Gilead, Coronavirus, and Major Stock Swings

A week ago, you couldn’t turn on the television or open up a news app on your phone without hearing about the deadly coronavirus outbreak.

Viral images of Chinese citizens wearing surgical masks or eating bat soup were circulating the web…

While videos of a desolate Wuhan district were being broadcast throughout the world.

It was enough to send the stock market into a state of apparent distress for a brief period of time, but Wall Street has seemed to shrug off those concerns this week as U.S. politics took over the headlines and conversation.

Between Trump’s State of the Union address on Tuesday and final impeachment proceedings on Wednesday, the coronavirus has taken, at least temporarily, a backseat in terms of public discourse.

This might seem a little strange, considering that the coronavirus epidemic has yet to show any real signs of slowing down and, instead, has actually been accelerating. China confirmed that 73 people died on Wednesday, marking the deadliest day of the virus yet (total death toll as of Wednesday was 563). 

In addition to these deaths, China also confirmed 28,018 total cases of coronavirus in the country. By the time this reaches your inbox, that number is sure to have climbed above 30,000.

Meanwhile, though, stocks are hitting record highs. U.S. benchmarks including the Dow Jones, S&P 500, and Nasdaq Composite all advanced for four straight days this week. 

China’s markets, of course, aren’t doing quite as hot but the panic is definitely abating. The nation’s benchmark CSI 300 index took its biggest drop in nearly 13 years when trading resumed on Monday’s open but has already recovered the bulk of those losses.

Big Pharma to Save the Day?

Part of the renewed optimism surrounding the novel coronavirus outbreak comes from the promise of a new antiviral drug candidate. 

China’s National Medical Products Administration this week approved applications by various research facilities to conduct trials evaluating an experimental drug by the name of remdesivir, which is owned by U.S. pharmaceutical giant Gilead.

Gilead’s stock saw gains throughout the week on its potential role in stopping the coronavirus, but the implied impact on the company looks as though it may be overstated.

Not only is Gilead already a multibillion-dollar pharmaceutical firm with far more meaningful revenue-generating assets, but China might just go ahead and ignore the company’s rights to remdesivir anyway.

Interestingly enough, the Wuhan Institute of Virology has applied for a patent in China for the use of remdesivir in treating the coronavirus, stating that it has done so out of national interest. The application was made on Jan. 21 together with a military academy, according to a February 4 statement by the institute.

Of course, it is unclear whether or not China’s authorities will actually grant the patent, but patent or not, Gilead isn’t in much of a place to bargain. That’s because China always has a “compulsory license” option, which lets countries override drug patents in the case of a national emergency.

In other words, any stock rally that Gilead might be enjoying right now is largely a result of misinformation and hype. In fact, it’s possible this could even be a negative for Gilead, as this could be a means of stripping the company of its rights to the drug in China.

In any event, this isn’t going to be a make-or-break moment for Gilead. At a market cap of $84 billion, remdesivir is ultimately a drop in the bucket for the company, whether the drug ends up working or not.

Small Pharma, Bigger Profits

While remdesivir won’t be a breakout money-maker for Gilead, the drug’s ability to drive a stock rally shouldn’t be ignored by investors. Roughly $4 billion has been added to the company’s valuation on speculation alone.

For a company the size of Gilead, that might seem like small potatoes, but for smaller biotechnology firms, that kind of money flow is obviously a much bigger deal… In some cases, enough to double or triple the value of a company overnight.

Of course, global epidemics like the coronavirus aren’t something investors can rely on (nor is that something you would want to), but small, development-stage biotechs are swimming in a sea of other existing diseases and conditions, desperate for new treatment options.

Speculation around these treatment options happens every day on the markets, just like it happened with Gilead this week. The only difference is when you’re looking at smaller companies, the potential for massive stock returns is much greater.

That’s why I’ve been focusing so much of my attention on biotechnology recently, turning readers on to winners like Aurinia Pharmaceuticals Inc.(NASDAQ: AUPH) for a 233.3% return and Intra-Cellular Therapies Inc. (NASDAQ: ITCI) for a 225.6% gain, both in a matter of weeks.

The trick to these kinds of trades is identifying the market’s most promising drugs being developed by small-cap companies and marking down the dates that the next catalysts are going to hit.

If you’re serious about investing in biotech and you have an appetite for high-risk, high-reward trades, I highly recommend you join me in this niche and exciting world of trading. You can learn more about it in a recent interview I participated in here.

Until next time,

Jason Stutman

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