On May 1, 2020, Gilead’s experimental COVID-19 treatment for severe cases was given emergency approval by the United States. Japan quickly followed, approving Veklury® (remdesivir). However, instead of sending Gilead’s share price to the moon, the stock dropped 13%, even while the Dow Jones Industrial Average continued a May mini-rally.
Why weren’t investors impressed? It is likely due to the announcement by Gilead’s Chairman and CEO Daniel O’Day that the company was donating all of its supply to the U.S. “We’ve donated the entire supply that we have within our supply chain… We did that because we acknowledge and recognize the human suffering, the human need here, and want to make sure nothing gets in the way of this getting to patients,” O’Day said on Face the Nation on May 3, 2020. There is extreme political pressure for biomedical companies to come up with a cure, and to distribute the drugs as widely and freely as possible.
Other COVID-19 Projects
Adaptive Biotechnologies and Amgen are collaborating to find the “Michael Jordan” of antibodies. “We see our effort as complementary to other efforts in the industry. We don’t view this as a competition but as an all-hands-on-deck moment,” David Reese, Amgen’s executive vice president for Research and Development, remarked in an Amgen press release.
Can Small Companies Afford to Work for Free?
Gilead is a $92-billion company with $5.4 billion in net income and $35 billion in cash. Amgen is worth $132 billion, with almost $8 billion in annual net income (and $23.36 billion in sales). These companies can afford to give away a cure, and might even experience a Halo Affect in the bargain. But can a $5 billion company with $85 million in sales and $92 million in annual net losses like Adaptive Biotechnologies afford to give away its product?
Adaptive had $213 million in cash and cash equivalents at the end of March 31, 2020. However, debt has been more difficult to access in the past few months, except for the most creditworthy companies. Capital preservation, “right-sizing,” liquidity and a “clear path to profitability” are all important business in today’s world. Cash burn in 2020 is not a luxury that companies can afford – not even biotech companies in the race for a cure.
The key to Adaptive’s future will lie in speed. If the company’s “sophisticated DNA sequencing and machine learning capabilities” yield an all-star antibody or a cocktail of powerful players quickly, then Adaptive’s artificial intelligence could be useful in many biomedical therapies. Amgen is not the only large corporation courting Adaptive’s AI. Microsoft and the National Institute of Health are also partnered with Adaptive.
On March 20, 2020, Microsoft announced a partnership with Adaptive to decode COVID-19’s immune response and provide open data access (i.e. free). It is very possible that the little go-to AI company that these mega-nationals are all partnered with – Adaptive Biotechnologies – has a bright future, even if its profit model is weighted toward altruism now.
Inari Medical Inc. had an IPO on Friday. The company is not involved in the pandemic cure. However, with sales growth of 650% year over year, it’s worthy of mention in this biotech blog. In 2018, Inari sales were $6.8 million. Last year, they topped $51.1 million. The company makes FDA-approved devices to remove blood clots in Pulmonary Embolisms and Deep Vein Thrombosis diagnoses. The annual market for these devices is $3.6 billion in the U.S., according to Inari’s S-1 filing, with additional sales potential outside the U.S.
Inari is a $2 billion small cap company with an impressive board and management, and a product that is in demand. In the 1st quarter of 2020, the revenue growth was almost fourfold, from $6.9 million to $27 million. At the current pace, sales could easily double in 2020, to over $108 million. The company generated $4.1 million in net profit in the 1st quarter of 2020.
According to the Inari S-1 filing, “In the first quarter of 2020, approximately 2,400 procedures were performed using [their] products.” This compares with 4,600 in all of 2019. Dr. Victor Tapson of Los Angeles’ Cedars Sinai Medical Center, who was a co-principal investigator in the Flare study, said in a press release, “The results of the Flare study mark an exciting advancement in the treatment of acute pulmonary embolism patients. Until now, there has not been an approach to rapidly restore flow to reverse right heart strain without the use of thrombolytic drugs and their inherent risk of bleeding complications.”
Inari’s IPO priced at $18/share, and had doubled to $36 by the time it hit the big boards on Friday.
Inari looks like a small fish that could become quite a Samson of the sea. However, it is difficult for even great companies with first-mover advantage in an exciting innovation to swim upstream, if the markets crash. So, when you are determining your buy price and exit strategy, the following questions are appropriate for both Inari and Adaptive Biotechnologies.
What can the company do?
What can the industry do?
What will the general market do?
Full Disclosure: I own Adaptive Biotechnologies stock.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.