Should investors consider a speculative bet in Ebola treatments?

Tekmira Pharmaceuticals Corporation Stock

In an article titled “The Free Market Won’t Produce an Ebola Cure,” Forbes contributor Tim Worstall argues the market for Ebola cures is significantly low, and thus a free market cure to the medical crisis grounded in poor West African nations isn’t likely to gain traction.

But what if the disease spreads into more wealthy nations? What if the deadly virus suddenly gets legs throughout the world?

Tekmira Pharmaceuticals benefiting from Ebola crisis

Benefiting from such a terrible situation would be Tekmira Pharmaceuticals Corporation (NASDAQ:TKMR), which recently received news the US Federal Drug Administration modified the clinical hold on Tekmira’s treatment for use in infected regions on a compassionate use basis.

Tekmira Pharmaceuticals Corporation (NASDAQ:TKMR)’s Ebola treatment is the only one successfully tested on a handful of healthy humans – other Ebola drugs have only been administered on animals, a research report from the Royal Bank of Canada noted.

To meet the much larger demand of the broader outbreak, the report said, they would have to ramp up manufacturing, which could take months. But the bigger benefit could be potential government stock piling of the drug just in case.

Tekmira: The Ebola outbreak play

While Tekmira Pharmaceuticals Corporation (NASDAQ:TKMR) is one way to potentially play the Ebola outbreak, Royal Bank of Scotland notes this isn’t the only reason to embrace the firm.

The research report notes that generally, while a highly speculative investment, Tekmira is an undervalued small cap. Not only is the firm “inexpensive” but it has “significant upside potential vs. downside potential because of not just one but multiple programs (cancer, Hep B, and Ebola, and more) moving along.”

Professional investors who invest in young emerging bio-techs knows that it can be akin to betting a number on a roulette wheel.  The returns are a low win percentage experience with a high size of win.

Many investors acknowledge this “lottery winner” potential in small bio-tech starts as a reason not to invest, as performance is difficult to predict.  In fact, in many of the medical roll-ups the argument in favor of reducing research and development costs is this is an unpredictable revenue generator that doesn’t contribute to immediate earnings.  Activist hedge funds, often looking for a near term profit, are most interesting in what can provide the stock price a short term boost.

While RBC acknowledges there is the potential for Tekmira Pharmaceuticals Corporation (NASDAQ:TKMR) to land significant revenues due to its Ebola program, the report notes this should only be “considered a long-term upside opportunity as visibility is very low and predicting what happens with pandemic outbreaks and government contracts can be risky.”

In other words, betting on medical breakthroughs is like betting on a single number at the roulette wheel.