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Biotech companies’ success relies heavily on passing an arduous approval process and clinical trials, gaining patents and then actually selling the product once it gets to market.
Nonetheless, we also recognised that Australia has become a breeding ground for biotech innovation and there are a growing number of ASX-listed companies that investors are taking notice of.
In the last three weeks, the landscape for investing has changed significantly and while many companies have gone into survival mode, there are some undertaking or assisting with vital research in developing a vaccine for COVID-19.
For relevance sake, this article will look into a bunch of potential and listed ASX biotech companies varying in size, that are contributing in some form, to the battle against COVID-19.
As we look at how investors have reacted to their involvement, it becomes apparent why investing in biotech right now is even more unpredictable and risky than usual.
The epitome of a fairytale biotech investment has been CSL who have climbed to the pinnacle of the Australia stock market.
While most are familiar with the company’s climb to ascendency, many, including myself, are intrigued to know what its contribution to developing a vaccine for COVID-19 has been and will be going forward, given its resources and global standing.
It’s important to firstly note that CSL is a company focused on influenza vaccines and while there are some similarities between influenza and COVID-19, including symptoms and the way the body fights them, they are ultimately different viruses.
Despite this, CSL has discovered that possible adjacencies in its expertise, technology and facilities can assist other organisations in the COVID-19 vaccine effort.
Significantly, the blood products giant announced last month that it’s partnering with the University of Queensland’s (UQ) COVID-19 vaccine development program.
Along with providing technical expertise, CSL has donated proprietary adjuvant technology called MF59®, from its vaccine business Seqirus, to UQ’s pre-clinical development program.
The significance of this contribution is that adjuvants are used in vaccines to strengthen an immune response and to also speed up vaccine production. Seqirus’ adjuvant technology has already been used for some time in both seasonal and pandemic influenza vaccines.
UQ is using the adjuvant to test COVID-19’s viral protein which is being developed with the school’s molecular clamp technology.
While CSL won’t benefit financially from its partnership with UQ, its involvement is a huge boost to its already impressive reputation, while also maintaining its relevance as a company focused on saving lives under threat from global illnesses.
Just this week, UQ provided an update of where it’s at with the COVID-19 vaccine and given the involvement of the Australian biotech sector I thought it would be worth taking a look at.
Organisations such as the Melinda and Bill Gates Foundation, CSIRO, Peter Doherty Institute, GE and Patheon are some of the other big names alongside CSL, assisting with the UQ COVID vaccine team.
On January 11, Chinese state media confirmed the first known death from an illness caused by the novel coronavirus, which had already begun to spread.
Meanwhile, in Australia, a small, elite group comprised of doctors, research assistants and PhD students at UQ got to work, developing a vaccine for what is now a global pandemic.
Working well into the evening, seven days a week since January this year, UQ’s COVID vaccine team are planning on doing the impossible; delivering a safe and effective vaccine for the novel coronavirus in 12 months.
“We are living through remarkable times, and remarkable times sometimes require radical ideas,” UQ Head of School of Chemistry and Molecular Biosciences, Professor Paul Young said.
As was discussed in Part 1 of the biotech series, typical timelines for vaccine development are usually measured in years or decades.
They act in a linear fashion with success at regular milestones triggering the next phase, meaning only after pre-clinical studies, can it then move onto clinical work to determine vaccine safety and then onto regulatory approval. It is only then that large pharmaceuticals can start manufacturing at a large scale.
However, as Young explains, UQ is seeking to do what has never been done before.
“Our somewhat radical approach is to dismantle that linear pipeline and bring large scale vaccine manufacture forward to essentially run in parallel with our remaining clinical and pre-clinical studies,” he said.
“Following this, we should be able to have a vaccine ready to deploy as soon as the clinical studies have been completed, with safety and efficacy created.”
With many throwing around the timeline of 18 months as the goal for vaccine development, which in itself, would be a medical first, Young said that the UQ team is aiming for even shorter than that.
“With our approach, we should carve approximately six months off our delivery time and so bring that 18-month timeline to 12 months, so the beginning of 2021. It’s ambitious but we believe it’s an attainable goal,” he said.
As the vaccine team is currently in pre-clinical trials, they are aiming to move to clinical trials in June/July this year, which would involve testing the vaccine on around 100 healthy adult participants.
The vaccine itself was described by a member of the UQ COVID vaccine team, Dr Keith Chappell, as “looking extraordinarily good to this point.”
As it progresses through clinical trials, manufacturing of the vaccine is gearing up so as soon as it is deemed safe, stock will be ready to distribute.
Melbourne-based medical technology company Mesoblast (ASX: MSB) recently joined the list of companies getting in on the COVID-19 battle.
The regenerative medicine company generally seeks to provide treatments for inflammatory ailments, cardiovascular disease and back pain.
