This month, as Merck (MRK -0.40%) moves forward with an Emergency Use Authorization in the U.S. for its oral antiviral for COVID-19, Atea Pharmaceuticals (AVIR -0.22%) stock saw a significant drop. Unfortunately, investors are unlikely to see the small-cap biotech replicate Moderna's success as the next COVID-19 underdog success story after news of its negative clinical trial.
Let's explore what caused Atea's drop and how biotech investors should examine their future investments.
Did timing and trial design predetermine outcomes?
In order to begin, one must compare the Merck and Atea trials. Both examined patients with mild to moderate COVID-19 that were initially well enough to be treated at home outside of the hospital. In the Merck trial, having at least one underlying risk factor associated with worse clinical outcomes was a requirement to be enrolled, whereas about one-third of Atea's trial had patients had no underlying health issues. Atea included vaccinated patients in its trial, whereas the mega pharma did not enroll vaccinated patients.
Looking at the trial designs, the inclusion of risk factors was right there for all of us to see the entire time. And while vaccine status was not disclosed, at the initiation of Merck's trial, on Oct. 5, 2020, there were no approved vaccines. The vaccine rollout had just begun when Atea started its trial on Jan. 14, 2021. Knowing this in retrospect, is it any wonder that Merck, with an unvaccinated and more at-risk patient population, was more likely to generate a positive outcome? With forward-thinking and trial design by the experienced team at Merck, it was able to optimize molnupiravir's chances for success.
Being a phase 2 trial, Atea used reduction in viral load as an endpoint. The endpoint we all ultimately care about, the frequency of complications related to COVID-19, was a secondary endpoint. Kudos to the company for this patient-centered secondary endpoint. Merck's phase 3 trial went with one of the most patient-oriented primary outcomes there is: hospitalization or death within 29 days due to all causes. Who cares if you survive the virus only to die of drug toxicity, right? This is ultimately low-hanging fruit when evaluating a trial; if it's not a patient-centered outcome, I'd toss it from the watch list.
Let's look at a different company that has come under fire for its therapy and clinical trials: Biogen (BIIB 0.24%) and its Alzheimer's disease treatment, Aduhelm. Certain types of buildup in the brain of a protein called beta-amyloid is believed to play a role in the disease. And Biogen actually demonstrated that Aduhelm was able to reduce the amount of beta-amyloid buildup. Great news, right? Except that phase 3 trials were terminated because the drug failed to slow cognitive and functional decline in Alzheimer's patients.
Despite its approval, clinicians have seemed to agree with an overwhelmingly negative Food and Drug Administration advisory committee that recommended against Aduhelm to hit the market. The controversial therapy has generated only $300,000 this past quarter. This is far below the $12 million analysts were expecting, at least partially because clinicians feel that there is next to no benefit for the drug but there are other potential downsides. Ultimately, just because something works in a test tube does not mean it works in humans; keep this in mind the next time a small-cap pops but lacks a patient-oriented endpoint.
So where does this leave Atea?
Atea has a rather bare cupboard beyond its SARS-CoV-2 program. It does have a hepatitis C treatment in phase 2 trials, which currently shows as an eight-week trial. Unfortunately, this does not significantly differentiate the product from AbbVie's Mavyret, which sold $442 million in the most recent quarter and also uses an eight-week treatment period. I'm not particularly hopeful about the hepatitis C franchise given that the company did not even include it on a slide in its most recent earnings call.
However, Atea does have over $800 million in cash and cash equivalents as of the end of June. While its COVID-19 hopes may have been dashed, it does have one other program in clinical trials -- a phase 1 program for dengue fever. The total addressable market globally for dengue is currently at $500 million annually and is expected to reach over $3 billion by 2028. With that much cash on hand and a sizable potential market, this beaten-down biotech might be able to thrive in a few years despite the AT-527 saga, if the dengue fever therapy can get off the ground. But it could take a lot more than a phase 1 program for Atea to turn things around.
Fundamentals of biotech research
This current trial failure with Atea should serve as an example. It's possible a company can learn from its blunders but investors must know how to maneuver in these situations, especially if this is the worst-case scenario. When a company is going all-in on one particular program (in this case, COVID-19), it is high-risk, high-reward.
There are a few ways to minimize the risks, though. First, drugs with patient-centered outcomes will be more likely to be approved and prescribed by the medical community. Secondly, if investors had looked at the timing of trials and exclusion criteria for these antivirals, in retrospect it becomes clear that Atea was unlikely to come close to Merck's results. And finally, biotech investors should develop a checklist that at a minimum includes a review of the pipeline and clinical trials prior to owning shares in any biotech company.