With the sudden Monkeypox outbreak, stocks like GeoVax Labs, Inc. (GOVX) (GOVXW) and SIGA Technologies, Inc. (SIGA) have been on fire. There are other Monkeypox vaccine stocks out there, but these two are the smallest pureplays available, and that is evidenced by their massive moves on Friday, following up on a strong few days. GOVX rose 90% on Friday while SIGA rose 43% with an additional 24% increase after hours. Stocks like Tonix Pharmaceuticals Holding Corp. (TNXP) and Emergent BioSolutions Inc. (EBS) also moved up on Friday, but their moves were relatively muted at 10-15% each while Bavarian Nordic A/S (BVNRY) is illiquid and not accessible for many traders. So this is why we are choosing GOVX and SIGA as our two top Monkeypox stocks. We are up to 997 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel. You can also follow us on Twitter @StockTradePicks.
President Biden just announced this weekend that his administration will be looking into securing monkeypox vaccines. That alone should send these stocks into continued flight mode. We have a target price range on SIGA of $25 to $40 which would add about $1 billion to $2 billion in market cap. We have a target price on GOVX of $15 to $100 which would add approximately $150 million to $1 billion in market cap. These are huge upsides and we will explain why. SIGA is like the Moderna, Inc. (MRNA) of Monkeypox vaccines while GOVX is more like Novavax, Inc. (NVAX). Both have such huge upside potential because SIGA starts at a market cap of less than $1 billion and GOVX at a minuscule $13 million.
Smallpox vaccines stop being issued around 1980, which means no one under the age of 40 has one, and likely in this situation those above 40 would be subject to a top up, at least in higher exposure groups. If there was a billion shots to be issued to people under the age of 40 in the Americas and Europe, that would be approximately $10 billion market at $10 a shot. This is a drop in the bucket for global government spending, especially when compared to COVID and society's sensitivity towards it. So we can expect this to be the lower end market opportunity for the next 1-2 years.
The FDA just approved SIGA's Smallpox-Monkeypox TPOXX IV formulation, in addition to the oral capsule already approved in Europe and North America. If SIGA is to capture approximately 10% of the $10 billion in estimated market share, it's fair to add on a billion in market cap in addition to the run we have already seen. If it can capture up to 20% of this market, this is where $40 target price is achievable. This will be high margin revenues - for instance, MRNA's gross margins have been 85% - but it'll also be short lived. There shouldn't be a high multiple associated with these earnings as they will likely not be year-in, year-out. Investors don't want to get into the same trap as MRNA which has risen from $20 to $146 since the start of the pandemic, but also has come back down from a high of $497. It's very conceivable that in a heightened Monkeypox risk, that the hype element of SIGA's stock price could well exceed $40. But that will be on traders and investors to assess the risk of that investment at that time. We are comfortable issuing a high end target of $40 based on the information available today. That's still more than a triple from Friday's close.
At a 90% increase, GOVX was Friday's single largest gainer on the main U.S. markets. That's easily explained by its ridiculously low market cap coupled with being under the radar while also having FDA approval of its MVA vaccine vector for smallpox and monkeypox. GOVX has been using its modified smallpox vaccine to develop a COVID-19 vaccine, among others as noted as part of its annual filing pictured below. Well now there is an outbreak of the cousin Monkeypox, for which its GV-MVA-VLP™ vaccine platform was initially developed.
Because of its small size, GOVX only needs a tiny piece of the vaccine market opportunity to have enormous upside. A stock price of $15 assumes a market cap of just under $150 million. To support that kind of valuation would require just a 1.5% share of the aforementioned $10 billion market. If GOVX was to be more successful and attain up to 10% market share either through direct manufacturing or through third party licensing, the stock price could reach $100. Even if investors don't believe these lofty targets at the moment, they are only paying a $13 million market cap or $1.39 per share for a chance to get on this ride. GOVX will continue to have massive upside as long as the hype/fear factor of Monkeypox exists.
GOVX also has warrants with a strike price of $5.00. They closed at $0.49 on Friday. The leveraged upside potential is apparent as seen in the charts above. The warrants should trail the stock price by the $5.00 strike if and when they become deep in the money. In the short term they will also trade on hype and time value, similar to a call option. The warrants expire in 2025 so there is ample time for them.
Disclosure: we are long GOVX. GOVXW, SIGA
No comments:
Post a Comment