Atea Pharmaceuticals (AVIR -1.72%) recently reported phase 2 results for its oral SARS-CoV-2 treatment, AT-527, and the data look promising: AT-527 may offer a convenient, effective treatment to prevent disease progression both in and out of the hospital. If Atea is able to earn regulatory approval for the therapy, it should prove quite profitable for the company and its investors.

It's an opportune moment for Atea to be delivering such news. With the more contagious delta variant now dominant in the U.S. despite the widespread availability of vaccines, the need for effective treatments is once again growing more urgent. As of July 29, the seven-day average number of daily new COVID-19 diagnoses in the U.S. had risen to 71,621, according to The New York Times. The last time the rolling average was that high was Feb. 18, when it was on its way down from its winter peak of nearly 300,000 new cases a day. So far, COVID-19 has already killed more than 628,000 people in the U.S. alone.

Easing the impact of COVID-19 cases

According to Atea Pharmaceuticals, interim phase 2 clinical trial results show a rapidly reduced amount of coronavirus in patients taking AT-527. The investigational treatment targets RNA polymerase, the cellular machinery necessary for SARS-CoV-2 to copy itself -- a target shared by Gilead's (GILD -1.58%) remdesivir. Patients receiving AT-527 oral treatment experienced an 80% greater reduction in their COVID-19 viral load after two days compared with those receiving placebos, and that difference was maintained eight days after initiation of treatment. Additionally, two weeks after the initiation of treatment, 47% of patients in the AT-527 arm had no detectable coronavirus on nasopharyngeal swabs, compared with 22% in the placebo arm.

people in white coats that appear to be celebrating


In short, AT-527 may offer a convenient treatment to prevent disease progression in both outpatient and hospital settings. And if patients take AT-527 earlier in the course of their illness, it is theoretically possible that it could stave off advanced stages of the disease and its dreaded complications -- namely, acute respiratory failure. Even minor reductions in the percentage of COVID-19 patients who experience advanced disease would be a huge societal win, lowering the number of hospitalizations, ICU beds occupied, and perhaps the coronavirus death rate. An effective oral therapy that could be given early in the disease -- particularly in an outpatient setting -- would likely be welcomed with open arms by the medical community.

This $2.1 billion pharma has a worldwide phase 3 trial ongoing, with results due before the end of the year.

Tailwinds from Uncle Sam

In June, the U.S. government opened its wallet for another time during the pandemic, dedicating an additional $3.2 billion to continued antiviral drug research -- and Atea was one of the lucky recipients. Given that an estimated $19.3 billion of federal funding has gone toward COVID-19 vaccines, further assistance for the organizations attempting to develop treatments for the coronavirus seems plausible, if not imminent -- beyond the current $3.2 billion just provided.

Another advantage for Atea is its seasoned leader: founder, chairman, and CEO Jean-Pierre Sommadossi. He was the principal founder of Idenix Pharmaceuticals, which discovered and launched a treatment for hepatitis B before being acquired by Merck (MRK -0.03%). As a co-founder of Pharmasset, which developed the hepatitis C treatment Sovaldi, he oversaw that company's acquisition by Gilead. And at Atea, Sommadossi has collaborated with Roche (RHHBY -0.39%). If AT-527 is approved, Atea will be responsible for U.S. distribution, while Roche will be responsible for global manufacturing as well as distribution outside the United States. This combination -- a smaller pharma (with a successful industry veteran at its head) focused on navigating the approval process, and an international powerhouse with massive manufacturing capabilities -- could boost Atea's prospects.

Not the only game in town

There is another oral COVID-19 therapy candidate currently in advanced clinical trials: molnupiravir, which is being developed by privately held Ridgeback Biotherapeutics in partnership with Merck. Results are due around October from a phase 3 trial in both outpatient and hospitalized patients.

Results from a different trial testing molnupiravir as a preventative measure after exposure to COVID-19 are expected in the first half of 2022. Notably, the Biden administration has committed $1.2 billion to buy 1.7 million doses of molnupiravir if the FDA gives it an Emergency Use Authorization (or full approval). As such, Merck and Ridgeback might seem to be better positioned in the race to bring an oral COVID-19 therapy to market.

However, while Atea does not have a similar commitment from Uncle Sam just yet, investors should remain optimistic. As the vaccine race has demonstrated, being second to the party is not necessarily a bad thing. Just look at Moderna. While it wasn't first to market with its vaccine, its stock price has more than tripled year to date, and it's trading at a level more than 10 times higher than in April 2020.

Also, consider that Gilead's remdesivir had 2020 sales of $2.8 billion and second-quarter 2021 sales of $829 million -- and that COVID-19 treatment can only be given intravenously, and only to hospitalized patients. Based on some back-of-the-envelope math, the U.S. has agreed to pay roughly $700 per dose of molnupiravir if it proves effective; with the seven-day average of daily new cases worldwide topping 470,000 as of July 15, there would appear to be plenty of room in the market for two oral COVID-19 therapies.

This seems to be a close two-horse race between Atea-Roche and Ridgeback-Merck for a massive addressable market. And given that Atea has just a $2.1 billion market cap, a win in this indication could make it substantially more valuable in a flash. Healthcare investors who can tolerate a stock with a high-risk, high-reward profile may want to add this one to their watch lists.