Atea Pharmaceuticals Inc. (AVIR, Financial) is a Boston-based clinical stage biotech company which became public in November of 2020 and quickly raised over $300 million cash.
Atea is working on developing anti-infective drugs for virus-borne diseases such as Covid-19 and several others. After its IPO last November, it was worth over $2.4 billion on investor enthusiasm for the stocks of companies focusing on Covid-19. November 2020 was also around the time when Pfizer (PFE, Financial) and Moderna (MRNA, Financial) first announced the outstanding results of their RNA-based vaccines. Investors got really excited by the prospect of Covid-19 oral pills, which could turn the deadly disease to a manageable malady. Atea subsequently rocketed to a value of over $7 billion by February 2021.
Unfortunately for investors, the stock didn't remain beloved by the market forever.
Atea's drug candidate
The company's lead drug, code named AT-527, is a purine nucleotide prodrug, which works by blocking a key enzyme, RNA polymerase, that plays an essential role in Covid-19 viral replication. The company even garnered a $350 million payment from Roche Holding AG (RHHBF, Financial) for the rights to market the drug outside the US.
AT-527 was quickly put into clinical trials, but recent results in a Phase 2 trial showed disappointing results. The primary endpoint of viral load reduction was not achieved in the overall clinical trial population, even though a trend towards reduction was seen in high-risk patients.
Meanwhile, outstanding results were obtained by competing therapies, including a collaboration between Merck (MRK, Financial) and Ridgeback and a Pfizer candidate. The promising results of competitors for their oral anti-viral pills took the wind out of Atea's sails, causing share prices to plummet.
Atea’s Phase 2 results also resulted in Roche pulling out of the partnership. The Phase 3 trial is now ongoing with AT-527, which will likely include only high-risk patients, and results are expected in 2022. However, the market thinks the major opportunity for Covid-19 is gone for Atea, since it has fallen behind.
Gurus trades
Several gurus who previously placed a bet on Atea on its Covid-19 prospects recently have seen losses as the stock is down by as much as 72% from where some of them bought in. The below chart shows which gurus were buying the stock in the third quarter of 2021, which ended on Sept. 30. Though the stock rose slowly throughout the third quarter, it dropped like a stone in October. The company’s market cap has shrunk to ~$628 million, less than a tenth of its heyday in February.
| Guru | Date | Action | Impact % | Price Range | Price Change from Avrg% | Comment | Current Shares |
| Joel Greenblatt (Trades, Portfolio) | 2021-09-30 | Add | +0.03% | 21.33 -(USD27.69) -35.06 | -72.25% | Add 97.16% | 44,095 |
| Jim Simons (Trades, Portfolio) | 2021-09-30 | New Buy | 0% | 21.33 -(USD27.69) -35.06 | -72.25% | New holding | 22,600 |
| Louis Moore Bacon (Trades, Portfolio) | 2021-09-30 | New Buy | +0.05% | 21.33 -(USD27.69) -35.06 | -72.25% | New holding | 88,700 |
| Andreas Halvorsen (Trades, Portfolio) | 2021-09-30 | New Buy | +0.16% | 21.33 (USD27.69) 35.06 | -72.25% | New holding | 1,655,087 |
| Steven Cohen (Trades, Portfolio) | 2021-09-30 | New Buy | +0.05% | 21.33 (USD27.69) 35.06 | -72.25% | New holding | 332,200 |
| Joel Greenblatt (Trades, Portfolio) | 2021-06-30 | New Buy | +0.02% | 19.22 (USD30.8) 61.75 | -75.05% | New holding | 22,365 |
So is the story over for Atea?
I don't think things are over for Atea just yet. The biotech industry is full of booms and busts, and new companies often have to research many treatment candidates before finally making a breakthrough. While the Covid-19 program is likely done, the company has managed to raise several hundred million dollars from this program via its IPO and the now-aborted deal with Roche. As of the end of the third quarter, the company is sitting on $839.66 million in cash, which is more than the market cap. It has plenty of firepower for future research.
The company can use this cash to advance several of its other programs, including those for Hepatitis-C, Dengue and Respiratory Syncytial Virus (RSV).
Conclusion
Discontinuities or inflection points in business are accompanied by booms and busts. The railroad boom in the U.S. at the turn of the 20th century led to a massive investment boom and a subsequent bust, but the legacy was a continent-wide railroad system. The same thing occurred with the dot-com boom and bust at the turn of this century, which gave rise to many of internet behemoths like Amazon (AMZN).
The over-investment during each of these historical booms put in place the infrastructure needed to facilitate rapid advances. I think the same thing is happening to the pharmaceutical and biotech industry with Covid-19. The pandemic has minted many billion-dollar companies, and names like BioNTech (BNTX, Financial) and Moderna have become household names.
While Atea has tried and will likely fail to bring a Covid-19 drug to the market, it has taken advantage of the boom to gather a lot of cash which it can deploy into its other programs. Chances are it will succeed in one of them, though of course, this is still a highly speculative investment.
