Read This Before You Play a Single One of the Biotechs Fighting COVID-19

Georgia, South Carolina, and Florida have announced that they are loosening quarantine restrictions; at least 13 more states have announced plans or "roadmaps" to do more or less the same thing.

There's an urgent desire to get "back to normal" as quickly as possible because the social and economic devastation - record unemployment, more than 55,300 deaths, massive lockdowns, shrinking GDP, and of course the virus itself - of the coronavirus pandemic has been so profound.

And this has all happened in a little more than a month. People are understandably anxious to put all this behind them, myself very much included.

But the stakes of "normalcy" are higher than we're being told. The successful reemergence of people into the world will require far more than just repeated reminders to wash your hands and not touch your face.

Social distancing and limited interaction can slow the spread; there's mounting evidence in the United States and other countries that we've done precisely that. But it's far from clear how much those actions could really prevent widespread illness as lockdowns ease and stay-at-home orders are lifted.

Because it's very likely that we won't be truly "safe" until a proven treatment and effective vaccine are available.

The more we learn about this virus, the more we're aware of why its ongoing impact, and the "right" way to reopen the economy, remain so uncertain.

Here's what we do know:

  1. It's highly contagious. The virus seems to be more robust than many similar viruses - it lives for hours on droplets in the air and for days on most surfaces. Asymptomatic people carry and transmit it. And since it is a "novel" coronavirus, meaning this is the first time it has circulated among humans, we basically have no preexisting defenses.
  1. The virus is dreadfully and inexplicably selective. This means that similar people can contract the virus and one will have no symptoms, another will have mild symptoms, and yet another will have severe symptoms up to and including death. We know that there are risk factors for severity, like age, obesity, and preexisting conditions. But even within those subgroups, the virus acts very differently from patient to patient.
  1. Help from a vaccine that would immunize us is still a long way off. From the start, the "best-case scenario" estimate was 18 months for a vaccine. That leaves 16.5 months to go, but only if everything goes right, and we witness the fastest outcome in medical history.
  1. Right now, we have no proven therapeutic treatment for COVID-19 patients. This one is If you contract this virus, medical professionals can only treat symptoms and offer supportive care as the body attempts to rid itself of the virus. There is as yet no proven way to treat the underlying virus.

And that is precisely what we're going to talk about today. There's a tremendous amount of buzz and hype surrounding potential coronavirus therapies and vaccines right now.

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This buzz has precipitated what I call the "Gilead Effect," where the $100 billion biotech helped lead markets higher and lower on what were essentially rumors and fragmentary reports on its progress toward a COVID-19 treatment.

In other words, a "Reality Gap" - with profit and pitfall potential - has opened up here, centered on the perception of the state of play in coronavirus treatments.

Now, it's true there are a number of potential treatments for COVID-19 currently in trials. But there is as yet no silver bullet.

Nevertheless, pharmaceutical companies really do have a chance to save the world here.

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Potential COVID-19 Treatment No. 1: Hydroxychloroquine

Hydroxychloroquine and chloroquine are two related antimalarial drugs that are also used for some auto-immune disorders such as lupus and rheumatoid arthritis.

Chloroquine, the older drug, was discovered in 1934, but was considered too toxic to be widely used until more than a decade later. It was only in 1947 that the United States started using it against malaria.

After that, chloroquine was for a long time as the primary antimalarial drug worldwide, until the malaria parasite began to grow resistant to it and other, safer drugs were discovered. Both chloroquine and hydroxychloroquine can have fairly serious side effects, including muscle damage, seizures, vision changes, and especially heart problems.

Because both drugs appear to help fight viruses, at least in lab research, they are now being studied as a potential treatment against COVID-19. U.S. President Donald Trump has repeatedly voiced his support, as have other politicians. Given the low cost of these drugs, the appeal is obvious.

So far, we are still waiting for the larger, more definitive trials. But data from smaller trials suggests we shouldn't hold our breath.