Just over two weeks ago Mesoblast sent the ASX into a spin, announcing that it plans to evaluate its stem cell product in patients with acute respiratory distress syndrome (ARDS) caused by COVID-19.
This is set to take place in the US, Australia, China and Europe, with Mesoblast saying they are currently in discussions with governments, regulatory authorities, medical institutions and pharmaceutical companies to implement the required activities.
Mesoblast’s proprietary technology is normally used to treat an illness suffered after receiving a bone marrow transplant called graft versus host disease (GvHD), where the body reacts negatively to the new material it’s exposed to. The technology treats an acute form of GvHD.
Now, Mesoblast’s candidate product, remestemcel-L, is being tested for use in the treatment of ARDS, which the company claims, is the principal cause of death in COVID-19 infection – mortality in COVID-19 infected patients with ARDS is reported to be around 50 per cent.
Following the announcement, Mesoblast, which is dual-listed on the ASX and NASDAQ, had its share price on the ASX rocket nearly 20 per cent on March 10 – the day of the announcement.
Since that peak, the company’s share price has dropped 46 per cent (at time of writing) and on Monday hit a new 52-week low, trading as low as $1.02.
Losses like this have been prevalent throughout the ASX recently and it’s not uncommon for biotech companies like Mesoblast, who make announcements about a product that will help fight COVID-19 or related symptoms, to have a large spike in their share price.
A similar situation occurred with Zoono Group (ASX: ZNO), a company that announced on the 28th of February that its Z-71 Microbe Shield, which is used in its hand sanitiser, is over 99.99% effective against COVID-19.
At the open, the company’s share price bounced nearly 28 per cent to close at $1.90 and over the days following, closed as high as $2.29. Since then however, Zoono Group’s share price has dropped to its current level of $1.32.
It highlights how reactive investor behaviour can be in the biotech sector and how important consistent momentum is as opposed to a quick spike in response to an announcement.
In a time of such economic turbulence, some might think you’d have to be mad to conduct an IPO, however that is exactly what Atomo Diagnostics is doing.
Alan Kohler recently interviewed the company’s CEO, John Kelly, for Eureka Report and it was fascinating for a number of reasons.
Atomo Diagnostics is backed by billionaire developer Lang Walker and former Macquarie bank boss Alan Moss and the company is in the middle of an IPO to raise $30 million at 20 cents a share.
The hype is based on the company’s blood test platform which it originally developed for HIV testing and has been approved in Australia and Europe as a self-test for the disease.
Within the last month, however, it’s suddenly been turned into a potential self-test for COVID-19 and while it hasn’t received approval yet, Kelly believes it should and will be.
Currently, testing for COVID-19 involves a nasal swab to detect viral RNA – fragments of DNA of live virus in a patient. Kelly mentioned in his interview with Kohler however, how testing for the virus can be improved.
“It takes quite a bit of preparation and quite a bit of turnaround time, it also requires some fairly sophisticated lab equipment which limits the amount of testing that can be done and as more people look to test, those waiting times are starting to push out,” he said.
Atomo’s rapid tests on the other hand, measure the presence of antibodies in patients that have been exposed to COVID-19, the biggest advantage is results can be turned around within 10 to 15 minutes as opposed to a number of days.
All that is needed to change from the already approved HIV test would be to replace the HIV strip in the device with a COVID-19 strip, so the device usability, safety and instructions for use are equally applicable to the COVID-19 test.
The product has piqued the interest of four diagnostic companies in China, Europe and the US, which have all signed varying early documentation and according to Kelly, things are moving very quickly.
Currently, the HIV self-test kits which the COVID-19 tests would be based off, are sold directly to the Australian public for $20 a kit and the plan is to replicate this model should they receive approval for the COVID-19 test (price may vary).
Outside of Australia however, Atomo sells to other diagnostic companies or directly to distributors who then sell the finished product to consumers.
While the current volume capacity of the self-test kits is around 3 million units per annum, Kelly says the company is looking to bring that number up to 6 million by August and 10 million by the end of this year.
He estimates that could bring in between $20 to $50 million worth of revenue depending on “the product mix, where the devices were going and what percentage HIV accounted for versus COVID-19 versus other customers.”
The ‘other customers’ applies because currently, Atomo operates across markets outside HIV testing including pregnancy testing and screening for viral vs bacterial infections.
It places Atomo Diagnostic’s in an intriguing position given the opportunities that COVID-19 has opened up for the company, but Kelly ensured on his interview with Kohler that the company wouldn’t take advantage of the situation.
“In theory, if you looked at normal price elasticity that would suggest that we could very substantially increase the price, but I don’t think we want to be seen to be price gouging on something of this level of severity,” he told Eureka Report.
“I think we will be able to generate a good margin; we’re certainly not looking to take advantage of that. We’re an impact focused business and we want to make sure that our business dealings are sustainable and ethical, and I think that’s the right thing to do.”
As we’ve seen, COVID-19 has presented the biotech sector with both opportunities and concerns and this is the case for other popular names in the industry.
