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Ishan Majumdar
Ishan Majumdar
Articles (133)  | Author's Website |

These Biotech Microcaps Have Gained Strong Momentum

After making progress in drug or vaccine trials for Covid-19, these stocks have seen triple-digit growth

There are two distinct approaches that are being adopted by research-focused biopharma companies to counter the Covid-19 pandemic. Some companies are focused on developing vaccines for preventive purposes, whereas others are more focused on drug development to cure the patients who are suffering from the virus.

While giants like Gilead Sciences (NASDAQ:GILD) and Sanofi (NASDAQ:SNY) are making progress in the development of a drug and vaccine, respectively, a number of small research-focused players have emerged whose candidates are demonstrating promising results in the early phases of testing, causing their stock prices to increase dramatically.

Sorrento Therapeutics

Sorrento Therapeutics (NASDAQ:SRNE) is a name that has gained prominence after the management reported that it has discovered an antibody, termed STI-1499, which it claims can provide 100% inhibition of Covid-19 and flush out the SARS-CoV-2 virus from the body within four days. The company was engaged in a long screening process of analyzing numerous antibodies in its G-MAB fully human antibody library. Its research team was able to shortlist about 12 antibodies which had the ability to block the Covid-19 in an in-vitro SARS-CoV-2 virus infection model. In its preclinical studies, the management claims to have found that the STI-1499 could fully inhibit the infection of healthy cells at a significantly low dose and could potentially become a strong antibody drug candidate.

The company’s CEO, Henry Ji, has said that the company is partnering with New-York-based Mount Sinai to develop an antibody cocktail called the Covi-Shield, which consists of a mix of STI-1499 and two other antibodies for prophylactic use. Despite the fact that the company is still far away from the process of clinical trials for its STI-1499, the news increased the share volumes significantly and made the stock price zoom up, readying the management for a new issue to raise cash for advancing its research.

Inovio Pharmaceuticals

The market has been aggressively following the progress of Inovio’s (NASDAQ:INO) Covid-19 vaccine entry INO-4800. The investor community has been optimistic about the INO-4800’s chances, which is why the company’s stock has gathered a lot of trading volume and has zoomed upwards, despite a strictly mediocre quarterly result.

Inovio is currently running a Phase 1 clinical trial for INO-4800 using 40 adult volunteer participants. If the company gets approval from the Food & Drugs Authority (FDA), it will proceed to the next phase of testing the effectiveness of the vaccine, which could be a long process. However, the stakes are high and the addressable market is huge, with almost the entire world wanting a preventive vaccine for the virus.

NanoViricides, Inc.

This Connecticut-based research player recently announced the results of the testing of its Covid-19 drug candidates on animals. The company tested multiple drug candidates and their effects on infected rats while simultaneously testing the effects of antiviral drug remdesivir. NanoViricides’ (AMEX:NNVC) researchers used the hCoV-NL63 infection as a surrogate, which is a circulating human coronavirus that causes a disease that is a milder than Covid-19. The common point between both coronaviruses is that they use the ACE2 cell receptor to gain entry into the cell.

The rats used in the process of testing were infected directly into lungs with lethal amounts of hCoV-NL63 virus particles and then were treated separately with five different nanoviricides drug candidates. Interestingly, all of the drug candidates tested by the company showed a significantly better result on the rats as compared to remdesivir and other tested vehicles. The stronger drug effectiveness of its candidates versus remdesivir comes as highly positive news for the management, which had drawn similar conclusions from its cell culture studies.

In terms of the next steps, the company still has to finalize a clinical candidate and move to safety and toxicology studies to ensure that it is generally safe for human consumption before filing the Investigational New Drug (IND) application in order to advance to Phase 1 human trials.

As we can see in the above chart, all three companies have had immense growth in their stock prices as a result of the good news, with Inovio leading. 

Final thoughts

Some of the other key names with a higher market capitalization that have gained solid momentum in Covid-19 treatment trials are Moderna (NASDAQ:MRNA) and Novavax (NASDAQ:NVAX).

Moderna’s Covid-19 vaccine candidate, mRNA-1273, has successfully completed Phase 1 trials and was given the go-ahead by the FDA to begin the Phase 2 trial, which will be conducted on 600 healthy individuals. The company is developing its vaccine candidate in collaboration with the National Institute of Allergy and Infectious Diseases (NIAID). Its stock price has zoomed up, and Moderna is readying itself for a $1.34 billion fundraising through an equity issue.

On the other hand, Novavax commenced the Phase 1 portion of the Phase 1/2 study of its vaccine candidate, NVX-CoV2373, in May 2020 and is expecting the preliminary safety and immunogenicity data in July. The company received $388 million of funding from the Coalition of Epidemic Preparedness Innovations (CEPI) for preclinical studies and clinical trials of the vaccine. CEPI expects to support the clinical development of NVX-CoV2373 through licensure with manufacturing.

All these companies have become excellent momentum plays, though it is hard to determine the upside in the long-term, as this is largely dependent on the success of their drug and vaccine candidates. Their stocks have very high betas and are volatile in nature, which implies that they are not for investors with a low risk appetite. 

Disclosure: No positions.

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About the author:

Ishan Majumdar
I am a qualified Chartered Accountant with a Masters in Management (Grande Ecole) from HEC Paris. I run a proprietary boutique financial advisory firm called Baptista Research (www.baptistaresearch.com) specializing in M&A, corporate advisory, equity research and valuation of listed companies.

I have nearly a decade of experience spread across investment banks, financial advisory firms, investment funds and other corporates in many different geographies, such as France, Spain, India and others. I was a part of the LBO Financing team at BNP Paribas where I worked on deals with a combined enterprise value of over $1 billion. I have also worked in mergers and acquisitions with Credit Agricole CIB and corporate strategy with Groupe Danone SA. Over the years, I have developed a strong specialization in corporate valuations, strategy and financial analysis.

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