In a globally-connected world, viruses can spread quickly. From influenza to dengue fever to herpes to HIV, viral contagions can spread at an alarming pace. Trouble is, doctors researching these viruses, known as virologists, have found it quite difficult to identify permanent cures. For example, even though doctors completely understand how the flu virus works, millions of people still come down with a flu bug every year. And in some instances, the flu can have fatal consequences.
But little-known NanoViricides (NNVCD) may have "cracked the code" when it comes to viruses. The company still has a lot to prove, as is the case with any young biotech stock that trades for around $1. But it appears to be making progress, and if it can deliver on at least one of its several drugs in development, then the upside could be significant.
Though the company has been around since 2005, the past year has been quite eventful, and NanoViricides is seeing increasing trading volume and a rising share price.
Here's a quick timeline of NanoViricides' recent progress:
-- November 2012: The company hires Bioanalytical Systems (BASI) to conduct safety studies for its influenza drug, FluCide. The design of the study had previously been approved by the FDA. In late 2012, the company also identified a facility and management group that will oversee the construction of production lines that will provide a high volume of drugs to be used in clinical trials. The facility is expected to be ready by late 2013 or early 2014.
-- January 2013: Early pre-clinical trials produce efficacy results that are stronger than Roche Holding's (RHHBY) Tamiflu, the current most popular flu vaccine available for sale.
-- February 2013: The company completes a $6 million capital raise, and along with $5 million raised in 2012, said it believes it has enough cash on hand to fund operations through the end of 2014 while pursuing initial human clinical trials.
-- June 2013: The company files for orphan drug status with the FDA for its DengueCide drug to treat dengue fever and receives that designation from the FDA in mid-August. A similar application with the European Medicines Agency (EMA) is filed in July, and EMA approval is granted in September.
-- June 2013: The Lovelace Respiratory Research Institute, a biomedical research organization with 1,200 employees and 150 PhDs, agrees to conduct clinical studies for NanoViricides' flu drug, as well as a drug that is aimed at the MERS virus (Middle East respiratory syndrome coronavirus).
Though NanoViricides believes that a wide range of viruses can be treated with its biotechnology, influenza and dengue fever clearly stand out as key areas of focus for the company in the near term.
What kind of market opportunities are we looking at? Well, Tamiflu has proven to be popular for treating influenza, with a potential annual revenue opportunity exceeding $3 billion, according to Influmedix.com.
There is no current cure for dengue fever, nor can we glean a market size for a drug that treats it. But the World Health Organization believes there may be 50 million to 100 million dengue infections worldwide every year.
To be sure, this small company also carries considerable risk. Many drugs that appear quite promising in small-scale tests fail to deliver solid safety and efficacy data as clinical trials grow larger. Indeed, the vast majority of early stage drugs fail, and NNVC's stock price would plunge sharply if that were to happen.
Moreover, a steady stream of capital infusions over the years has caused the share count to swell to 163 million. Investors should assume that the company needs to issue at least 40 million or 50 million more shares in coming years to further fund clinical trials. The company could also choose to sign a marketing deal with a large drug company, which would likely provide an equity infusion in exchange for sales rights, eliminating the need for further dilution.
Lastly, investors are waiting for a financial report regarding NanoViricides' fiscal fourth quarter, which ended in June. The company's 10-K for fiscal 2012 was filed in mid-October, so investors will presumably receive this year's 10-K on or before that date. When the 10-K is filed, investors should read it very closely to identify any possible concerns regarding the current development efforts and cash levels.
While it's virtually impossible to develop a specific target price for NNVC, we can make some broad assumptions. First, let's assume that the number of shares outstanding eventually rises to 200 million. Second, let's assume that the company is targeting an annual revenue opportunity of $500 million. Third, let's assume that shares are eventually valued at three times revenue, or $1.5 billion. Lastly, let's assume that NanoViricides has only a 33% chance of success, so reduce that number back down to $500 million.
That equates to $2.50 a share, or about 100% upside from current levels. And if the company successfully brings its key drugs to market, then the ultimate $1.5 billion market value represents a move in the stock up to $7.50, a nearly 500% gain.
Note that this is a high-risk/high-reward stock, and as such, should never comprise more than 5% of your portfolio on an initial investment basis.
Recommended Trade Setup:
--Buy NNVC up to $1.50
-- Set stop-loss at $0.75
-- Set initial price target at $2.50 for a potential 67% gain in six months