Infectious diseases always have been a hot topic in biotech, but over the past half decade, with the outbreak of Ebola in Africa and more recently the Zika virus in Europe and the United States with the corresponding global fears of microcephaly, more capital has been drawn into the space. According to 24/7 Wall St. research, three of the top 10 causes of death in America are from infectious diseases.
With the wider market sell-off in pharmaceuticals that seems to have bottomed, the infectious disease space now looks appealing due to a combined possible bottom and renewed global attention from recent outbreaks. Together, this could make it an opportune time to look at some relatively underfollowed players.
San Francisco based SciClone Pharmaceuticals Inc. (NASDAQ: SCLN) spent the latter half of 2015 falling in line with the wider biotech sector, but it also suffered from an overhanging legal situation rooted in alleged bribes by its sales team. The Securities and Exchange Commission and the U.S. Department of Justice got involved, and what looked like it might be a drawn out affair put pressure on the company’s ability to draw investor focus toward its ongoing operations and away from its not-so-savory past practices. In February this year, however, the company announced it had resolved the issue with both authorities, without having to admit any wrongdoing and having paid a $12.8 million penalty.
Within a month, the company reported its fourth-quarter 2015 financials, and a profit of $12.5 million on revenues of just shy of $43 million shifted sentiment to favorable. SciClone generates the majority of its income from a hepatitis B treatment in China, but it has a host of ongoing development programs that could boost its profile going forward, both in Asia and the United States, as they mature toward commercialization. Its infectious disease pipeline includes Loramyc, a candidate targeted at a type of yeast infection called oropharyngeal candidiasis, and SGX492, a Phase 2 drug targeting oral mucositis. At its current price, the company is already trading at a more than a 62% premium to its 2016 open, but with more than $114 million cash on hand as of December 2015, looks like an intriguing value candidate on any major pullback.
Sinovac Biotech Ltd. (NASDAQ: SVA) is a Chinese company with a host of already approved vaccines on the market. Its primary development focus is avian flu, and it is the producer and developer of the H1N1 vaccine, approved in Asia and the United States as a swine flu vaccination. It also has a H5N1 vaccine, the standard of care avian flu treatment. In 2015, Sinovac generated$67.4 million revenues, up from $62.9 million a year earlier, and a gross profit of $49 million.
The company also has a host of late stage trials ongoing, with highlights being a combination vaccine for measles running in partnership with GlaxoSmithKline, and a Phase 3 pneumococcal polysaccharides vaccine (PPV) slated to close out before the end of the year. PPV is recommended for all individuals aged 65 years and up in the Western world and Asia, and if Sinovac can carry its vaccine through to commercialization, it could easily absorb a large portion of the global elderly market.
Hepatitis A and B, as well as influenza and mumps, account for the majority of Sinovac’s revenues as things stand, with the hepA indication generating more than 46% of 2015 sales. There’s an element of risk, therefore, in that a competing company could undermine a large portion of the company’s key revenue driver if it brings a cheaper alternative to market, but while this is yet to happen. Sinovac looks cheap.
Sinovac also declined a buyout offer by a Chinese consortium of $7.00 a share in February. Shares are currently at $6.39.
OpGen Inc. (NASDAQ: OPGN) hit public markets with an initial public offering in May 2015, and shortly after closed on a $6 million financing with Merck Global Health Innovation Fund. OpGen is one of 28 biotechs that the Big Pharma fund has a stake in. Its focus is infectious disease diagnostics, specifically, the identification of multi-drug-resistant bacterial infections in the early stages of their infectious development. Its lead product is the Acuitas MDRO Gene Test, which uses a swab DNA test to identify the presence of antibiotic resistance genes in high-risk patients.
It’s also working on a database designed to help identify, track and treat infectious diseases built on cloud-based technology. This is a longer term growth focus though and shouldn’t affect the stock near term. What makes OpGen appealing though is its financials. The market currently values the company at just twice cash.
As things stand, the company generates a quarterly net loss, but as its development products mature, and if sales of its currently available products continue to expand at the current rates of 120% year over year between 2014 and 2015, it shouldn’t be long before it starts to bring in a net income.