Battle of the Monkeypox Testing Labs

Microbiologist doctor taking a blood sample tube from rack with machines of analysis in the lab background. Doctors examining vaccine evolution using high tech researching diagnosis against covid19

As the monkeypox outbreak rages through the United States and is consistently showing itself to spread much more than originally thought, a key area of focus is emerging again: testing. Monkeypox doesn’t transmit as quickly as COVID and isn’t likely as deadly, but people are fearful of being hit with intense pain and disgusting sores. The question for investors is which testing companies are positioned to return maximum value to shareholders for monkeypox testing. Pure plays with significant exposure to monkeypox testing and early mover advantages are of interest.

Monkeypox Threatens the Masses

It is a common misconception that monkeypox is only spreading through the gay community. It can spread through skin-to-skin contact which can be increased during sexual activity. However, even hugging, massage or kissing can cause transmission as well as direct contact with someone who has had a rash or scab from the virus. There are accounts of people touching things like dollar bills that monkeypox victims have touched, and these people were infected. More commonly, direct contact would come from clothing, bedding, or towels that an infected person touched, but that’s not where it ends. Just like COVID, monkeypox can spread through respiratory secretions. Thus, it seems everyone is at risk, with the illness lasting 2-4 weeks and spreading through the droplets in the air. It’s not yet clear whether asymptomatic people can spread the virus, though.

Mass Vaccination a Questionable Strategy

While the Biden Administration has ordered vaccines to help fight the current outbreak, these will not be rolled out in time just like COVID, and testing will be necessary to help diagnose and potentially contain the virus. A shipment of 500 thousand doses was ordered in June, with follow up of 2.5 million to bring the total for this year to 4 million doses. 7 million doses are expected to be available by 2023. These vaccines, one of which is used in the U.S. to handle the monkeypox outbreak, are actually smallpox vaccines which provide some level of protection against monkeypox. The first one that was licensed for monkeypox in the U.S. is called MVA-BN, aka Jynneos in the US, and is manufactured by Bavarian Nordic (OTCMKTS: BVNRY). Another of the vaccines, ACAM2000, is made by Sanofi (NASDAQ: SNY) and is licensed by the FDA for smallpox but may be used for monkeypox with the submission of extra forms. A third vaccine that might get approval is VaxGen’s LC16m8, which is available in Japan for smallpox.

The biggest issue with the vaccines is that nobody knows exactly how efficacious they are. The 85% effectiveness rate for these vaccines is based off of a small retrospective study done in the 1980’s which looked at smallpox vaccination and monkeypox infection. This really is just a speck of evidence that, in theory, the vaccines could help.

Could Treatments Douse the Fire?

Investors might then turn to companies with treatments, but so far the treatment angle has only let investors down. Investors expected SIGA Technologies’ (NASDAQ: SIGA) TPOXX, a smallpox treatment, to gain some sort of specialty authorization in light of this public health emergency, but the FDA updated guidance on the subject and now the company is expected to have to complete a 500 person clinical trial before the drug is approved for monkeypox. For now, its only for compassionate use. The other smallpox drug which could be helpful for monkeypox as well is Chimerix’s (NASDAQ: CMRX) drug, Tembexa. Currently, there’s no drug approved to treat monkeypox.

There’s also not the amount of development for treatments like there was for COVID. Companies with antivirals and immune modulators jumped in the race to treat COVID-19 in a fashion never seen before. These promising treatments, including leronlimab, manufactured by CytoDyn (OTCMKTS: CYDY) and lenzilumab, manufactured by Humanigen (NASDAQ: HGEN) were not given the regulatory favorability early in the pandemic that vaccines were, with the FDA scrutinizing pivotal clinical trials that demonstrated likely benefit in those that were moderate to critically ill, while upholding EUA status for vaccines that had not yet demonstrated a long-term safety profile. There’s still a chance that these treatments could eventually be approved, but the time and money it has taken for these companies to jump the regulatory hurdles in the face of a pandemic, only to have the treatments approved after the pandemic does its damage, is too much.

Testing: Keep It Simple

The testing route is where there is less resistance and is likely a better area for investors. To avoid this disease which comes with horrific lesions and intense pain, simple tests are required since no vaccine or treatment is both widely available and known to work well. HHS has taken a bit more proactive approach so far with testing being expanded to 5 commercial labs as well as case definitions being revised as to not completely underestimate the spread of the disease, allowing patients to more easily obtain tests if monkeypox is suspected.

