Tekmira Pharmaceuticals (TKMR) up 23% on U.S. Ebola Case

by Ryan Fitzwater, Director of Research, The Oxford Club
StockGrader

Break out your bug-out bag, Ebola has arrived in the United States. The first case was confirmed by federal officials yesterday.

The infected patient is currently being treated at the Texas Health Presbyterian Hospital of Dallas. Apparently, the patient returned to the U.S. on September 20 from Liberia. This poor unidentified person is now in strict isolation.

This news has put downward pressure on airline stocks over the concern that travelers will delay or cancel their flights. On the flipside, shares of several drugmakers developing potential treatments and vaccines are up big on the news. And Tekmira Pharmaceuticals (Nasdaq: TKMR) is one of the biggest leaders, up over 23% today.

On the Fast Track

The Canadian drugmaker's Ebola treatment, TKM-Ebola, has been in development in conjuncture with the U.S. government since July of 2010.

Previously on a full clinical hold, the Food and Drug Administration authorized expanded use of the drug on September 22. This will allow patients with life-threatening symptoms to take TKM-Ebola on a case-by-case basis, as long as they have exhausted all other approved treatments.

To date, there are no proven vaccines or drugs for Ebola. The disease is so rare, it's been hard for it to attract investments in the past. That, of course, could be changing.

More than 3,000 people have already died from the disease, and that number is rising. As the Ebola outbreak continues to spread, potential demand for TKM-Ebola and other treatments has caught the eyes of investors.

The outbreak has already sent Tekmira’s share price soaring over 53% in the last three months alone.

And with the first case just announced in the U.S., shares of the drugmaker could continue to surge.

You might be asking, is now still a good time to jump into the stock?

Good question. Since TKM-Ebola has yet to be proven effective, this is a very speculative play for your portfolio.

Sure, the Ebola outbreak could continue to spread, allowing the company to sell its drug to desperate, dying patients, even if it isn't that effective. It could also be very effective, and take the lead as the go-to treatment. But another competitor could come out with a better alternative, or the outbreak could die out and dry up demand for any potential treatments.

Yes, a lot of unknowns. So what do we know?

Fundamentals

For those of you who aren't into rolling the dice, you might be interested in taking a look at Tekmira's financial health first.

The company is a small player, with a market cap of $466 million: speculative right off the bat.

And it accounts for a large portion of its revenue in a different manner than most. The U.S. government reimburses it for third-party costs, and it records these reimbursements as revenue. This is common accounting for very small companies that rely on government contracts for a large majority of their revenues, but it is risky. If that contract is cancelled, put on hold or never renewed, there goes a big part of their business.

You should also know that Tekmira turned a profit only once since it started trading in 2007, and that was back in 2012. And the only reason it turned a profit that year was due to a one-time $65 million licensing settlement payment from a lawsuit with AlCana and Alnylam Pharmaceuticals (Nasdaq: ALNY).

No profits without a lawsuit settlement? Not my type of stock.

But if you are still considering making a bet on Tekmira, you might want to take a look at how it performs on our Investment U Fundamental Factor Test before you take the plunge:

Earnings-per-Share (EPS) Growth: We already mentioned that net income has been negative since 2012. If earnings are negative, there is no growth.

Price-to-Earnings (P/E) Ratio: With no earnings and projected earnings negative till 2017, we cannot calculate P/E.

Debt-to-Equity Some good news is that Tekmira has zero long-term liabilities. Its debt-to-equity is 0%.

Free Cash Flow per Share Growth : Negative free cash flow growth of 76.46% is not something we want to see.

Profit Margins Profits margins are also negative and are not even worth comparing to other competitors that are also in the red. On to the next.

 Return on Equity And, of course, ROE is negative when you are not earning anything for shareholders. Another negative mark here.

*Why did we look at these specific metrics? Find out more here.

Fundamental Factor Test Score

F: Sell (One Key Metric or Less)

Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That's why The Oxford Club offers over a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth. For more details, click here.

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