Biotech always is a tough line of work, with a high failure rate because the research folks’ ideas don’t pan out, or even if they do, the Food and Drug Administration fails to approve their applications. Of the three FDA stages needed to greenlight a drug, the first has a mere 9% approval rate.
No wonder the exchange-traded fund that follows biotech, the SPDR S&P Biotech ETF, was up just 7.6% in 2023 while the S&P 500 soared 24.2%. Biotech has an historically high percentage of companies trading at or below their cash value, according to investment bank Leerink Partners.
Since the biotech ETF’s peak in February 2021, a level achieved thanks to pandemic vaccines and other remedies, the fund has plummeted by 50%. There is some indication that the ETF may be turning around—it was in the red until late October—but now may be too early to tell.
Despite the hurdles confronting biotech investors, if they can get in early on drugs that win federal approval and solve urgent medical needs, that would prove to be a bonanza. Consider Regeneron Pharmaceuticals, which developed a bevy of products to, among other things, help blood circulation, reduce high cholesterol and fight cancer. If you had invested in Regeneron shares in 2011, before all the magic happened, your holding would have increased 16-fold. And Regeneron’s stock has actually gained during the current biotech downdraft.
Certainly, few investors have the scientific background to assess whether a fledgling biotech firm has the stuff to go on to glory. But some signals point to which could be the most promising, such as grants they have received and high-level outside interest.
An example of that is Virpax Pharmaceuticals, which focuses on pain management—and does so without the addictive aspect of opioids. The company has received grants from the National Institutes of Health and the Pentagon. The U.S. Army is studying the use of one of its drugs for battlefield wounds and other injuries.
The firm is developing has an injection to ease post-operative pain and an intranasal spray to potentially reduce pain from cancer and post-traumatic stress syndrome. Virpax also aims to deliver molecules to manage patients’ symptoms from neurodegenerative and neurotransmission disorders, including Parkinson’s, Alzheimer’s, cancer cachexia (multi-organ systemic inflammation) and migraines. Its products are in various stages of receiving FDA approval—the Army does not need an outside regulatory OK to employ the combat injury pain management drug, and is studying the medicine’s efficacy on its own.
Typical of young biotech outfits, Virpax has no earnings, let along alone revenue. It went public almost two years ago, at $6 per share, raising $18 40 million and another $40 million in a follow-on offering later that year to plug into research. Investors seldom strike gold immediately on biotech initial offerings, and the stock now trades at 2733 cents.
Gerald Bruce, the CEO of Virpax, has been with the Berwyn, Pa.-based biotech since 2017, its outset, and served most recently as its executive vice president of commercial operations. Bruce has a long record in the health-care world. He has held key positions in Danone Specialized Nutrition North America, Bristol-Meyers Squibb and Johnson & Johnson. He took over Virpax last fall after the resignation of founder Anthony Mack, who was has been embroiled in litigation over alleged conflicts stemming from a prior company he founded and sold. his previous job at another pain-management company.
Virpax’s pain management drug candidate, Probudur , has what’s known as “stickiness,” the company says, meaning that it in preclinical studies it lasts longer than rivals’ products. Knee surgery is very painful, for instance. With their product, there is potentially no need for opioids. That, in itself, is a blessing. And once Virpax’s remedies go on sale, investors no doubt will feel similarly blessed.