COVID-19 Stocks Are Beating the Bear Market
US weekly jobless claims spiked to a record 6.6M, roughly 10 million in 2 weeks. In 1 week half a million Canadians have asked to defer their mortgage payments, the Federal Reserve has printed trillions of new dollars and there’s now over 1.4M+ Coronavirus cases around the globe. Paul Krugman in a recent TV interview stated he believes US economic activity is down 75%
“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly.”
“This is already shaping up as the deepest dive on record for the global economy for over 100 years,” he said. “Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.”
It’s not a pretty landscape, and with the Dow down 28.8% from it’s all-time high, reached less than 2 months ago, and on pace for its worst year since 2008, investors are feeling the pain.
Just a few short months ago we were calling for a micro-cap bull-market. Multiple micro-cap companies were hitting new 52-week highs, financing and institutional activity was accelerating, and liquidity was increasing.
Without being able to predict a worldwide pandemic, our timing couldn’t have been more wrong, and most of the professional money managers didn’t, and couldn’t, predict this outcome either. It was a rare black swan event that’s having widespread and severe economic impacts.
In late December, there were early warnings out of China of a novel virus outbreak. Given their alarming data sets many in the west underestimated the potential impacts of this new virus. SARS-COV2, or COVID-19 for short, would soon become a global pandemic. The potential health and economic impacts are now upon us…. And they are deep.
Life in a post-COVID-19 world is going to be different. It’s a wake-up call for many, that will impact both business and society. As examples, there may be a new generation of savers who’ve been traumatized by this experience; Businesses are going to redefine their corporate culture and working strategies. Some likely don’t lease new corporate spaces and opt for working from home strategies using software such as Zoom to communicate; healthcare will be considered a much more critical resource than ever before; Governments will look at strategic stockpiling of needed supplies including medical equipment and other products; Investors have shifted their strategies, from high-growth companies to defensible businesses with strong balance sheets.
The world is changing rapidly and so are the trends. As they say, there’s always a bull market somewhere. As we await financial results from companies to demonstrate these new trends, there’s at least one clear trend that’s emerging.
Early in March, the United States announced an emergency $8.3B in spending for the Coronavirus fight and other countries have followed suit. Canada is allocating $192M towards fighting Coronavirus. This flood of healthcare spending and money invested in drug development is likely the early kick off for a new bull market and it could be one of the biggest in our lifetime.
With virtually unlimited government funding cascading onto healthcare and biotech sectors, numerous companies will see benefits. It’s also an election year the U.S. and we believe the political landscape will shift drastically. Healthcare spending will be THE focal theme. This will further increase exposure to the sector as there is likely to be little political hesitation to placate voters who will want, and need, a stronger social healthcare system.
New policies and global political changes fueled by voters’ demands for a stronger healthcare system and future pandemic preparedness will mean more healthcare spending. To no surprise, the number of U.S. voters who would now be willing to accept some form of universal healthcare is rising. According to a survey conducted by Morning Consult, it found that 55% of U.S. voters support Medicare for all, which equated to a nine-point jump since February.
And with that, likely additional spotlight for the companies that are benefitting.
The combination of a crumbling economy and a broken healthcare system, catalyzed by the Coronavirus pandemic, creates a befitting situation ripe for change. Although there’s already been an influx of spending in both healthcare and biotech, we think it’s just the beginning as voters demand change. We believe that the cumulative efforts by voters across the globe will incite radical changes in worldwide spending on innovative new biotech and healthcare solutions.
While some companies are competently positioned to be rewarded in this dynamically shifting environment, other companies are pivoting their businesses to address immediate and urgent needs.
On that note, we’ve cobbled together a list of every Canadian listed company which have announced meaningful (Subjective) COVID-19 related news and added several other companies we believe could eventually benefit.
SONA.CSE – TTD.V – LBL.V – RVV.CSE – IPA.V – MBX.TO – VMD.TO – PTQ.V – AGN.CSE – COV.V – RIW.CSE – IFA.V – PKG.CSE – ARCH.V – EHT.V – LITT – GENX.V – VIS.V – VXL.V – SQD – VENZ.V – DM.V—ISD.V – GGG.V – LXG.V.
When there’s a new market trend many companies take advantage of the opportunity to tout or promote their involvement in the theme. It’s become so blatant lately that IIROC (Canadian stock market regulators) have been halting any company that announces Coronavirus or COVID-19 in its headline. However, there are companies truly benefitting from the Coronavirus and we want to highlight a few we are currently watching.
