Seeking a Cure for SARS
By Rex Moore (TMF Orangeblood)
April 25, 2003
Two drug companies are scoring big gains today on news that they're developing treatments for severe acute respiratory syndrome, or SARS. But there's more than one reason for investors to be careful here.
Medarex (Nasdaq: MEDX) jumped 12% after it said it entered into an agreement with the University of Massachusetts Medical School in which it hopes to co-develop fully human antibodies to the respiratory illness. Meanwhile, GenVec (Nasdaq: GNVC) has signed an agreement with the National Institutes of Health to begin development of a clinical grade vaccine for SARS. GenVec is up 75% today.
Neither company indicated how long it might be before the treatments would be available, assuming either made it through the testing and approval processes. Typically, procedures such as these take years.
It's also worth noting that neither company has any products on the market. Medarex lost $2.09 per share in 2002, and had negative free cash flow of $108 million. It currently has $350 million in cash and short-term investments. Meanwhile, GenVec dropped $1.17 per share and $22 million in free cash flow, while it has $18 million in cash and investments.
This is not to say these aren't exciting developments for these two companies. GenVec, for example, will receive $420,000 for its efforts. The point is that the odds are long that the treatments will even reach the market.
Investments in either -- especially based solely on the SARS developments -- can only be considered highly speculative.
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