As soon as Dr Anthony Fauci uttered the magic words, stock markets surged.
Sitting alongside Donald Trump in the Oval Office, the US government’s top infectious diseases official on Wednesday said a trial of the drug remdesivir had shown a “clear cut significant positive effect” in treating coronavirus.
It was the first official confirmation that the antiviral treatment made by Californian drugmaker Gilead might be able to help patients recover more quickly from a disease that has killed more than 200,000 people worldwide.
By the end of Wednesday, the S&P 500 had closed almost 2.7 per cent higher, while Gilead’s shares added roughly 6 per cent.
The market moves underscored how data from trials of remdesivir have become a proxy for wider investor sentiment. As traders struggle to price assets while huge swaths of the global economy are shut down and unemployment is surging, they have homed in on the prospects for a treatment that might allow the world to reopen more quickly.
In previous financial crises it would have been unthinkable for preliminary data from a single drug trial to result in a broad-based rise in stock prices. But at a time when investors have few barometers, the success or failure of one medicine has become a bellwether for the overall market.
“It’s wild to think that something like remdesivir could be a binary readout for the entire stock market,” said Brad Loncar, founder of Loncar Investments, which runs two biotech funds.
The positive data from the remdesivir study run by the US government was accompanied by several caveats. Dr Fauci warned it was not a “knockout” trial and that the drug did not demonstrate a statistically significant impact on survival rates. Researchers say it is impossible to draw firm conclusions without first seeing the full results, which have yet to be published in a medical journal.
The choreography of Dr Fauci’s impromptu announcement this week — which was shoehorned into a scheduled event with the governor of Louisiana — was unusual. Headline results from drug trials tend to be released by the company making the medicine or the group conducting the study before full data is presented at a medical meeting and printed in a peer-reviewed publication.
Dr Fauci said he had decided to unveil the preliminary results because he was concerned they would leak after the researchers conducting the trial were told they should move patients receiving a placebo on to Gilead’s drug.
Concerns over the leaking of non-public information — and the potential for market manipulation — have plagued the pharma industry for years. Famously, Martha Stewart, the lifestyle guru, went to jail after being convicted of lying to investigators over the sale of shares in 2001 in ImClone, a biotech company, ahead of an unfavourable ruling by the US Food and Drug Administration.
Dr Fauci’s announcement capped a frenzied fortnight during which markets gyrated as conflicting, unofficial information about the effectiveness of remdesivir leaked out in dribs and drabs.
In mid-April, Stat News reported that patients were responding to the drug. The medical news website said it had obtained a copy of a video of a trial investigator at the University of Chicago — who was studying the medicine in just 125 people — saying most of her patients had been discharged. Even in the absence of detailed information or a confirmation from Gilead, the tiny snapshot of success prompted the drugmaker’s shares to rise by as much as 14 per cent while S&P 500 futures gained in after-hours trading.
Just one week later, the World Health Organisation accidentally published a summary of the results of another trial from China, which showed patients taking the drug had not improved. On the day the Financial Times reported the results, the S&P 500 ended down having been up as much as 1.6 per cent while Gilead fell 4 per cent.
The link between broader stock prices and remdesivir data has raised concerns that investors are putting too much store in incomplete information that they do not fully understand, resulting in hype-fuelled bubbles that could burst and exacerbate market volatility. Even the most experienced biotech fund managers struggle to read complex clinical trial results at speed, and they often disagree on the magnitude of supposedly clear-cut data.
“I pity the people . . . trying to do this based on their sketchy ability to read good information out of highly technical medical documents,” David Kelly, the chief global strategist at JPMorgan Asset Management, said.
It would not be the first time that generalist investors, known disparagingly as “biotech tourists” by specialist fund managers, have piled in to pharmaceutical stocks only to end up losing money. The sector also attracts a large number of retail traders, who are attracted by the binary nature of trial results that can result in sharp stock price movements: it is the investment equivalent of a gambler at a casino roulette wheel who puts all their chips on black or red.
“There are moments like this where biotech is front and centre and people who don’t know what they’re doing throw money at the sector,” said Mr Loncar. “If history is any guide, those people often get burnt.”
Gilead, which was chaired by Donald Rumsfeld between 1997 and 2001, when he was appointed as George Bush’s defence secretary, has always been something of a political stock. Even as it has churned out revolutionary treatments that can treat viral diseases and prevent HIV, it has generated negative attention from lawmakers for charging high prices and allegedly profiting from government-funded research.
However, Geoffrey Porges, a biotech analyst at SVB Leerink, said the current level of scrutiny directed at Gilead is “unprecedented”. He has received a constant string of calls from fund managers trying to interpret the data, in part because they see the pharma sector as a hedge against the wider market: the theory is that the price of biotech stocks with potential drugs and vaccines could still go up even if other sectors decline.
“The virus is wagging the market back and forth,” said Stephen Dover, head of equities at Franklin Templeton, which manages $580bn of assets. “I understand the move in Gilead. I just don’t understand the move in the entire market.”
He added: “Everyone is trying to become an expert on the disease. But the truth is we’re not experts on the medical side . . . and that has been part of the problem.”
However, while the release of a successful treatment or vaccine might indeed allow the economy to reopen, leading to an eventual recovery in broad stock prices, pharma companies do not necessarily stand to generate significant revenues from their products — at least, not for now.
After years of negative publicity over the price of drugs, most drugmakers have pledged to give treatments and vaccines away for free or sell them at cost price while the crisis is at its most acute. Gilead, for instance, has said it will give away 1.5m doses of remdesivir until the end of May. Given the considerable cost of developing and making a medicine, that means the company will initially lose money on its remdesivir project.
Just as the markets closed on Friday, President Trump announced that remdesivir had received emergency regulatory approval. The FDA confirmed the news — and issued guidance warning patients that little is known about the side effects of the drug. The stock, which had been down almost 5 per cent on concerns that Gilead will not profit from the drug, climbed in after hours trading, up 1.6 per cent.
Even if Gilead does commercialise the drug, Mr Loncar predicts peak annual revenues in the “low single-digit billions” — a “blockbuster” in pharma parlance, but not a particularly lucrative one. Compare that with the increase in the company’s market capitalisation since February, when investors were first excited by the potential of remdesivir: it has risen by about $25bn.