Coronavirus cures part two: Can the outsiders race through?

While Big Pharma seem disinterested in a cure, these small-caps want to make a name for themselves. 

Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.

Large pharmaceutical companies are generally turning up their noses at the possibility of finding a cure for the coronavirus sweeping China. Investors can consider whether it is worth taking a punt on smaller rivals that could earn money as well as gratitude by finding an antidote.

Edmond Jackson yesterday quite rightly suggested that Gilead Sciences (NASDAQ:GILD) is best placed to win the race to produce a cure. The American biotechnology company specialises in antiviral drugs used in the treatment of HIV, hepatitis B, hepatitis C, and influenza.

It is possibly – though by no means certain – that its experimental antiviral drug remdesivir could prove an effective treatment for the new coronavirus.

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There are other, smaller American companies in the race though. Should investors consider them as alternatives?

It’s important not to be swept up by headlines. Instead, investors need to concentrate on hard facts, even if that sounds heartless when millions of people are caught up in the epidemic and deaths have been reported.

The number of confirmed cases in China has reached 17,000, although the number of actual cases is probably much higher and researchers believe the total is doubling every five or six days. The disease has spread to 20 countries across the globe, from Hong Kong, South Korea and Singapore to the United States and Europe. The death toll has topped 300.

Realists point out that annual flu outbreaks afflict more people and cause more deaths. They argue that the coronavirus deaths so far have been of people who are naturally more prone to succumb to infectious illnesses, such as the old and those with chronic lung diseases. The last coronavirus epidemic, Severe Acute Respiratory Syndrome (SARS) in 2002-03, was a much bigger outbreak with significantly higher death rates.

However, there is no doubting the potential benefits of finding a successful vaccine. Just as people at risk are dosed with a different flu vaccine each year, the successful pharmaceutical company that wins the race for a coronavirus vaccine will be in constant demand as new mutations emerge. The global market for all types of vaccines is about $30 billion annually. 

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Of the four pharmaceutical giants that dominate vaccines – Pfizer (NYSE:PFE), Merck (NYSE:MRK), GlaxoSmithKline (LSE:GSK), and Sanofi (EURONEXT:SAN) – only Glaxo has shown an interest in pursuing this particular holy grail, and many commentators feel even Glaxo is not really fully committed.

That is a two-edged sword. It indicates that the big players do not think the possible rewards are worth the cost of chasing what could be an expensive pipe dream. They may also feel that the current epidemic will have run its course by the time that any vaccine can be fully tested and put into production.

On the other hand, it does open the way for a smaller, niche player to make a lucrative name for themselves.

One such is Inovio Pharmaceuticals (NASDAQ:INO), a synthetic vaccine developer, which has a collaboration agreement with Chinese company Beijing Advaccine Biotechnology.

Inovio has been awarded a $9 million grant to work on an experimental coronavirus vaccine. The collaboration could open up Chinese markets for Inovio’s other vaccines even if early stage trials on the new drug come to nothing.

Source: interactive investor  Past performance is not a guide to future performance

Novavax (NASDAQ:NVAX) and Moderna (NASDAQ:MRNA) are also trying to develop a vaccine for the coronavirus strain, although they are both seen as trying to jump opportunistically on the bandwagon and their hopes of success in this specific field are thought to be slim.

Source: interactive investor  Past performance is not a guide to future performance

Moderna announced in January that it was working with the National Institutes of Health, a research centre in the US, to develop a vaccine, claiming its engineering platform could be uniquely suited for rapid response applications such as this, although it has never tested those capabilities or processes previously. 

Source: interactive investor  Past performance is not a guide to future performance

Shares in small pharmas seen as potential producers of a coronavirus vaccine have performed erratically since the outbreak began. Inovio shot from $3.50 in early January to a peak of $5.30 before falling back just as rapidly to around $3.60; Moderna was $16 in November, peaked at $22.70 in January and has since lost half the gain; Novavax shot from $4 to $9.80 in the space of a week but is now back to $6.70.

Hobson’s choice: Of these three, Inovio looks the best bet for longer term investors, but even this stock is only for those with an appetite for risk. Don’t pay more than $4. Moderna and Novavax probably have further to slip back, so, if you’re tempted, it is probably best to wait for a better opportunity.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.