When it comes to healthcare, nothing beats a cure.
Finding a permanent solution to any sort of virus or disease is like chasing the holy grail. It’s difficult, costly, and often folly.
But, every now and then, on the rarest of occasions, someone finds a breakthrough.
When a new cure is found or developed, it is like winning the lottery. Not just for the company itself, but for all the people who will benefit from the treatment.
This is what it’s like to invest in the biotechnology sector. A high-stakes, winner-takes-all kind of industry.
See, biotech stocks are notorious for their incredible volatility.
All it takes is that one breakthrough or promising result to send shares soaring. They epitomise the overnight success story. Case in point: Aquinox Pharmaceuticals.
Aquinox was a tiny biotech company based in Canada but listed on the NASDAQ. The kind of stock that few paid any attention to…that is until 2015.
On Friday, 7 August 2015, Aquinox’s stock was hovering just below US$2 a share. By Monday (10 August), shares peaked at an intraday high of US$55.75. A gain of over 30,000% in the span of one day of trading…
That is the kind of ridiculousness I’m talking about. A result that is as rare as it is incredible.
The reason for Aquinox’s huge run was due to initial results for their drug treating bladder pain. As well as some key partnerships with bigger pharma companies. Essentially, it was the ideal biotech success story.
But, keep in mind, biotechs can just as easily collapse in a day as well. Just as Aquinox found out three years after their seeming breakthrough…
On Wednesday, 27 June 2018, Aquinox’s shares fell 73% before markets had even opened. Wiping out all the hope and progress the company had made.
The reason? That key drug for bladder pain failed to meet expectations. It was a dud and so was Aquinox’s stock.
A brutal reminder of the risks that comes with biotechs.
Race for a COVID-19 cure
The reason I wanted to highlight this today is because we’re seeing a resurgence in biotech of late.
COVID-19 has put health and healthcare front of mind for many. Everyone that can work to find a cure for the coronavirus is trying to find a cure for the coronavirus.
I’ve no doubt that some company or perhaps even a handful will even succeed in finding a cure.
They will be the lucky ones. The companies, either public or private, that will profit handsomely from this crisis.
And right now, one biotech in particular has taken the limelight. The US-based, MIT-led Moderna Inc [NASDAQ:MRNA].
Long story short, Moderna is the current front-runner for a coronavirus vaccine. A biotech that has seen its share price climb from US$18.60 at the end of February to a high of US$80 on Monday.
In fact, the wider US markets including the Dow Jones had rallied on the back of Moderna’s latest insights. As the AFR reports:
‘The company’s stock soared on the report that eight participants who received low and medium doses of Moderna’s vaccine had blood levels of virus-fighting antibodies that were similar or greater than those in patients who recovered. That would suggest, but doesn’t prove, that it triggers some level of immunity.’
It would seem that investors are being swept up in the hype. Even those who aren’t directly invested in Moderna itself.
I’m not saying we shouldn’t celebrate a vaccine. Obviously, the sooner we can get our hands on one the sooner we can return to some sort of normalcy.
But, the realist in me knows that we’re a long way from getting to that point. You can’t rush a vaccine; it takes time and money to ensure it is safe and secure.
Not to mention, making sure it actually works…
Optimism or delusion?
Overnight the Dow Jones closed 1.59% lower — 390 points down. A disappointing but not exactly surprising result.
As we know, it’s been a volatile year for markets.
However, what was surprising, was the reason for the drop. See, up until the late afternoon the Dow was only down 33 points. A very modest drop compared to its eventual close.
So, what sparked the end of day squeeze?
Health publisher STAT released an article discussing Moderna’s latest finding. It wasn’t what I’d call negative, just realistic.
As the article pointed out, the optimism around Moderna was too hasty. The little data they had was a great start, but it by no means meant that they had a cure. Just the possibility of one.
In effect, the article was trying to rein in people’s expectations. Explaining that these kinds of early ‘breakthroughs’ are far more common than you might think. And more importantly, they don’t always hold up in later, more intensive trials.
Just look at what happened to Aquinox.
What is worrying though, is just how emotionally invested markets were in Moderna. If a reality check like this STAT article can send the Dow sinking, then I worry for its stability.
As I’ve tried to drill home in this piece, biotechs are extremely risky and volatile. If that’s the kind of company that is guiding the overall direction of the Dow Jones, then that’s a big problem. It suggests that rationality has been replaced with optimism.
Trouble is, optimism can easily turn to disillusion when it fails. And if it does, that could send things spiralling out of control. Just like when a biotech goes kaput…
Luckily, I do believe there is reason for long-term optimism. My fellow editor Ryan Dinse has enlightened me on a new field of technology that could eliminate COVID-19. In fact, if his analysis is correct, we may never experience another pandemic again.
I know that’s a big claim, particularly given the volatile and risky nature of the examples I’ve mentioned above. In fact, I wish I could tell you more, but I can’t just yet.
Just know that we’re working hard to get this story to you as soon as possible. So, keep an eye out for it in the near future.
For now, I’d be wary of the market’s infatuation with biotechs.
A cure will come, but we must give it time. Because if we jump the gun, we could end up doing more harm than good.
Editor, Money Morning
PS: In this FREE chapter from Sam Volkering’s Crypto Revolution, you’ll learn how the story of bitcoin proves its potential as an alternative financial system…and why holding some now could be one of the best investment decisions ever made. Click here to claim your copy today.