Caution Ahead: Sharp Curves Exist in the Race to Return to Normal
Welcome to the May 2020 edition of our newsletter! In this issue, we’ll examine the opportunities presented by efforts to develop a coronavirus vaccine, and the risks posed to potential investors.
The Promise and Peril of Investing in Coronavirus Vaccine and Test Development
After tectonic shifts started when various government-imposed lockdowns took effect, a weary and wary world looks to see how life will be reorganized, and for how long. This has led to profitable times for video streaming companies and retailers with robust delivery and distribution networks, as many people, quite prudently, attempt to leave home as little as possible. The durability of these trends in years to come remains an open question, but one area in which there is sure to be a frantic amount of short-term interest is the next urgent step: development of accurate testing for the novel coronavirus, and of an effective and safe vaccine to combat it.
Both of these processes are essential to both get right and to deploy quickly – urges that often are in competition. On the testing front, the reliability of the PCR nasal swab test and blood-based antibody test are both topics of great debate, while even the most optimistic scenario for a vaccine – one that may be sped up, but not helped, by easing of regulatory standards – calls for development by year end. Time is of the essence in the most literal sense, yet proper science always takes time.
Into this void have stepped multitudes of biotechnology companies, from established drug developers to names known only to the most speculative trader of over the counter “pink sheet” issuers. In this latter group, extreme caution is needed, as the low book value of shares, combined with the feverish hope for the test or vaccine some of these companies are trying to develop, can make them fertile ground for “pump and dump” operators who seize on news and hype it up to create momentum, or, worse yet, fabricate phony items to create momentum where none really exists.
The regulatory process for approval of tests and vaccines takes considerable time, and is also a good resource for checking out the viability of claims made by companies, especially those whose profile was far lower before the pandemic. Records of the U.S. Food and Drug Administration will document what trials and approvals have been applied for, while the Federal Trade Commission may have records of past bogus claims by the company or its principals. As with any potential investment, a full slate of due diligence is recommended, including looking into litigation histories, news articles and social media references about the company, its developed products and its people.
Investing during a time of crisis is, to some degree, an effort to monetize either fear or hope, or both. Investing in vaccine or test development strikes directly at that notion, and thus the risk is heightened versus simply trying to profit from companies whose services have boomed since lockdowns began. But with the right type of research and expertise, the high-risk, high-reward investment in the biotechnology that may shape the years to come can pay off handsomely.