDA issued an emergency use authorization (EUA) for remdesivir on May 1, 2020 – for use for hospitalized patients with severe symptoms that require mechanical ventilation or extra oxygen.

In late August, the FDA updated the EUA so that remdesivir could be used for all patients hospitalized with COVID-19, not just those with severe symptoms.

Remdesivir is also being studied in combination with other medications. Early results reported that hospitalized COVID-19 patients who got both remdesivir and baricitinib (Olumiant) recovered about 1 day faster than those who only got remdesivir.

A randomized double-blinded Chinese study of 236 COVID-19 patients did not find remdesivir clinically effective. When looking at all patients in the study (regardless of when they received remdesivir), there was no difference in time to improvement compared to placebo recipients.

The jury is still somewhat out on the efficacy of remdesivir. While it has been shown to be effective to a degree with patients with severe Coronavirus, the series of mixed results cast doubt on its utility – at least as a singular treatment.

Dexamethasone

Dexamethasone is a common corticosteroid (steroid) medication in long use to treat various health conditions, such as autoimmune conditions and allergic reactions. A randomized clinical trial in the UK is checking dexamethasone among other treatments to see if any are effective against COVID-19.

Researchers found that there was a lower death rate at day 28 in the 2,104 hospitalized patients with COVID-19 who got a low, daily dose of dexamethasone (either by mouth or IV injection) compared to the 4,321 patients who did not get it (23% versus 26%, respectively). The medication seemed to be most helpful for patients who were on a ventilator or needed extra oxygen. There was no benefit for those with less severe symptoms.

Based on a meta-analysis of seven different trials, death rates were lower in hospitalized patients who took one of three different corticosteroids – dexamethasone, hydrocortisone, or methylprednisolone – compared to those who took none (32% vs. 40%).

This suggests the general value of dexamethasone, but as with remdesivir the clinical results remain less than clear-cut.

Convalescent Plasma

Plasma is the liquid part of blood that carries blood cells. Convalescent plasma is collected from people that have recovered from COVID-19. It may be transfused into someone with active Coronavirus infection in the belief that the COVID-19 antibodies present within it may help another patient fight the Coronavirus infection.

On August 23, 2020, the FDA issued an emergency use authorization (EUA) for convalescent plasma for hospitalized patients with COVID-19. This decision was based on early data from a Mayo Clinic study of over 35,000 hospitalized patients with COVID-19 who were given the treatment. The paper has not been peer-reviewed yet. At day seven, the death rate was lower for the group who got convalescent plasma within three days of diagnosis compared to the group who got it after four or more days. Death rates were also lower in patients that received convalescent plasma with higher antibody levels.

Additional research so far on convalescent plasma has also been inconclusive.

“Cocktail” Treatments

Researchers and clinicians are discovering that drug ‘cocktails’ are proving the most effective forms of Coronavirus treatment so far. An example is Regeneron’s (NASDAQ:REGN) mixture of drugs.

The CNN piece describes how Regeneron in late September released some early results of tests using its antibody cocktail in Coronavirus patients Tuesday that appeared to reduce virus levels and improve symptoms in patients.

The greatest improvements were in patients who hadn’t already mounted a natural response to the infection, the company said. The results only involve 275 patients of the 1,000 they have enrolled in this particular trial, but appear “very promising,” Dr. Jeanne Marrazzo, the director of the division of infectious diseases at the University of Alabama at Birmingham, told CNN.

The treatment also showed positive trends at reducing medical visits for the patients, none of whom were sick enough to be hospitalized at the start of the trial, the company said.

Marrazzo said what stood out to her is that the study characterized patients by their immune responses prior to treatment and determined who did and did not benefit.

“What I think is fascinating is that it shows that antibodies really matter and the antibody to the spike protein was really helpful, particularly when people made the antibodies themselves,” said Marrazzo. “Whether it’s antibody therapy or vaccine that target these proteins, it sounds like we are on the right track. I think that’s really encouraging.”

Regeneron is not the only company working on such a cocktail. Eli Lilly (NYSE:LLY) is another. It apparently is both logical and practical to mix drugs – each with its own therapeutic purpose – in those infected with the virus.

Vaccines

Is there a Coronavirus vaccine? There is currently no vaccine to prevent infection with the new Coronavirus. Vaccine development takes time. Several organizations, including Johns Hopkins, are working on a vaccine. Still, it could be many months of testing and refining before a COVID-19 vaccine is deemed safe, effective and ready to be administered to the general public.

How do vaccines work? They inoculate people that are not yet infected with a disease or illness. This means that, upon contact or point of infection, the body is ‘instructed’ to repel the virus. Modern science has proven that it knows how to develop vaccines whose effects may last in the human body for many years.

Note: Since COVID-19 vaccine development is now virtually a mass effort and no vaccine has yet to be fully developed and to have passed government approval standards – much less been mass-produced – I invite readers to refer to the existing reports on universities and companies engaged in vaccine research and development.

Summary: The Biotech Investing Challenge

A flurry of interest in the wonders of biotech R&D is a natural byproduct of this harsh pandemic. But I believe that the COVID-19 crisis in fact highlights the speculative nature of such investing. There is nothing that suggests that this pandemic or the mass efforts at finding treatments and vaccines against its effects changes that reality.

As with other sectors, the risks of investing in start-ups or companies that do not have diverse product lines are high. While the rewards may be great, breakthrough biotech research and product development does not necessarily correlate with above-average stock performance.

A start-up may fly high. It may also fall hard, given the lack of revenue and profits or the failure of a stage of drug approval. I think it is a wiser choice to invest in a larger company such as JNJ or Eli Lilly. These are companies with diverse product lines and long records of success.

My sole start-up biotech investment at this point is Arrowhead (NASDAQ:ARWR), a company that focuses on RNA platform architecture and implementation to pursue treatments for a multiplicity of diseases from the liver to cardiovascular. I invest in companies whose purpose, technologies and structure that I understand. The same principle applies to Coronavirus-facing biotechs, whether large or small (especially the start-ups).

If you truly believe that a company like Regeneron or Moderna will be one of the major players in a Coronavirus ‘cure’ (solution), consider an investment in it. However, it is probably a mistake to bet the portfolio on such a company – no matter how innovative, bold and bright.

As ever, balancing risk against reward and constructing a portfolio that fits your overall needs is an overriding investing principle. Risk should be taken in proportion to your ability to absorb large losses in a particular investment. Bright stars may rise into the sky and fall swiftly to earth.

Disclosure: I am/we are long ARWR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.