Business disruptions due to COVID-19 represent a new risk for investors across all sectors. Expect to see language addressing this added to the risk factors section of 10-K annual reports filed with the Securities and Exchange Commission (SEC).
For biotech and pharma companies, COVID-19 will impede clinical trials and slow down regulatory actions. Here we will explore some of the emerging issues based on what can only be described as a very fluid situation globally.
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Potential clinical trial delays
COVID-19 could adversely affect the entire clinical trial spectrum from enrollment to data analysis.
Let's start with enrollment. Patients may be scared to participate if trial sites are also managing COVID-19 patients. Trial patients may already have impaired immune systems due to their disease or existing treatments (think chemotherapy). Furthermore, physicians may be concerned about referring patients to centers that could expose them to additional health risks.
Assuming patients enroll, clinical trials face disruptions to protocol schedules for treament and follow-up visits. Reports from Europe have noted overwhelmed facilities where all non-critical visits have been postponed or canceled. Many U.S. hospitals have followed suit to limit exposure and prepare for increasing numbers of COVID-19 patients. In some cases, medical personnel have been diverted to handle the ever-growing cases of COVID-19. Deviations from the trial protocol will muddy the water when it comes time to analyze the data set. Some trials may even be stopped early.
Drug developers, from tiny biotechs to the largest pharmaceutical companies, outsource much of the day-to-day operations of clinical trials to contract research organizations (CROs) like IQVIA Holdings (IQV +0.49%), PRA Health Sciences (PRAH +0.00%), Syneos Health (SYNH +0.00%), and Medpace Holdings (MEDP +1.70%). One function of CROs is to monitor the clinical sites. This simply means CROs send staff to the clinics to verify the data captured in the clinical trial database accurately reflects the patient's medical records.
Some clinics have stopped allowing clinical trial monitors on site. Without reconciling the data, companies are unable to "lock" the trial database, an essential step that precedes the analysis of the data. No analysis means no results. Potential delays await companies with results expected in the coming months including Blueprint Medicines (BPMC +0.00%) and Corbus Pharmaceuticals (CRBP +1.90%).
Regulatory slowdown
Drug developers rely on regular interaction and guidance from the Food and Drug Administration (FDA), European Medicines Agency (EMA), and other regulatory bodies to plan research and development activities across all stages. Postponement of these interactions could delay companies from advancing promising therapies.
The FDA announced on March 10 it will postpone inspections of foreign manufacturing facilities through April. However, inspections deemed "mission-critical" will be evaluated on a case-by-case basis. This is an important issue because the FDA typically inspects manufacturing facilities prior to issuing drug approvals.In its press release, the FDA acknowledged, "We are aware of how this action may impact other FDA responsibilities, including product application reviews."
The FDA indicated that it will cancel or postpone non-essential meetings and urged its staff to hold meetings by phone if possible. While many drug developers prefer to meet face-to-face with the FDA review team, teleconferences occur regularly and offer a viable substitute.
One quick point of reference: FDA review teams have individuals responsible for all aspects of a drug: pharmacology, clinical, toxicology, biostatistics, manufacturing -- you get the picture. The review team will often stay with a drug through its entire development, which can be many years. Trouble could arise if one or more members of its review team contracts COVID-19 and must step aside. Years of knowledge about a drug will need to be relearned by a replacement reviewer. Like all things, it takes time to get up to speed, potentially delaying an approval or feedback to the sponsor company.
In Europe, the EMA announced on March 11 that it shifted all committee and working party meetings to virtual meetings until the end of April. Now, it appears it's business as usual. As with the FDA, if EMA staffers begin to contract COVID-19, delays could materialize.
Delayed approval decisions from these regulatory agencies could wreak havoc on stocks of up-and-coming biotechs, particularly smaller companies that are heavily dependent on a single drug. Zogenix (ZGNX +0.00%) and Heron Therapeutics (HRTX 0.54%) both had PDUFA dates for approval of their respective drugs pushed from March to June. Intercept Pharmaceuticals (ICPT +0.00%) also had its PDUFA date pushed back several months to June 26 to accommodate an FDA advisory panel meeting on April 22 to determine the fate of its drug for treating liver fibrosis due to non-alcoholic steatohepatitis (NASH). Only time will tell if these deadlines will be met.
The exception to the rule is for COVID-19 related regulatory feedback. The FDA quickly issued emergency use authorization for a number of detection kits from diagnostic companies such as Qiagen (QGEN +1.61%), LabCorp (LH +0.36%), and Thermo Fisher Scientific (TMO 0.62%).
In addition, the FDA has expedited the path to clinical testing of potential vaccines and therapies in development by a slew of companies, including Gilead Sciences (GILD 0.42%), Moderna Therapeutics (MRNA 1.84%), Vir Biotechnology (VIR +0.44%), and Inovio Pharmaceuticals (INO 35.06%). On Monday, the National Institutes of Health announced it began enrolling the first COVID-19 vaccine clinical trial. COVID-19 programs will remain an FDA priority until the current pandemic is under control.
A novel risk
Investing in biotech requires accepting a spectrum of risks and potential pitfalls. Add COVID-19 to that list. However, investors can be handsomely rewarded for assuming those risks. Near-term, the diagnostic companies provide a less risky path for investors. Long-term, the company or companies which successfully develop a vaccine or treatment for COVID-19 will likely generate market-beating returns.
With the world looking to the biotech and pharma industry to produce treatments and vaccines to fend off COVID-19, perhaps the industry can rebuild its reputation. Then, it can get back to delivering promising new drugs for unmet patient needs, allowing investors to participate and profit along the way.
