Pharma Mar, a “value bet” hidden in the depths of the sea?

The information flow about the progress of vaccines research, antiviral drugs and even covid-19 test kits has been an important factor that has affected financial markets since the outbreak emerged. In fact, some days it was the main driver that was moving the world equity indexes. Pharma companies that make a positive research public are seeing dramatic spikes in their stock price and upsets are being priced accordingly too.

One example is the American biotech Gilead Sciences. The constant positive and negative news on its antiviral drug Remdesivir has turned the stock into a rollercoaster. Another one is Moderna, a serious candidate to produce a vaccine, that has tripled in only 4 months, even though now is trading 50% off the highs. All in all, the Nasdaq Biotech sector is around 8% above the February highs and it seems that investors’ appetite for the sector in this new era has come to stay.

Most of pharma stocks with potential solutions against the covid-19 are implicitly pricing certain probabilities that their vaccines, antiviral medications or other products, will be approved and will come into the market. One of this companies is the Spanish biotech Pharma Mar and the reason for this article is that the market might not be pricing properly the chances of its antitumoral Aplidin becoming a successful player in the coronavirus drugs landscape.

Pharma Mar is a $1.2 billion market cap company focused on oncology and quoted in the Madrid Stock Exchange.  Pharma Mar is the world leader in the discovery of antitumor drugs of marine origin. They have currently 2 drugs in the market, Yondelis and Aplidin, and a potential 3rd one, Lurbinectedin, to treat small cell lung cancer, is waiting to be approved by the FDA on August 16th, if not earlier. A Nature paper written by a group of international researchers, headed by Nevan Krogan of the University of California said that Aplidin, “might may inhibit the translation of viral RNA by promoting stress-granule aggregation”. And why an oncology company might have an effective drug against the coronavirus? Here we go.

Once the covid-19 outbreak emerged, Pharma Mar started thinking that their drug against multiple Myeloma, Aplidin, due to its special mechanism of action, could be a strong antiviral drug against covid-19 and also against other coronaviruses. Aplidin is a drug already approved in Australia for R/R Multiple Myeloma. To test their hypothesis, the company contacted the CSIC, a State Agency in Spain for scientific research and technological development. Some weeks later Luis Enjuanes, a prestigious virologist who leads the CSIC Biotechnology National Center and who is also researching to find a covid-19 vaccine, confirmed that the in vitro test they did with Aplidin was “quite spectacular”. The CSIC made tests with a SARS virus that kills humans and confirmed that Aplidin “not only inhibits the spread of the virus, but it does it at really low concentrations with a product that is not toxic for humans”. These results have also been confirmed by Adolfo García Sastre, director of the Global Health and Emerging Pathogens Institute of Icahn School of Medicine at Mount Sinai in New York, who went further and made the trials in humanized mices, with great results too.

Pharma Mar has stated that “the effect of Aplidin in the coronavirus is 1000 times higher than that of Remdesivir from Gilead”. The president of the company, Férnandez Sousa, has explained that the mechanism of action of Aplidin is different. “Most of antivirals try to attack a virus protein, while Aplidin attacks a protein of the cells that need it, what is called the host protein (EF1A), which Covid-19 infected human cells needs to reproduce and spread. This avoids the virus from generating resistance mutation.”

After these promising lab trials, the company presented a Phase II clinical trial in the Spanish Agency of Medicines and Medical Devices (AEMPS) and, 40 days after the request, the AEMPS accepted a Phase I clinical trial, that is already being carried out in 6 hospitals in Spain. The company was probably upset with the AEMPS decision. Firstly because, in such an extraordinary environment where thousands of people are dying daily worldwide, it took them 40 days to answer. Secondly because they expected a Phase II trial. Aplidin is already approved in Australia, so the toxicity shouldn’t have been an issue. Moreover, the dose needed to overcome the virus seems to be much lower than that to treat a myeloma. The good news is that results seem to be very promising. The company General director Luis Mora has said recently that the trials results are, for the moment “very very very good”. Pharma Mar is so confident on the effectiveness of Aplidin, that they have also approached the FDA and other national medical regulatory bodies. The number of potential patients that can be tested in the US is much larger than in Spain, where the pandemic has retreated significantly in the last weeks. They will receive an answer of the FDA within the next days or weeks and it has to be seen if, in case of an affirmative response, it will a be phase I or phase II clinical trial. In any case, the market is probably not pricing a potential positive response from the FDA.

Pharma Mar stock price has tripled in the last year, mainly due to the positive newsflow on their compound against small cell lung cancer lurbinectedin. The firm has already signed a licence and distribution agreement with Jazz Pharmaceuticals, whereby they have already received a $200 Mill. payment in January 2020. They are also eligible to receive regulatory milestone payments of up to $250 Mill upon regulatory approval, as well as royalties of up to 30% on net sales and $550 Mill.

But the stock return related to Aplidin as a potential drug against the coronavirus has been modest. Pharma Mar was trading just below €5 pre-covid19 and now is trading only around 1 eur higher. The question now is if the market is pricing correctly the potential of Aplidin as being one of the most powerful antiviral drugs to treat covid-19 and also all the coronaviruses that may appear in the future.

All in all, given that the phase of the trial is still I or II and even considering the optimistic feedback the company is making public, if we consider historical data on past clinical trials, the probability of Aplidin being launched to the market as a single agent is lower than 50%. That is, the most likely scenario is that Aplidina won’t get the market as an antiviral for covid-19. In fact analysts that cover the stock are pricing a zero probability.

But, what if it finally comes through? What would be the estimated sales? What could be the size of the market? Well, let’s make some numbers. Gilead Sciences market cap is nearly $20 billion higher than it was pre-coronavirus and it was nearly $30 billion higher when the stock price made its highs on April 17th after announcing successful results on their Phase III clinical trials for Remdesivir. On the other hand, some analysts expect peak sales of $7.6 billion for Remdesivir in 2022. Remdesivir has been authorized in the US under an emergency but it has not been approved by the FDA yet, so it’s not even pricing a full approval. Moreover, Remdesivir doesn’t seem to be a panacea.  On April 23th the WHO accidentally revealed data from a study in China showing that the treatment neither improved patients’ condition nor tamped down on the amount of virus in their blood.

It’s really complicated to estimate the size of this market, not only for covid-19 but also for future coronaviruses. But the intuition is that it’s enormous for a $1.2 billion company and the stock price would probably multiply by several times if Aplidina proves to be succesfull.

To sum up, will Aplidin finally be proved to be successful to treat convid-19? Although, as I said before, the most probable answer is no, this is not the correct question, at least for low risk aversion investors. The right question is, what is the probability of Aplidin to treat covid-19 entering the market, how much can I won if it does it and how much can I lose if it doesn’t? In other words, is it a “value bet”?

Of course, nobody knows these numbers a priori, but investors can make their assumptions. Let’s be conservative and leave aside the likely positive newsflow coming in August on the potential FDA approval of Lurbinectedin for small cell lung cancer. On the downside, let’s remember that the stock was trading around 20% lower than current levels pre-covid19, so this 20% risk might be a fair estimate. On the upside, it’s impossible to make any assumptions. But given the potential volume of the coronavirus drugs market, the relatively small size of a Biotech like Pharma Mar, and given the Remdesivir and Gilead estimates described above, you can make your own numbers...

Daniel Mateos

Founder of