Cracking the FDA Code to COVID-19 Approvals

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  • 100% correlation between this list and an EUA approval
  • 5 drug candidates on the list have not received an EUA
  • 3 drug candidates seem imminent

What this pandemic has taught us is that the government has to plan ahead.  3M Blogger Rhonda Butler had unwittingly discovered how to identify drugs the government is considering for approval.  She has cracked the code giving investors a bonafide list to pick winners from.  The Centers for Medicare and Medicade Services (CMS) is required under law to  develop a classification system known as Diagnosis Related Groups (DRGs).  These DRG classifications are the constants that payment formulas and algorithms use to create reimbursement amounts within the hospital system.  On July 31st in her blog she highlighted Remdesivir ((Veklury), Sarilumab (KEVZARA®), Tocilizumab (ACTEMRA®), and Convalescent plasma.  Half of these drugs were approved in the coming month. Two drugs are very high probable picks for approval so investors should read on.   

Back Testing

In order to test this theory, we have to look at what the report said and then trace what happened. First we will look at what drugs were on the report but failed to obtain approval.  Roche Holdings (OTCMKTS: RBBHY) drug Tocilizumab failed its clinical trials on July 29th which was just a couple of days before the update.  It’s conceivable that the FDA had correspondence with the CMS to make sure it was in the system in case results had gone the opposite way and ended up with an approval.  Sanofi (NYSE: SNY) and Regeneron’s (NASDAQ: REGN) drug Sarilumab failed on June 6th but they still had another ongoing trial they thought was promising.  On September 1st they announced Sarilumab’s second failure.  On August 23rd the FDA issued an EUA for Convalescent plasma. On August 28th the FDA expanded the EUA for Remdesivir.  It’s pretty clear that absent a trial failure the FDA is communicating with CMS to ensure that the coding in the system is ready to go in the event of good trial results.  There seemed to be a correlation that shortly after the coding the drugs received an EUA.  Right now the theory is batting .500.  

Next Batch of Candidates

Rhonda was at it again on December 1st and noticed another update was scheduled for January 1st, 2021.  She talked about the 6 new diagnosis codes but what investors want to know is what about these PSC codes.  They added 21 codes to capture the use of additional COVID-19 therapeutics and COVID-19 vaccines.  What we learned from the initial pattern testing is that anything on this list is something the government is seriously considering for approval.  Coding these drugs into the system means they are real contenders.  Time for the reveal.  

FDA Roadmap

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When the CMS codes these drugs into the system it doesn’t guarantee an FDA approval but it is a very clear list of the contenders. Below is a marked up printout of the Medicare Severity Diagnosis Related Groups (MS-DRGs).     

Starting with the drugs that received approval and are on the list. Eli Lilly (NYSE: LLY) actually had 3 candidates and 2 were approved.  LLY received an EUA for bamlanivimab on November 9, 2020 and another EUA for baricitinib on November 19, 2020.  The third candidate is a neutralizing antibody called etesevimab but this drug seem to be tied to bamlanivimab and may be part of a future combination approval. Regeneron’s neutralizing antibodies were given to President Trump and it should come as no surprise that they received an EUA on November 21, 2020.     

Top 3 Contenders for FDA Approval

Analysis shows that there are three expected EUA’s.  Two of the EUA are for Vaccines arguably Moderna (NASDAQ: MNRA) and Pfizer (NYSE: PFE).  The distinguishing feature is that PFE has 2 injections and the MRNA vaccine only is one shot.  There were a lot of duplicates in the data that were labeled as such.  What is very interesting is that every EUA was on the list.  So that means that there is a 100% correlation between the EUA and this list.  If the drug is not on this list it’s not a serious contender for getting an EUA.  Moderna and Pfizer have gone on record that they are expecting an EUA so this is clearly factored into the stock price.  

The third expected EUA is from CytoDyn Inc. (OTCMKTS: CYDY).  This is a repurposed monoclonal antibody that is the only remaining phase 3 drug candidate with a mortality benefit that has not had to resize its study after meeting an interim checkpoint.  This drug has a stellar safety profile with over a thousand patients and no SAE’s related to the drug.  It is an anomaly because leronlimab showed it actually reduced the side effects over placebo by as much as 60% in a phase 2 mild to moderate study.  Now that’s a safe drug!  The company is hosting an investor update on Thursday December 10, 2020 and may be close to finishing its trial.  

Merck (NYSE:MRK) just did an acquisition of private company OncoImmune for $425 million to get access to their COVID-19 drug.  In September they did a $56 million Series B financing to support its Phase 3 COVID-19 drug candidate CD24Fc.  OncoImmune’s drug was designed to regulate the inflammatory process in Graft versus Host Disease (GvHD) but was aptly repurposed to fight the cytokine storm in COVID-19. In their interim trial results they showed an impressive 6 day median recovery time versus 10 days in the placebo group.    

Investment Summary

There are winners and losers in the drug development process, but it’s hard to ignore a 100% correlation to COVID-19 EUA approvals.  Investors owe Rhonda a great deal of gratitude for breaking the news although it’s not clear if she knows how to monetize her findings.  For investors it’s pretty clear that a MRNA and PFE approvals are baked into their respective stock prices which means MRK and CYDY are the ideal candidates to speculate on.  Merck has been basing for a while but its $425 million purchase price doesn’t exude confidence that they are going to be able to monetize OncoImmune. The odds are good that MRK will rise a little if they get approval which makes it a safe bet with more upside versus downside risk.

CYDY on the other hand seems to have a lot more going for it.  First off, it’s a better drug than CD24Fc with respect to GvHD based on its theoretical MOA in COVID-19.  The cytokine storm is quieted down in 3 days in ALL COVID-19 patients that take leronlimab. This is an impressive feat but beyond that leronlimab seems on track to meet its mortality endpoint.  Many investors are expecting the severe to critical clinical trial to be completed in the next couple of weeks.  This could be a major catalyst as investors flock back into this name for fear of missing a runaway freight train that may be the next drug to not only get and EUA but all get full marketing approval.  CYDY has a rolling BLA and therefore is quite eligible for approval.  The CEO of CytoDyn had indicated that COVID-19 sales could top $7 billion next year.  Based on 1 times COVID sales that works out to a $12.00+ stock price and represent a 5x return in the short term.  CYDY is quite undervalued and given the very strong correlation of EUA approved drugs that make it to this list it should be aggressively purchased going into the shareholder update.      

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Chris Long is active in his community and is a fan of all things fitness. He enjoys running, swimming, and cycling. He maintains an active lifestyle and loves interfacing and networking with people from all walks of life. He has a Bachelor’s of Science degree in Economics from Colorado University. He has worked in many business sectors with a focus on real estate, insurance, and finance. He is familiar with many topics from health and wellness to technology and cryptocurrency. He understands very specialized markets in biotech, mining, cannabis, energy, technology, software, and fintech. He is self-employed and associated with a real estate brokerage in Texas.