Sona Nanotech Inc., (SONA-CSE)
Sona Nanotech Inc. is a nanotechnology life sciences firm that has developed two proprietary methods for the manufacture of rod-shaped gold nanoparticles. The principal business carried out and intended to be continued by Sona is the development and application of its proprietary technology for use in multiplex diagnostic testing platforms that will improve performance over existing tests in the market. Sona manufactures gold nanorods that can produce a variety of colours when integrated into a test strip, making them ideal for multiplexing. The nanorods also offer higher sensitivity and better performance than many existing reagents.
As it relates to COVID-19, Sona Nanotech is developing a rapid screening test for Coronavirus. The test is expected to produce results in 5-15 minutes and the Company anticipates will cost less than $50. Subsequently since announcing the development of a rapid screening test the Company secured a supply agreement for biologics, announced a data partnership, partnered with GE Healthcare Life Sciences, added new scientific advisors, entered into service and supply agreements with a contract manufacturing organization (CMO) to manufacture its product, and has received $4.1M in grants from Canada’s Advanced Manufacturing Supercluster.
Sona has been the leader in terms of market activity. Since the Company’s first announcement of its involvement in Coronavirus on February 10, 2020, it shares have risen from $0.20 to a high of $2.09 an increase of 945% in under two months.
Lattice Biologics Ltd., (LBL-TSX.V)
Lattice Biologics Ltd. is an emerging leader in the field of cellular therapies and tissue engineering. Lattice develops and processes biologic allograft products for domestic and international markets.
Lattice’s allograft products are used in a variety of clinical applications, including:
Enhancing fusion in spine surgery
Enhancing breast reconstruction post-mastectomy for breast cancer patients
Sports medicine indications, including ACL repair
Promotion of bone regeneration in foot and ankle surgery
While its core business was starting to show EBITDA and revenue improvements, it’s likely this business is deteriorating in the current market environment with fewer patients to treat. Lattice is tied into COVID-19 after the Company announced its plans to evaluate its amniotic fluid concentrate, AmnioBoost, in patients with acute respiratory distress syndrome caused by Coronavirus. The company embarked on this program after it was discovered that several COVID-19 patients in China were successfully treated with stem cells. Subsequently, Lattice has now begun recruiting patients in its Phase 1 clinical trial to address the safety and efficacy of AmnioBoost.
We recognize the underlying business is likely negatively impacted and the Company has a poor balance sheet. That aside, the idea of using stem cells to combat Coronavirus we find quite intriguing and are watching closely. Guy Cook, the CEO is one the largest shareholder with over 10M+ shares and has been wild enough to inject himself with his own products. Only on the TSX-Venture.
Click here to watch: https://www.youtube.com/watch?v=jyH85f9K-fk
Tinkerine Studios Ltd., (TTD-TSX.V)
Tinkerine’s mission is to provide a foundational understanding about Applied Design driven by 3D printing. Our ecosystem of 3D printing products and educational resources equips future generations with the innovative tools and products to stay ahead in a fast-paced, tech-driven world. Tinkerine enables the curious to convert creative ideas into the tangible and the unimaginable. All Tinkerine 3D printers and education services are designed and manufactured in Canada. Struggling to still execute on its focus delivering 3d printers to education and supporting curriculum in building an embedded lifetime customer base.
Remember IBM in the ‘80’s? Tinkerine’s focus for the past several years has been establishing a foundation in the education markets by supplying the schools with printers and developing curriculum to support the adoption. While there hasn’t been an imminent breakthrough in terms of sales and growth for the start-up, the Company has found potentially a new segment for growth amidst the Coronavirus pandemic.
Tinkerine announced their involvement in COVID-19 by serving the medical community by 3D printing, a face shield, medical use goggles and a ventilator 4-way splitter. While the Company has not announced any material sales from the products thus far, there’s an entirely new application to their technology and products. Since the Company’s first announcement of their involvement in Coronavirus on March 20, 2020, its shares have risen from $0.015 to a $0.24 high or 1,500% increase.
ImmunoPrecise Antibodies Ltd., (IPA-TSX.V)
Disclaimer: Paul Andreola is a director and large shareholder of IPA.V
ImmunoPrecise is a full-service, therapeutic antibody discovery Contract Research Organization offering species agnostic, multi-format, characterized and engineered, human monoclonal antibodies, on an abbreviated timeframe, for its pharmaceutical clients. It’s 100% owned subsidiary, Talem Therapeutics, is focused on the discovery and development of therapeutic antibodies targeting emerging, infectious diseases, neurology, immuno-oncology, inflammation, and rare/specialty diseases.
