A number of biotech and pharmaceutical stocks have rallied sharply on hopes they can be part of the response to the coronavirus pandemic. Nano-cap AIM ImmunoTech (NYSEAMERICAN:AIM) stock has been one of them. In recent weeks, AIM stock has pulled back after a parabolic rally.
Beginning Feb. 26, shares rose nearly 500% in just nine sessions. They’ve since retreated — but still have gained 75% over the last month.
AIM ImmunoTech itself has stoked those hopes by highlighting its potential ability to treat the coronavirus and/or provide a vaccine. But as always in the biotech space, the keyword is “potential.”
After all, AIM ImmunoTech is one of literally dozens of companies racing to respond to the coronavirus. Any investor buying the stock at this point, even after the pullback, has to believe the company has some kind of edge over those rivals. But the history of the company strongly suggests that is unlikely.
The Rally in AIM Stock
It does look like some savvy and/or intrepid investors figured out somewhat early that AIM stock could benefit from pandemic fears. Shares traded as low as 38 cents last year, after a long decline capped by an $8 million equity offering in late September. But at the beginning of 2020, the stock rallied toward roughly $1.
In February, AIM started inserting itself into the coronavirus discussion. On Feb. 11, the company announced it had filed patent applications for the use of its drug candidate Ampligen. The applications covered usage as a therapy; Ampligen’s potential role in a vaccine; and a “high-volume manufacturing process” for the drug.
That set off a brief rally that quickly reversed. An update a week later from AIM’s chief executive officer highlighting Ampligen’s promise was mostly ignored by the market.
But the company finally got investor attention on Feb. 27, when it announced an effort to get Ampligen into China as a prophylactic for the coronavirus. Shares then nearly tripled in a single session when AIM disclosed a trial with Japan’s National Institute of Infectious Diseases.
That day, AIM closed above $6. It’s since declined by nearly 70%.
The Bull Case
To be fair, AIM has highlighted some evidence that Ampligen could be effective in treating the coronavirus. As the CEO noted last month, Ampligen offered “significant efficacy” against the SARS (severe acute respiratory syndrome) virus in a study using mice.
SARS and the coronavirus are similar. In fact, the World Health Organization has designated the official name of the virus (as opposed to the disease) SARS-CoV-2. The ‘2’ in the name refers to the fact that, as the agency put it, the two viruses are “genetically related.”
Meanwhile, in other trials targeting conditions ranging from cancer to chronic fatigue syndrome, Ampligen’s safety appears well-documented.
So it at least appears possible that Ampligen could have some success in combating the coronavirus. And its safety profile means that testing by agencies could move ahead relatively promptly.
Why AIM ImmunoTech?
But there are some significant holes in the bull case.
The most notable is the fact that competition is larger and likely faster. There are giants and innovators leading the way in coronavirus treatments and vaccines. Gilead Sciences’ (NASDAQ:GILD) remdesivir shows promise as a treatment. Moderna (NASDAQ:MRNA), whose “messenger RNA” technology underpinned what was at the time the largest biotech initial public offering ever, is working toward a vaccine.
The idea that AIM will win seems optimistic, to say the least. And it’s worth noting that after a barrage of press releases, the company has been quiet since the Japan announcement on March 9. The following day, the company filed an updated prospectus allowing for the sale of $18 million in stock in a so-called “at the market” offering.
Relative to MRNA stock, I’ve written that investors shouldn’t be chasing coronavirus stocks in general. If they insist on doing so, they should at least focus on those companies with a decent chance of winning. AIM doesn’t look like one of those stocks.
A Tortured History
It’s even more difficult to believe that AIM ImmunoTech can win given its long and disappointing history. This is a company, then known as Hemispherx Biopharma, that went public in 1996. Then, too, Ampligen was its flagship product.
24 years later, little has changed. Ampligen still is the core product, as sales of interferon Alferon N Injection have faded toward or to zero. Ampligen is being studied in several clinical trials — but all are either Phase 1 or Phase 2.
This is a company that’s been public for almost a quarter of a century — and made basically zero progress. Even with this bounce, the stock is down 75% over the past year and 91% over the last three. Losses over longer holding periods exceed 99%.
Cash burn is an issue. Research and development spending was just $3.3 million through the first nine months of 2019. Gilead spent $7.2 billion over the same period.
An investor betting on AIM stock — which, again, has gained 75% over the last month — has to believe Ampligen has at least a chance of garnering material revenue as either a coronavirus treatment or as part of a vaccine.
And that, in turn, means that a company that has moved at a glacial pace for 24 years will suddenly kick into gear. It means that AIM, backed by barely $1 million in R&D spend each quarter, is going to outsmart and outwork giants with significantly larger resources. It means that Ampligen, which hasn’t really worked to treat anything, will be the cure for a global pandemic.
In theory, it’s possible that bet pays off. In practice, it’s awfully difficult to see how.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.