If you read my article from yesterday, you’ll know I’ve had to cancel my plans to visit our family home in Cape Town because of the new Omicron COVID variant recently identified there.
We’re pretty bummed out. But life goes on, and so do markets (even though they’ve pulled back sharply today).
For example, here’s what happened to the stock of Adagio Therapeutics (Nasdaq: ADGI) yesterday:
(Click here to view larger image.)
That’s an 80%-plus spike in ADGI. In one day.
But this is a company that has never made a profit.
In fact, it’s never made any money at all.
On top of that, analysts expect its per-share losses to double by the end of 2022.
Assuming Adagio manages to generate some revenues next year — the market consensus is a minuscule $151 million — it’s already trading at almost 20 times those sales.
Because COVID is here to stay … and the search for a response is moving into new areas … quickly.
To be honest, I’m furious about the way the world has managed COVID vaccinations.
When it comes to viruses, the message is simple: Nobody is safe until everybody is safe.
When a virus spreads unchecked, it has more opportunities to mutate.
Virologists have warned for a year that the lack of vaccines in poorer countries would eventually generate new mutations — and that they would find their way back to the developed world.
That’s why I find it outrageous that the world punishes South Africa just because our scientists detected Omicron first. Given the way rich countries have hogged vaccines, it was inevitable that a new variant would appear somewhere.
But there’s a silver lining to this particular cloud … at least for investors.
At current rates, most of Africa won’t be vaccinated until years from now.
That means we’re guaranteed to see more mutations like Omicron.
Every time we do, it will take vaccine makers like Pfizer-BioNTech and Moderna a couple of months to develop an updated version.
In the meantime, many countries will inevitably resort to border closures, travel restrictions and lockdowns … all of which undermine economic health.
And it’s really starting to get under a lot of people’s skin. Like mine.
Adagio Therapeutics’ big jump on Monday proves investors are starting to wake up to a simple fact: If we’re going to avoid an endless game of COVID whack-a-mole, we’re going to need more tools.
When the Horse Is Out of the Barn
Vaccines protect people from severe illness by prompting the body to produce antibodies. When an unvaccinated person contracts COVID, it’s too late for that.
But there are other ways to corral the COVID horse when it’s already out of the barn.
The first is antiviral medications.
We’ve seen how effective those can be with HIV. With the right drug cocktail, the virus practically disappears from the body.
Merck (NYSE: MRK) and Pfizer (NYSE: PFE) have developed antivirals that prevent COVID from replicating in the human body. If taken early enough in an infection, they can prevent serious illness. Many countries around the world, including the U.S., have already ordered millions of doses.
But Adagio is taking another approach.
Its strategy is to develop an antibody to COVID that can be administered just like an antiviral medication. Just like a vaccine, these so-called “monoclonal antibodies” teach the body how to defeat the virus itself. The difference is that they work even after the patient has contracted COVID.
The current generation of monoclonal antibodies requires hospital-based infusions. That makes them expensive and time-consuming to administer. But Adagio and other companies are working to develop intramuscular injections. If they get this right, the impact could be immense.
One of the advantages of monoclonal antibodies is that they can be tailored to attack parts of a virus that don’t mutate. So, no matter what COVID variant is currently rampaging, the drugs can stop it in its tracks.
As the world realizes that Omicron is just the beginning of COVID mutations, interest in monoclonal antibodies is going to skyrocket. Countries are going to order millions of doses to have on hand to treat COVID no matter what the mutation.
How to Play It
There was a spike in investor interest in monoclonal antibodies during 2020. But after effective vaccines arrived in December that year, the market lost interest. Investors assumed the latter would solve the problem.
Adagio Therapeutics’ price spike yesterday shows that the monoclonal antibody play is back on.
Obviously, that spike was entirely speculative. There’s no point in buying the stock until it comes down to reasonable valuations. The same is true of other companies pursuing similar treatments.
But mark my words: If we keep distributing vaccines based on ability to pay rather than what’s good for humanity, the companies that make post-infection treatments are going to make a great deal of money.
You might as well grab some of it for yourself!
Editor, The Bauman Letter