The Covid-19 pandemic will not end with a silver-bullet vaccine. We already know this, so wise traders are instead looking to the companies that do have a shot at helping the world live with the novel coronavirus.
As relatively low-risk picks-and-shovels plays, the companies we’ll consider in this series make a lot of sense.
We are entering the decade of biopharma plays, after all. Some retail investors are swerving traditional favourites like oil companies in their AIM investing portfolios and this is perhaps unsurprising, with crashing oil prices due to global lockdowns, supermajors like BP hitting a 25-year share price low — and Shell taking a daily beating for its contribution to climate crises.
So, what’s the wider picture for Covid-19 stocks?
First, despite an unprecedented global race to find a vaccine, there have already been serious hiccups along the way.
Astrazeneca was forced to pause its vaccine trial in September this year after two patients fell seriously ill with a reported spinal cord inflammation. Then, in October, both Johnson and Johnson and Eli Lilly suffered the same fate: stopping their vaccine and antibody trials after both pharma giants reported unexplained illnesses among participants.
The US government has already spent over $10 billion on Operation Warp Speed to attempt the impossible and produce a public-ready vaccine for a new virus within 18 months of discovery.
But it is important to remember that in the history of medicine a vaccine has rarely been developed in less than five years. The current world record is for mumps in the 1960s. The first virus model was isolated in 1963, human trials took place over the next two years and US giant Merck licensed the vaccine in 1967.
Even more remarkable is the fact that the infrastructure for vaccine development has been so underfunded.
Cathal Friel, executive chairman of AIM-listed pharma services firm Open Orphan (LSE:ORPH), puts it like this: “Governments and pharma companies have spent heavily on oncology in the past 20 years. They’ve spent heavily on diabetes in the past ten years, and there has been minimal spending on vaccines in that whole time.”
Vaccine and antiviral spending will go ballistic over the next ten years as public health officials grapple with the fallout of the largest global crisis for a century. And the picks and shovels plays here, investors believe, are the likes of Open Orphan, 4D Pharma (LSE:DDDD), Scancell (LSE:SCLP) and Tiziana Life Sciences (LSE: TILS).
Here, we begin with Open Orphan. For its part, the firm recently won a £40 million contract to conduct controversial human challenge studies with the British government. This was the biggest official show of support for Open Orphan since its reverse takeover of AIM-listed Venn Life Sciences in June 2019, and its £13m merger with hVIVO in January 2020. The group has grown its market cap from £36m at the start of the year to £177m in October 2020.
And the company shows no sign of stopping. Friel noted in a recent investor presentation that the addition of the Royal Free Hospital doubles its patient capacity. In doing so, the move also doubles the company’s revenue potential from £40 million a year to a figure more in the range of £80 million a year.
Beyond the three vaccines Open Orphan is testing with the British government, as many as eight global vaccine companies want to work with Open Orphan on human challenge studies. And to maximise on the opportunity, Friel is now looking at securing other negative air pressure units that are lying dormant.
Other surprises in the pipeline are the potential sale of non-core assets like flu vaccine candidate maker Imutex, of which Open Orphan owns 49%, and the potential bombshell of providing data to the likes of Apple or Amazon for the growing health wearables market. While a second opportunity exists to monetise its subsidiary hVIVO’s unique infectious disease progression data built up over two decades.
Human challenge trials will not stop when the first generation of Covid vaccines are released. Note this point, specifically. First generation. There will be multiple generations of vaccines tested, trialled and released to treat SARS-COV-2 between now and 2025.
In fact, that’s when Open Orphan will really come into its own. That its 24-bed East London quarantine unit is already booked out until December 2021 is just the beginning.
The first wave of vaccine candidates — as we have for the most common Type-A flu today — could only work for one-year, rather than offering lifetime immunity.
Researchers have warned the public against expecting too much from this first wave of vaccines, too. According to a September study published in The Lancet, the pre-eminent medical journal, clinical analysts suggest that; “We cannot assume Covid-19 vaccines, even if shown to be effective in reducing severity of disease, will reduce virus transmission.”
“The notion that Covid-19 vaccine-induced population immunity will allow a return to pre-Covid-19 ‘normalcy’ might be based on illusory assumptions.”
In other words, the world is never going to be the same again. As the landscape continues to move towards this inevitable conclusion, Open Orphan possesses the portfolio of opportunities, deals, and capabilities to step up to the challenge like few other stocks out there. The potential for its valuation could be tantalising.