ImmunoPrecise is uniquely positioned amidst the Coronavirus pandemic since their underlying business is developing and supplying custom monoclonal antibodies, which in less scientific terminology is the root of many drugs in development today.
It’s a pick and shovel analogy, where the increased demand for Coronavirus solutions, has increased the demand at ImmunoPrecise for its products and services. Both large and small biotechnology companies need special proteins, antibodies and other specialty products for drug development, and quickly.
Not only is ImmunoPrecise seeing an increased demand for its core business, but the Company announced their own SARS-COV-2 therapeutic development program on February 20. Development strategy started almost a month earlier than the announcement date after the word had spread about the severity of this new virus outbreak.
While there are several large pharmaceutical companies tackling the Coronavirus issues, and at the forefront are solutions such as Gilead’s Remdesevir or hydroxychloroquine, ImmunoPrecise has an alternative strategy. Many of these companies, like Gilead, are re-purposing their treatments which were previously developed in targeting other diseases and applying them to Coronavirus. Hydroxychloroquine is a fairly common and inexpensive treatment for malaria, rheumatoid arthritis and lupus. The hope is that these treatments may help in slowing the disease, but none are purpose-built for COVID-19. There is a potential speed advantage in the development process of these drugs as they have already passed most safety trials and can rapidly begin testing for efficacy under compassionate circumstances.
The approach taken by ImmunoPrecise is an entirely different strategy. ImmunoPrecise is building their therapy/vaccine from scratch. By applying the DNA sequence of this novel virus and subsequently screening tens of millions of antibodies, their team is searching for antibodies that specifically fight this strain of virus. And because the virus has the potential to mutate and develop multiple strains, like the various flu strains, the Company’s strategic approach is to build a “cocktail” (Polytope) of antibodies to cure this disease and its evolving strains. It’s a novel approach and could likely become useful in fighting multiple other mutating diseases.
Robert Beecroft, who founded ImmunoPrecise in 1989 has been well published for his innovative work with monoclonal antibodies, and this is what the Company does best. In partnering with some of the largest and most respected pharma and biotech companies on the planet, the Company has become a cardinal source for their antibody needs. As most large pharma and biotech companies outsource early-stage research and development, there’s major tailwinds with new mandated spending. With over 50% of all new drugs in development, being based on monoclonal antibodies, ImmunoPrecise is perfectly positioned to thrive in this market.
The fight against the Coronavirus has increased the level of global spending in hopes of finding a cure or vaccine. Immunoprecise sits center stage to reap the rewards in fulfilling their clients growing needs as a source for monoclonal antibodies and has the additional optionality as the Company completes their own potential blockbuster COVID drug program.
ImmunoPrecise shares are up 51% since the start of 2020.
Viemed Healthcare Inc., (VMD-TSX)
Viemed, through its indirect wholly owned subsidiaries Sleep Management, L.L.C. and Home Sleep Delivered, L.L.C., is a home medical equipment supplier that provides post-acute respiratory care services in the United States. Sleep Management, L.L.C. focuses on disease management and improving the quality of life for respiratory patients through clinical excellence, education, and technology. Its service offerings are based on effective home treatment with respiratory care practitioners providing therapy and counseling to patients in their homes using cutting edge technology. Home Sleep Delivered, L.L.C. focuses on providing in-home sleep testing for sleep apnea sufferers.
Viemed is a well operated and profitable Company that we believe will capture financial tailwinds from COVID-19. There’s a shortage of ventilators in the U.S. and making them is hard. Viemed is one of the largest independent providers in the U.S. with a service coverage area of 31 states. 92% of Viemed’s revenues in Fiscal 2019 are from monthly rentals from their ventilators and sales of associated supplies. The Company is uniquely positioned to thrive in this market as demand for ventilators is sky-rocketing. While the company’s shares haven’t performed like other COVID-19 related stocks, Viemed is a large more mature business that likely grinds higher.
Viemed (VMD.T) shares are down 24.8% since the beginning of 2020
For all the other companies not mentioned, here’s a cheat sheet for their disclosure on how they’re involved in Coronavirus.
Stay tuned as we will be scanning SEDAR from top to bottom this fall searching for new trends and ideas we can profit from. We will also build a list of US listed companies with meaningful direct involvement in the fight against COVID-19
IBIO – LAKE – BMRA – INO – APT – APT – VXRT – CYDY – CODX – CTSO – NMRD – ALT – OPGN – COCP – AYTU – NBY – BNTX –SPEX – DXG – AHPI – CEMI – OPK – NNVC – ENZ – SRNE
To your wealth,
Paul, and Trevor