Cochlear’s (ASX: COH) rise to prominence last year has come to a grinding halt and a bit under two weeks ago, the company announced it was withdrawing its 2020 financial year earnings guidance due to coronavirus impacts.
In an ASX announcement, it said, coronavirus is expected to have a “substantial” short-term negative impact on Cochlear implant surgeries, particularly in the US and Western Europe.
This comes as a result of health authorities both recommending and enforcing surgery deferrals.
An example of this was seen when the US Surgeon General urged hospitals and healthcare systems to consider suspending elective surgical procedures to reduce the strain on the healthcare system until the rate of COVID-19 infection is under control.
The impact of COVID-19 has led Cochlear to yesterday announcing it will engage in a $850 million capital raising as it seeks to enhance liquidity.
Another biotech major ResMed (ASX: RMD) on the other hand, has somewhat benefited from the COVID-19 pandemic, seeing increased demand for its ventilators from heavily affected regions.
The company’s ventilators can be used to treat critically ill coronavirus patients, however, ResMed said those patients are making up less than 10 per cent of group sales.
On the flip side, the company’s CEO Mick Farrell told the AFR that new patient's diagnoses for sleep apnoea may slow down given hospitals’ focus on the COVID-19 outbreak.
So far, however, ResMed has remained relatively unscathed from COVID-19 in terms of its share price, in comparison to others in the biotech industry.
PolyNovo (ASX: PNV) sent out a letter to shareholders two weeks ago, reassuring them that coronavirus would have little impact on the company.
This was due to the fact it doesn’t source raw materials from China which therefore means it wasn’t anticipating any supply chain disruption.
However, the announcement said the company’s main markets are based in the US, Australia, New Zealand and Western Europe, who, at the time weren’t in as severe a situation as they are now.
As the pandemic has begun to spread in the US and Europe in particular, PolyNovo’s share price has continued to take a hit and since the announcement, it has dropped from $1.90 to now sit at $1.51.
Global biopharmaceutical company Clinuvel (ASX: CUV) has been another biotech stock that has escaped the wrath of COVID-19, to an extent.
The company’s drug, SCENESSE, was approved by the FDA in October last year to increase pain-free light exposure in adult patients with a history of reactions from a rare metabolic disorder.
In early March, the company sent a letter to shareholders insisting that its supply chain and manufacturing of SCENESSE would not be affected by the coronavirus.
Since the announcement on March 2 when the company’s share price sat at $17.10, Clinuvel has actually rallied to its current price of $17.89.
Healthcare company Medical Developments International (ASX: MVP), which sells a range of products in the areas of pain management, asthma and resuscitation and veterinary equipment hasn’t had as good fortune.
The company sent out a letter to shareholders on March 17 saying that the impact of COVID-19 on business appears to be limited.
This was because it has been building stock to anticipate for increased sales and claims key suppliers are still open for business.
Despite claiming business will be unaffected, the company’s share price tells a different story – in the last month its share price has halved from $9.51 down to $4.71. Should they be correct in saying business won’t be severely impacted, the stock could be viewed as undervalued, but as always with biotech, proceed with caution.
The impacts on these larger biotech companies, both positive and negative, highlights how COVID-19 is affecting all areas of the industry.
Hospitals and medical professionals focusing on the virus is taking the attention away from other prospective treatment and cures for illnesses, and it seems this is the main point of impact on the biotech industry.
However, as we’ve seen it also presents opportunities for biotech companies to assist or collaborate with other organisations to treat patients or even work towards developing a vaccine.
Investing in biotech in the COVID-19 era throws up even more challenges than it already does in a regular market – even typically reliable stocks such as CSL have been hit.
It’s important to note, however, considering the widespread damage being done to other ASX companies, CSL has been one of the better performers.
This is because the company’s mantra of creating products that matter in terms of life or death means demand will always be there. It is perhaps the only listed biotech company that could be remotely considered as a defensive investment.
Barring CSL, investors must still be wary of biotech companies that market their product in an enticing way through ASX announcements. As we’ve seen, the initial announcement may excite investors leading to instinctive purchases, however, in the last month, this excitement has often been followed by a steep drop in the company’s share price.
Even proven companies are being hit with the financial wrath COVID-19 is presenting to markets with last year’s biotech share market darlings including Avita Medical, Cochlear and PolyNovo, all having their share prices slashed in the last few months.
Another point to consider is, we’ve only covered a microcosm of companies that are looking into ways to prevent, slow down or even cure COVID-19.
Competition is rife and the stakes are massive, so even if a product gets approved, it’s likely there is another company in the world with a similar idea, again, highlighting the importance of patenting ideas.
For those investors brave enough to enter the biotech sector, it’s important to proceed with caution, even more so than usual.
Alex Gluyas is a Finance Journalist at Eureka Report, For more financial insight start a 15-day free Eureka Report now.