Profit From The Cure For The Flu

David Sterman's picture

Thursday, January 29, 2015 - 12:00pm

by David Sterman

When Jonas Salk introduced a vaccine for the polio virus in 1957, scientists widely assumed that cures would soon be found for many other common but lethal ailments. Yet, nearly six decades later, we’re still talking about the dreadful impact of Ebola, influenza and many other viruses.

It would seem as if medical researchers remain in the dark in their search for cures, but behind the scenes, substantial progress is being made.

We may just be a few years away from a major breakthrough that will lead to end of lethal viruses. A wide range of companies are focusing on the problem, and for investors, that spells opportunity.

In April 2014, I looked at the small- and micro-cap companies focusing on vaccines for viruses.  Since then, shares of Novavax, Inc. (Nasdaq: NVAX) surged 70%, while NanoViricides, Inc. (Nasdaq: NNVC) has largely treaded water and Inovio Pharmaceuticals, Inc. (NYSE: INO) slumped roughly 30%.

Why is Novavax garnering greater investor affection? These small biotech firms live and die by the results of clinical trials and FDA approval. The company's RSV vaccine, which treats viruses in infants, earned a fast-track approval designation from the FDA. This is a clear message from regulators that solid safety and efficacy data thus far warrants special treatment to address a largely unmet need. And this is an even clearer message that NVAX is where investors should be watching closely.

Novavax has also been seen as one of the potential winners in the race to discover a vaccine for Ebola. That’s a double-edged sword. New cases of Ebola are becoming less frequent, and investors may look to take profits if the virus truly comes under control. Then again, any company that can successfully prevent Ebola will also be seen as capable of targeting other tough-to-combat viruses.

The most threatening virus of all (in terms of lives lost and hospital admissions) remains influenza. And this year the influenza strain is particularly powerful, according to the Centers of Disease Control (CDC).

Though flu vaccines have been available for quite some time, they are only moderately effective (60% in a good year and around 25% in a bad year such as the current one). Part of the challenge stems from the fact that there are more than 300 strains of the flu every year worldwide. More importantly, any treatments that are deployed represent only temporary resistance. The Holy Grail remains a permanent, long-lasting vaccine.   

On that front, Novavax is also generating a lot of buzz, as its vaccine has proved quite effective in tackling an influenza outbreak in China in 2014. You can learn more about Novavax’s biotechnical approach by clicking here.

Still, it’s wise to track the progress of Inovio and NanoViricides as well. The key knock against such companies is that they are not as far along in their clinical testing processes. NanoViricides, for example, recently reported solid testing data for a flu vaccine being tested on rats. Then again, there’s a long pathway from early-stage animal testing to FDA approval for human use.

And an extended pathway to approval can raise balance sheet concerns. Inovio has roughly $100 million in cash, which represents a burn rate of roughly 25-to-30 months, while Novavax, with a heftier $20 million quarterly burn rate, has roughly eight quarters worth of cash on hand. NanoViricides, with $40 million in cash on hand, has a similar multi-year level of cash on hand. (Track these figures again as the companies deliver Q4 results. A good rule of thumb: It’s never wise to invest in any biotechs with less than a year’s worth of cash on hand.)

Other publicly-traded companies that are currently testing vaccines against viruses include:

Sarepta Therapeutics, Inc. (Nasdaq: SRPT), which is in phase I trials with a flu vaccine.

Tekmira Pharmaceuticals Corp. (Nasdaq: TKMR), which has been seen as a leading candidate to develop a vaccine against the Ebola virus.

Absent a cure for the flu, other companies are working to catch the bug before it can fully gestate. Alere, Inc. (NYSE: ALR), for example, now offers a device that doctors and nurses can use outside of hospitals, which can detect the presence of flu in as little as 15 minutes.

Privately-held Protein Sciences Corp. recently received FDA approval for its Flublok vaccine, which eliminates the need to grow viruses in order to develop flu shots, the currently popular approach. It may only be a matter of time before Protein Sciences pursues an initial public offering.

Risks To Consider: Not only do most of these companies face significant testing hurdles, but success for one may mean failure for the others. After all, the first successful virus vaccine would have a significant head start, and the FDA might be hard-pressed to approve any subsequent drugs, unless they can show even greater efficacy or safety.

Action To Take --> Of all of the companies pursuing a virus vaccine, Novavax appears to offer the best combination of efficacy, safety, late-stage development and 2015 catalysts. Shares have been rising in recent months, and the company’s $1.8 billion market value is now quite considerable. It’s hard to peg a potential value for this company if all goes according to plan, but it would likely be worth significantly more than the current valuation reflects. Still, taking small investment positions in the early-stage virus fighters as well might make for a well-rounded portfolio approach to this biotech theme.

My colleague Andy Obermueller predicted the outbreak of Ebola a few years ago and recommended a handful of companies that have gone on to make investors double digit gains. More recently, Andy has been talking about the profit potential for Apple's newest technology Apple Pay -- and more importantly the company's key suppliers. If you haven't heard about this opportunity yet, then I urge you to check out his comprehensive report on how to profit from this technology, by clicking here.

 

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.