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Ebola Can Teach Investors an Important Lesson About Economic Viability

By Sean Williams - Apr 2, 2016 at 2:18PM

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The Ebola virus was fatal in 40% of identified cases, yet there's still no approved vaccine or drug on the market -- here's why.

Image source: Flickr user UNMEER.

It's been a little more than two years since the fear of an Ebola pandemic gripped the world, but according to the World Health Organization the Ebola virus is no longer considered an international public threat. This represents the true testament of cross-border cooperation since the disease primary focused on underdeveloped countries in West Africa such as Guinea, Liberia, and Sierra Leone.

In total, 28,646 cases of Ebola have been reported through March 27, 2016, leading to 11,323 deaths. This 40% mortality rate is one aspect of what made the disease so incredibly scary.

The other component of Ebola that was worrisome was its potentially long incubation period. Although the disease could only be spread when someone with the Ebola virus was actively feverish, the virus itself could incubate within a person and not show signs of activation until two to 21 days after infection. This made quarantining potential Ebola candidates extremely difficult in West Africa.

Ebola's mixed clinical results
Of course, the most glaring deficiency of all could be that no Ebola cure currently exists. At the height of the Ebola scare more than a dozen drug developers took to their labs to develop an Ebola vaccine that would hopefully cure the disease. Some unfortunately fell flat on their face.

Arbutus Biopharma (ABUS -1.64%), which was previously known as Tekmira Pharmaceuticals until this past July, was an early strong contender to have an Ebola cure. However, Arbutus in June ended its midstage trial into TKM-Ebola-Guinea after noting that the drug wasn't expect to provide a therapeutic benefit. Shares of Arbutus have lost more than 70% of their value since announcing its disappointing midstage results.

Image source: Flickr user UNMEER.

However, other trials have been quite successful. Most notably I'd point to NewLink Genetics' (NLNK) and Merck's (MRK 0.30%) rVSV-ZEBOV vaccine, which demonstrated statistically significant efficacy in phase 3 studies last year.

The trial, which was published in The Lancet and sponsored by WHO, involved 7,651 patients that were split into two groups. The first group was inoculated immediately with rVSV-ZEBOV while the second group was inoculated after an initial delay. An interim analysis showed that the first group had zero instances of infection after 10 days, whereas the group with a delayed inoculation had 16 instances of Ebola virus infection over the same time period. In simpler terms, rVSV-ZEBOV demonstrated 100% vaccine effectiveness, and it looked as if NewLink Genetics and Merck had beaten everyone else to the punch.

Yet, here we are more than a half-year since the release of this initial interim data and not a single drugmaker has filed paperwork with any global regulatory agency to bring an Ebola vaccine or drug to market. Wondering why? The simple answer is economic viability.

Here's why there's no approved Ebola vaccine on the market
Drug developers are in business to improve the lives of people domestically and worldwide. The vast majority of drugmakers (at least large drugmakers) do offer charitable and compassionate use of their products, meaning they do indeed donate their medicines to those in need who may not be able to afford them.

Ebola virus from blood sample in Mali. Image source: NIAID via Flickr.

However, drug developers aren't charities in nature. They need capital to survive. They need to be able to research new therapies in the lab, bring them into pre-clinical and clinical testing, pay their employees, market existing products, hire lawyers to protect their intellectual property, and even pay fees to the Food and Drug Administration in order to review their drug applications. This means that like any business, drugmakers have to make tough decisions regarding what therapies are worth pursuing economically and which indications are not. The general consensus based on the lack of new drug filings is that an Ebola vaccine or drug just isn't economically viable.

Recently, GAVI, the Vaccine Alliance, announced in January that it had awarded Merck and NewLink $5 million under an advanced purchase commitment for rVSV-ZEBOV. The terms include that Merck would submit regulatory approval for its vaccine by the end of 2017, and that it would make 300,000 doses available for clinical trials and other possible near-term outbreaks by May of this year. Should Merck and NewLink meet their end of the bargain, GAVI would presumably begin stockpiling the vaccine to help slow or prevent the next Ebola outbreak. It seemingly took an advanced purchase agreement to light a fire under Merck and NewLink to advance their Ebola vaccine.

Image source: Pixabay.

Economic viability is critical
The important lesson here? Drugmakers really do care about consumers' well-being, but they also have to keep the lights on. When evaluating a disease with pandemic potential, really try to dig deep to understand what sort of market potential it could have.

With Ebola, for example, it didn't appear as if global governments would warrant the need for millions of vaccines or drugs annually to thwart the disease (since the response from global health organization was so strong), meaning the valuations being attached to so-called "Ebola stocks" was likely unwarranted from the start. Infectious diseases tend to come and go, and they occasionally mutate, meaning vaccine developers can have very lumpy revenue recognition when focusing on a single disease. In even plainer terms, an Ebola vaccine was never on track to be a profit producer, yet investors bid up some companies by the hundreds of millions, or even billions, of dollars on the prospect that Ebola vaccines would be a profit machine.

Before jumping at the next stock leading the charge in a currently untreated infectious disease that has pandemic potential, really dig into the economics behind the company researching a cure and establish whether or not there's really an investable opportunity to be had. More times than not, I'd surmise there won't be one.

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Merck & Co., Inc. Stock Quote
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NewLink Genetics Corporation
Arbutus Biopharma Corporation Stock Quote
Arbutus Biopharma Corporation
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