In Brazil, a trial was supposed to divide 440 COVID-19 patients between a high-dose and a low-dose regimen of hydroxychloroquine. But the trial was stopped early on April 12 with just 81 participants when several people in the high-dose part developed serious heart conditions and 11 of them died.

A French hospital has also reported stopping the use of hydroxychloroquine for COVID-19 because of patients developing heart conditions.

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Now, all the patients in the Brazilian trial were also being given the antibiotic azithromycin, which is thought to also have antiviral properties. This combination is the same as the one being talked about here in the United States and being clinically investigated in New York City. Unfortunately, azithromycin is also known to increase the risk for serious heart conditions.

There have also been dozens of reports of Americans who take hydroxychloroquine regularly for lupus who have had to be hospitalized for COVID-19.

And just this week, a study conducted by the U.S. Department of Veterans Affairs (VA) hospital system suggested hydroxychloroquine did not help patients with COVID-19 and in fact was linked with a higher chance of death.

This is the largest study of hydroxychloroquine's effects on COVID-19 so far, but it still only looked at the 368 patients with COVID-19 that were admitted to VA hospitals leading up to April 11. So the sample size is not large enough to be fully definitive. It was also a retrospective study, where researchers looked back at medical records and looked at treatments and outcomes.

However, the results were not encouraging. Twenty-eight percent of patients given hydroxychloroquine and 22% of patients given hydroxychloroquine and azithromycin died.

Meanwhile, just 11% of patients receiving only standard care died. That's a stark difference.

Retrospective studies like this are not as reliable as randomized double-blind clinical trials. For example, while in this study COVID-19 patients that were given hydroxychloroquine were more likely to die than those who were not given the drug, a retrospective study can't say why that is. It could be that the drug doesn't help at all, or that the drug helps a little but that is overshadowed by the severity of its side effects.

It could also be that the drug was only being given to patients who were sicker in the first place, and so were already at more risk of dying.

Until one of the several ongoing large-scale clinical trials of hydroxychloroquine finishes, we won't know for sure. Pharma giant Novartis AG (NYSE: NVS), for example, has just announced it will perform one.

But what we can tell from these early, largely inconclusive trials is this: Hydroxychloroquine and chloroquine, with or without azithromycin, is no miracle drug. Whatever positive effects it may have, if any, are clinically insignificant. And the side effects are real and dangerous.

People who need hydroxychloriquine for other conditions for which we know they work are already reporting shortages. Meanwhile, people have already died from ingesting hydroxychloroquine formulations meant for cleaning aquariums.

Chloroquine is no silver bullet, and even if it does turn out to work, it will have to be used under intense medical supervision. It's just that dangerous of a drug, especially for COVID-19 patients who are already weakened by the virus.

Potential COVID-19 Treatment No. 2: Remdesivir

Remdesivir is an antiviral medication first developed by Gilead Sciences Inc. (NASDAQ: GILD) a few years ago against the Ebola virus. In lab research, it has been shown to work against several different families of viruses, including coronaviruses.

However, in live trials against Ebola in 2019, it was shown to be safe but much less effective at fighting the virus than the other treatments it was being compared against. The drug was then dropped from consideration.

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With the COVID-19 pandemic now sweeping the planet, Gilead and the U.S. Food and Drug Administration (FDA) have been allowing the use of remdesivir against COVID-19 on a "compassionate use" basis. That is a special regulatory status that allows drugs in development to be used in life-threatening situations when there is no other treatment, even if it's yet to be proven that the treatment works.

Anecdotally, some physicians and hospitals have been reporting that the drug seems to work. Remdesivir has also been shown to prevent COVID-19 from advancing in monkeys, in a small trial. There are now several large-scale clinical trials underway, including one organized by the World Health Organization (WHO) and another by the National Institutes of Health (NIH).

Early data on remdesivir is mixed. Some traders pushed Gilead's stock price up in mid-April on news that when used for "compassionate use," remdesivir seemed to be very helpful. But the news from this type of use is really of low value, since there is no comparison (control) group and no set standard for when a patient was given the drug.

