On Friday, Swiss pharmaceutical company Roche RHHBY announced it received emergency approval from the U.S. Food and Drug Administration for the use of its new diagnostic test for Covid-19, the disease caused by the novel coronavirus that was first identified in China near the end of 2019.
More specifically, the test kit can be used to detect cells of the virus itself, which is classified as SARS-CoV-2, when samples are run through Roche’s fully automated cobas 6800 and 8800 systems, which are already in frequent use throughout the world.
Following the announcement, Roche’s shares jumped 13% to trade around $40.30.
According to Roche, results from the test come back in three and a half hours at current demand levels. Its systems can process 4,128 tests per day on the cobas 6800 system and 1,440 tests per day on the cobas 8800 system. Worldwide, there are 695 cobas 6800 systems and 132 cobas 8800 systems. With approval, the company says it can push its systems to run millions of tests per month.
Emergency approval for a better testing kit has extremely high positive potential for the U.S., which has been hampered in its efforts to contain the new coronavirus by the fact that the health care system was neither prepared for nor equipped to deal with an epidemic. Earlier testing kits were in short supply and had a high rate of incorrect results.
“The idea of anybody getting it [testing] easily the way people in other countries are doing it, we’re not set up for that,” Dr. Anthony Fauci, director of the National Institutes of Allergy and Infectious Disease, said in a congressional briefing.
Compared to the potential problems with speeding up approval of drugs and other treatments, there is not as much risk involved with pushing new tests through the system. At worst, an unexpected turn of events like problems with accuracy might interfere with treatment procedures, but the FDA is counting on the importance of actually having a test that can be mass-produced to outweigh this potential downside.
With a three-year revenue growth rate of 6.6% and a three-year Ebitda growth rate of 6.5%, Roche is a stalwart in the pharmaceutical industry. The boost in business from the use of its tests in the Covid-19 pandemic may help the company in the long term by increasing the public’s confidence in its testing systems.
On the other hand, the emergency use of a drug has more potential as a disruptor, both in the physical world and the financial world. If an experimental drug gets pushed through ahead of clinical trials, it could either result in startling success or crippling failure (or anything in between).
As of the writing of this article, there is no known drug that can help cure Covid-19. One of the leading experimental drugs being developed to fight the virus is remdesevir, an antiviral from Gilead Sciences GILD.
Originally developed to fight Ebola, remdesivir was later shelved due to being less effective than other options. The drug works by crippling RNA polymerase, an enzyme that many viruses use to copy themselves. It does not specifically target the new coronavirus, but it showed success in test tube trials against its cousins SARS and MERS.
The question with remdesivir is whether it will be effective enough to treat Covid-19. The faster a virus multiplies within the body, the less likely antiviral drugs will be effective, which is why it is often pointless to administer such drugs in the later stages of a virus (as is the case with antiviral drugs used to treat the flu). There are also potential side effects to consider, which have not yet been measured through the results of clinical trials on humans.
However, the drug is already in use on hospitalized patients in Washington state, the epicenter of the first widespread outbreak of the virus in the U.S. The first case of person-to-person spread in California was also treated with remdesivir. According to an interview with the team that treated this patient, the woman was started on remdesivir “about 36 hours” after diagnosis, “which is very short for emergency approval of an investigational drug.”
At this point, there is not enough information to determine whether the treatment is effective, or if there are any common side effects that can be clearly separated from the effects of the virus itself. In this one case, the patient did recover, though the medical team was not able to directly measure the fight between drug and disease due to lack of preparation.
On investor optimism for the drug’s potential, Gilead’s shares spiked 18.71% in two weeks after the market began to panic over the new coronavirus on Feb. 19. Since then, prices have dropped again as the experimental drug has received less news coverage.
As a potential driver for share prices, an experimental drug is far more volatile than a test kit. The potential for failure is higher, as people are more likely to use an unproven treatment than an unproven test. Thus, even as U.S. coronavirus patients become the first human trials for remdesivir, investors may want to avoid getting their hopes up too high, as emergency approval may not translate to a solution in this case.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research or consult registered investment advisors before taking action in the stock market.
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