Small-Cap Star BioCryst Pharmaceuticals (BCRX) was climbing again on Monday, with shares spiking 5.42%. Shares have been having a rocky year, climbing sharply at the start of the year, then getting caught in the risk-off swoon that hit small-caps and biotechs especially hard in early March. However, the company rebounded sharply in early May and is now up almost 75% on the year.
And this is, in part, being driven by a recent bounce in price. The stock’s approaching gains of 20% just since July 17.
A Strong Company with a Promising Pipeline
The company has a strong fundamental profile, as indicated by its inclusion among the Small-Cap Stars, featuring a high value-line beta and a large enterprise value as some of the traits that best indicated a strong shot at future success.
The company also features a promising product pipeline with five different treatments currently in phase II or later, including Peramivir, a flu treatment that has completed its clinical trials and was submitted for FDA approval in December of 2013.
However, while both of these considerations are likely major contributing factors to BioCryst’s success over the long term, the reason for the latest spike can more likely be found in a recent news story that’s been dominating headlines for weeks: the outbreak of Ebola in Africa.
Ebola: A Terrifying Disease with No Treatments
The Ebola outbreak in Western Africa has been all over the news since early May when the first death from the disease was confirmed in Sierra Leone on May 26. Since then, things have escalated and the outbreak was acknowledged to be the deadliest ever by the WHO in mid-June.
It also reached a new level of exposure after two American doctors who were infected with the virus were flown to Atlanta to receive treatment. This prompted debate over whether or not this was a wise decision and strummed up unfounded hysteria among certain segments of the public.
In part, this is because the disease is fairly terrifying. It combines high rates of mortality with a lack of any sort of reliable treatment. It’s easy for Ebola to capture the public imagination when there’s no known cure. And that is precisely why BioCryst’s stock has seen a bounce in recent weeks: it’s one of the few companies that’s developing a treatment for this horrible virus.
BCX4430 — A Potential Ebola Cure in Preclinical Stages
To say that BioCryst was close to a cure would be a mistake. The treatment in question, BCX4430, is still in preclinical testing, having only proven effective with monkeys. However, the recent outbreak appears to have thrust Ebola back into the public eye and, with it, the company that appears closest to bringing an effective treatment. That would be BioCryst.
“We can’t do anything about the current outbreak,” BioCryst chief medical officer William Sheridan says. “But we intend to work as hard as we can to figure out how would we make the drug available after we’ve got safety data in people, should there be another outbreak in Africa. And we know there will be. These things will keep happening, we just don’t know where and when.”
It’s not all that common that a treatment that has yet to be given to a person can prompt a 20% spike in a stock price, but when you’re talking about Ebola, the go-to well-known horrifying disease for most of the public, it may not be so surprising.
Is There a Market for an Ebola Treatment?
While developing a treatment for Ebola would certainly have tremendous humanitarian implications, it’s only going to affect the stock price of BioCryst assuming there’s a real market for the drug that the company can profit from. So is BioCryst’s recent stock spike warranted? Some signs may indicate that investor enthusiasm may be rooted more in the public focus on Ebola rather than a real chance for future profit.
In short, Ebola is extremely rare and geographically isolated. What market does exist is, while extremely visible, also very small. While the high mortality rate and horrifying nature of death make Ebola well-known throughout the world, the small number of cases, all within the borders of African countries, mean that the potential market is a small one.
Since being identified in 1976, Ebola has only produced about 1,000 confirmed cases per year. Compare that to Hepatitis C, a cash cow for pharmaceutical companies, which has 150-200 million confirmed cases worldwide.
As such, it would be extremely difficult to identify a patient group at high risk for the virus. Ebola tends to pop up quickly in outbreaks that are typically contained soon thereafter. What’s more, the development of these vaccines must take place in a biosafety level (BCl) 4 lab, something that dramatically increases the cost of research.
Finally, there’s no guarantee that the current market for a treatment would even exist in the future. Pharma companies already lose millions every year developing shots for strains of the flu that simply cease to exist prior to the shots being ready. Add to that the way Ebola outbreaks are sudden and unpredictable and it’s impossible to say what sort of demand would even exist by the time a drug was completed.
BioCryst Has Business Plan as Well as Humanitarian Goal
So, is BioCryst developing an Ebola vaccine purely out of a sense of public duty? Not quite.
The only companies currently developing vaccines and potential treatments for Ebola tend to be doing so with government grants on account of the limited market for the product, and BioCryst is no exception. The company is developing BCX4430 on a government contract through the National Institute for Allergy and Infectious Disease (NAID), a division of the National Institutes of Health (NIH).
In essence, there is great concern that Ebola could eventually be used as a bioweapon or as part of a terrorist attack. As such, any effective vaccine or treatment would be a valued part of a response plan for government agencies around the world. Should BCX4430 continue to prove effective in tests, the Defense Department would undoubtedly be interested in stockpiling a large reserve of the drug to defend against any potential attack in the future.
And it’s this stockpiling that’s driving the potential profitability of BCX4430 for BioCryst. The company has already made it clear that, should it find success, the company would not be working to profit from any outbreaks in Africa. Rather, marketing the drug to governments looking for a backstop against a potential outbreak would be the strategy, with the rest of their stores being given away to areas of need through organizations like the World Health Organization (WHO) and the Bill and Melinda Gates Foundation.
“If we get a stockpiling order, we’ve achieved our business goal,” said CEO Jon Stonehouse. “So then it’s doing what’s right, which is to make it available to these places that can’t afford it.”
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