The White House’s authorization and formal testing response for labs marks the green light in a race for labs to jockey for positinioning in a rapidly growing field. These recent moves allow for 8,000 tests per week through Aegis Science, Labcorp (NYSE: LH), Mayo Clinic Laboratories, Quest Diagnostics (NYSE: DGX), and Sonic Healthcare (OTCMKTS: SKHCF). But that is far from the almost ~10 million COVID-19 tests per week the country is currently running. There’s a lot of testing capacity to make up for as this is potentially just a small piece of the pie. If Monkeypox testing is to ramp up to 1/10th of what COVID-19 testing currently is, there is going to have to be 125x the current capacity. Monkeypox has been endemic in Africa like COVID is now in the U.S. for decades, and with or without containment fading away as a possibility, testing will take center stage. Whether the outcome is quarantining or testing, or simply knowing one has monkeypox and knowing what to expect, testing is paramount.

Key Monkeypox Testing Companies

Two key monkeypox pure plays have pinged investors’ radars recently: Applied DNA Sciences (NASDAQ: APDN) and Todos Medical (OTCMKTS: TOMDF).

Applied DNA just announced that they were initiating a validation of their monkeypox PCR test. Applied DNA’s stock was training at just $0.70 with a market cap of $9 million earlier this week and rocketed to almost $6 during market hours before settling north of $4 with a market capitalization of about $36 million. The company provides testing services to ceratin organizations using its safeCircle turnkey testing solution, which uses PCR tests and returns test results within 24-48 hours.  The company has growing revenues and a robust volume of business with $6.5 million in cash and revenues of $6.1 million witha 40% gross margin for the most recent quarter. However, their overhead overshadows their revenues and has done for many quarters so they will need an additional $2.5 million in profit per quarter to breakeven. It is likely that the market is therefore pricing in what kind of monkeypox business the company will be able to bring in to drive them to profitability. The company’s other endeavors include its CertainT program, which “allows raw materials and products to be tagged with a unique molecular identifier. This identifier can then be tested for its presence as it travels throughout a global supply chain.”

Todos Medical is a bit of a different animal. They also just announced that they are planning to get their testing validation for monkeypox yesterday, which sent shares up 60%. They also provide COVID-19 tests but are working on blood-based breast cancer and Alzheimer’s tests to bring to market. The company has extensive automation of its Provista Diagnostics laboratories and can process 25,000 PCR tests daily. The company also has a 3CL protease inhibitor supplement, Tollovid, which can be bought on Amazon or for immune support during COVID-19 infection. The nutraceutical does what Pfizer’s (NYSE: PFE) Paxlovid does, blocking the 3CL protease and halting viral infection. There are many long-COVID and acute COVID case studies and testimonials of Tollovid helping these patients recover, which shouldn’t be a surprise given how well Paxlovid works. Tollovid even helped patients that had Paxlovid rebound in certain case studies.

There’s also a drug formulation, a cousin to Tollovid, that Todos is running through clinical trials to get FDA approval. Tollovir, a potent formulation with the same active ingredients as Tollovid, was shown to reduce mortality by 100% in hospitalized patients which mirrored the effects they saw in an observational study completed a few months prior. These assets were valued at $1.9 billion by an independent firm and as such the 3CL Pharma assets (Tollovid, Tollovir, TolloTest – a 3CL protease test) are undergoing a spinoff to maximize value for the shareholders and put in place a dedicated team for those assets. Todos is to retain 60% of 3CL pharma, so at a $26 million market cap, TOMDF shares are theoretically undervalued by a factor of 44x just according to their ownership in 3CL Pharma. As with APDN, Todos’ Provista Diagnostics lab is picking up business and has become more profitable over time.

Both pure play, early-move monkeypox testing stocks, APDN and TOMDF, are well set to be at the forefront of monkeypox testing, which could be a significant market if the monkeypox outbreak keep exploding. APDN has large contracts with New York state and universities to provide its testing, but they’re mostly a one-dimensional business for now. Certainly, monkeypox testing contracts could greatly expand their business and increase the stock value as the company has a lot of headroom to grow at just a $36 million valuation. TOMDF, however, has an even smaller market cap and has the optionality of a unicorn investment with its extremely valuable 3CL pharma. It’s automation at Provista Diagnostics should also set it up to be a go-to for customers looking for monkeypox testing. Todos shares have been under pressure from a convertible toxic noteholder, which may have finally sold his last share. Thus the stock is set up for a fundamental and technical move upwards and with their billion-dollar subsidiary, the sky is the limit.

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