Meanwhile, some early data from one of the large-scale trials of remdesivir has leaked, suggesting that at least one of the many hospitals involved is seeing good results. And last Friday, April 17, Gilead increased its target for how many patients it is enrolling in its two trials. Originally, the company had aimed for 2,400 patients, but it is now looking for 6,000.

This could be simply because Gilead wants to get the drug out to as many people as possible as fast as possible. However, some analysts are worried.

First of all, changing a trial while it is ongoing is usually a bad sign.

Second, increasing the amount of patients in a trial makes it easier to spot small effects that would otherwise be missed. Statisticians call this boosting the "power" of the studies. This is something pharmaceutical companies sometimes do when their treatments are less effective than they hoped for, but they want to be able to show at least some positive effect.

Third, Gilead also changed the metrics by which the trials will be judged. Originally, one trial of moderate COVID-19 patients looked at how many of them would be discharged from the hospital after 14 days. The other study looked at whether the fever and oxygen levels of severe patients had returned to normal, also after 14 days.

But now, in the larger trials, the criteria have changed completely. Both trials will now be looking at whether remdesivir makes it more likely that patients improve on a seven-point scale that goes from not being in the hospital at one end and death on the other.

Don't get me wrong: These changes could be for the better. But they could also be a sign that remdesivir has only mild effects on COVID-19, if any.

And just last week, on Thursday, April 23, data from a large Chinese trial of remdesivir leaked on the WHO's website before being taken down. This trial failed to find any sign that remdesivir was helping COVID-19 patients. Gilead's stock price dropped by about 9.6% in a matter of minutes.

That's disheartening. But this Chinese data isn't the final word on remdesivir.

For one, the data that leaked was from a draft issued before peer review, not the final version of the research paper. Second, the pandemic has largely abated in China for now, so the researchers ran out of patients and had to end the trial early with only half of their planned sample size.

Lastly, this Chinese trial was only enrolling severely ill patients. Antivirals generally work better in early, less severe cases of viral infection, before the virus has had time to multiply. So this may not have been the best way to look at remdesivir's effect.

Gilead's own trial should finish in a few weeks, and we'll know more then.

Of the two most talked-about treatments, remdesivir had seemed more promising, and much safer. But it was never going to be the silver bullet the markets have been hoping for, for one simple reason. Remdesivir is not a pill.

Instead, Gilead's drug has to be infused into patients slowly in a doctor's office every day for five to 10 days. This makes it very inconvenient for people self-isolating at home, or for frontline healthcare and essential workers that we'd want to keep at work.

So don't bet the proverbial farm on remdesivir, despite the hype. We simply do not know if it works yet.

There are many treatment candidates under investigation. The National Institutes of Health (NIH) has a good list of its summary recommendations here.

There are lots of companies working on COVID-19 treatments and/or vaccines. Big biopharma firms, in addition to Gilead, that have shown strong stock rebounds include Pfizer Inc. (NYSE: PFE) and GlaxoSmithKline Plc. (NYSE: GSK) - both of which are working on vaccines. For investors, these companies represent longer-term plays.

Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) and Sanofi SA (NASDAQ: SNY) both have strong stock momentum and are working on the treatment/therapeutic side.

Two smaller companies that have gotten good press for unique work on the vaccine side include Moderna Inc. (NASDAQ: MRNA) which has a novel RNA approach to vaccine development (coronavirus is, after all, an RNA virus) and is in a phase 1 clinical trial, and Inovio Pharmaceuticals Inc. (NASDAQ: INO) which has received funding for vaccine work.

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The bottom line is this: Some very talented doctors, scientists, and researchers - all employed by extremely resourceful, well-positioned biotech firms - are working on treatments and vaccines for COVID-19. This work is ongoing at a speed unprecedented in the history of modern medicine. But investors, armed with the truth of what's going on in this fight, will have to be cautious for the time being. Know the full story before allocating capital, and you'll be able to enjoy both long-term profit prospects and potentially explosive speculative gains.

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About the Author

D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.

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