Stocks of biotechnology tied to the development of the coronavirus vaccine have skyrocketed lately, but buying stocks just because they’ve been going up is a good way to quickly lose a lot of hard-earned money. While these three biotech stocks could fly much higher if the SARS-CoV-2 vaccines they are developing are tested quickly, this is a big step that we cannot reasonably expect any of these companies to take.
Here’s why investors want to see their stories from a safe distance.
| Company (symbol) | Year of incorporation | Accumulated deficit | 12-month net loss | Market Top |
|---|---|---|---|---|
| Inovio Pharmaceuticals (NASDAQ: INO) | 2001 | $ 772 million | $ 123 million | $ 4.1 billion |
| Modern (NASDAQ: MRNA) | 2016 | $ 1.62 billion | $ 506 million | $ 22.3 billion |
Data source: Company SEC filings and Yahoo! Finance.
1. Inovio: not a closer
This year, Inovio’s shares have shot up around 760% because investors are highly encouraged by the company’s rapid pandemic response COVID-19. Within hours of receiving access to the genetic sequence of the new coronavirus, Inovio had a DNA vaccine candidate, INO-4800, ready for preclinical testing. In April, Inovio quickly moved INO-4800 to a clinical trial and injected the vaccine candidate into the arms of 40 healthy volunteers.
Image source: Getty Images.
Inovio’s ability to produce clinical-stage DNA vaccine candidates in response to outbreaks of infectious disease is remarkable, but investors should know that this company never produced any evidence that its DNA vaccine technology actually works. Inovio has been developing DNA drugs since 2001, but the company has nothing to show except cumulative losses worth $ 772 million and a lot of junk for new drug candidates who lose their fizz in intermediate-stage clinical trials.
Waiting for a vaccine candidate Inovio teamed up in a few hours to go far after the same company couldn’t get anywhere with previous candidates focusing on Zika, Ebola, HIV, MERS and more has no no sense. That hasn’t stopped the stock market from bringing Inovio’s market capitalization to $ 4.1 billion at recent prices. While there is an external possibility that Inovio has finally gotten it right with INO-4800, uninspiring mid-stage data leading to large losses is a more likely scenario.
2. Modern: untested concept
Compared to Inovio, this company has just started in the vaccine development business, but it is already a champion in raising capital without showing investors anything to get excited about. Injecting people with messenger RNA (mRNA) strands containing instructions for the production of therapeutic proteins is an old idea that Moderna and a growing number of mRNA-focused pairs have pursued at great cost without any notable success to date.
Moderna began injecting patients with its SARS-CoV-2 vaccine candidate, mRNA-1273, in a phase 2 clinical trial in May. This is not the first Moderna mRNA candidate to start a phase 2 trial, but it may be the first phase 2 study for which we see data.
In February 2018, the collaborating partner of Moderna, AstraZeneca (NYSE: AZN) A phase 2 study of 33 patients with AZD8601 began. This is a candidate discovered by Moderna that is injected into the hearts of patients with heart failure to improve the grafting process associated with coronary bypass surgery.
Image source: Getty Images.
The test protocol requires efficacy measurements for up to six months after treatment, but none have yet been reported by AstraZeneca. Beginning biotech investors should know that later-than-expected reported test results are almost never impressive if reported.
Last July, Moderna began its second study with mRNA-4157 in combination with Keytruda, a drug on the way to generate around $ 16 billion in revenue for Merck (NYSE: MRK) this year. It will be years before the Phase 2 trial can produce long-term survival data to see if patients treated with mRNA-4157 plus Keytruda perform better than those treated with Keytruda and a placebo. What we know now is that Moderna sponsored the trial, and not her pocket contributor.
It is not a smart bet.
Despite already burning $ 2.4 billion combined, none of these companies have reported successful results from a late-stage trial with a new drug candidate yet. The haunting lack of progress thus far doesn’t necessarily mean your untested technology will go untested forever, but it makes buying your shares at these inflated valuations a risk no one should be willing to take.
