The Ebola virus has penetrated U.S. borders, and small biotech firms are racing to develop a cure. That being said, biotech sector trading volumes over the last two weeks have risen to unprecedented levels; moreover, nearly all Ebola-centric biotech stocks have generated impressive returns to match this rise in trading volume. Last week alone, Inovio Pharmaceuticals (INO) rose 22.6%, NewLink Genetics (NLNK) increased 61.9%, and BioCryst Pharmaceuticals (BCRX) gained 11%. Tekmira Pharmaceuticals (TKMR) has also experienced a meteoric rise in trading volume and, although it is down 4.6% over the last five days, the company is up 173% YTD. Unfortunately, all of these companies have yet to produce a reliable anti-Ebola treatment. Thus, the current rise in these biotech companies is based almost entirely on speculation.
Obviously, these four companies are competing to develop, and commercialize, the first Ebola vaccine and/or cure. Although all four have published trial research data indicating they have created treatments with the “potential” to cure the deadly virus, some appear more reliable than others. On October 1st, the CEO of Inovio Pharmaceuticals announced that its synthetic vaccine was effective in animal testing, providing 100% protection against the virus. According to Inovio, its drug is ready for clinical human trials. Similarly, the Public Health Agency of Canada is currently testing a vaccine developed by NewLink Genetics; it will complete human trials by December. BioCryst Pharmaceuticals, on the other hand, only recently began animal testing of BCX-4430 in September. Nevertheless, BioCryst’s drug is unique because, unlike vaccinations, BCX-4430 is a post-exposure cure. Lastly, the Food and Drug Administration (FDA) designated Tekmira's TKM-Ebola cure as a “fast track” solution, which allows the company to treat infected, non-test-related patients. In July, the U.S. Department of Defense (DOD) and Tekmira reached a $140 million deal to expedite TKM-Ebola development. Of the four biotech firms, it appears that Tekmira and NewLink Genetics have received the most government attention.
Although these companies currently yield high returns, I advise investors avoid any long-term position in these stocks. As I earlier indicated, the recent rise of these biotech stocks is mainly speculative. None of the companies currently offer a product that could be considered a legitimate solution to the Ebola outbreak. However, the rise of these biotech firms exemplifies the importance of monitoring, and reacting to, macroeconomic trends; a successful investor always familiarizes himself with daily domestic, and international, events. As West Africa's Ebola outbreak continues, reverberations continue to have a significant influence over U.S. markets.