Two weeks ago, Merck (MRK-NYSE) rocked the market. They gave us hope that COVID could soon be in the rearview mirror.

Merck announced that their oral antiviral treatment – molnupiravir – cut the risk of hospitalization of mild to moderate COVID in half – and it eliminated deaths completely.

This was HUGE news—and not just because of the better-than-expected results. But rather, it was the fact that molnupiravir is a pill (not a vaccine; not a “jab”). This news added several billion in market cap to a big company like Merck.

As Benjamin Gewurz, associate director of the Ph.D. program in virology at Harvard Medical School put it:

“Having an oral option will be a big change. Some people could just take a pill rather than having an IV or injection of some sort. And that’s what would be a huge, huge advance.”

You cannot understate how big of a deal an oral form a drug is. A pill can be taken anywhere. The patient does not need to go to hospital or a clinic just to get treated. (For now, let’s just forget that molnupiravir could cause mutations in COVID…)

But Merck is not the only company dreaming of a COVID payoff. It is just the first to show results.

While there are plenty of COVID treatments in trial right now, only a few are oral. Most treatments that have shown promise are administered either through a shot in the arm or by IV.

A few large names are trialing oral therapies.  Pfizer (PFI-NYSE) is working on a drug similar to molnupiravir. Japanese drug maker Shionogi & Co is as well. And Atea Pharmaceuticals (AVIR-NASD), in partnership with Roche has a hopeful drug that will read-out soon.

These are all big-cap stocks. Which is not surprising – this is a big space. But there is a small cap angle here. Two, in fact.

Two tiny micro-cap stocks, Appili Therapeutics (APLI – TSXv) and ADiTX (ADTX – NASDAQ) share an interest in a pill-form COVID antiviral – that has a November read out for a Ph2/3 trial that is ongoing in the United States.

Now my research suggests this drug is no sure thing, but you also can’t rule it out. What’s more, these companies have made some curious moves of late. Put these trade ideas in the VERY high risk category.

Appili just did a share swap with a private company which also has an interest in that same COVID drug. A few weeks later ADiTX made a takeover offer for that same private company. And Appili just closed on a share and warrant raise for $7 million last week.

What is the reason for these moves? Jockeying for position? Just speculation?

Whatever it is, it has my attention.


Favipivavir — Two Small Cap COVID plays


The drug is called favipiravir.

Favipiravir is currently in a Phase 2/3 trial targeting mild to moderate COVID, called PRESECO. The trial is ongoing in the United States and Latin America. It is expected to read-out in the next month. This is usually an important milestone and results in a big move in a junior biotech’s stock price. So this story is very timely. 

Source: Appili Investor Presentation

Favipiravir is not a new drug. It was developed 6 years ago by the pharma arm of the Japanese company FUJIFILM Holdings (FUJIY – JPN).

Favipiravir goes by a number of names, which adds to the confusion (mine included). Depending on the region and target of use, it goes by Avigan, Reeqonus and FabiFlu. In addition, when the drug is used in Russia it seems to have an altogether different set of names again.

Favipiravir has already been approved and used as a generic drug in Japan and 8 other countries (including India) for other indications. It has been used for Ebola and for respiratory illnesses like the flu. It is the same class of drug as molnupiravir.

And it is being used in COVID – right now.

Appili CEO Armand Balboni told me in a recent interview that favipiravir has been used to treat COVID in 8 countries – India, Russia, China, Japan Indonesia Thailand, Egypt and Mexico. 

There is a consortium of companies (more on this shortly) that have already sold $150 million worth of favipiravir this year. IS THIS $150 MILLION ALL FOR ORAL PILL SALES There have been between 32 and 40 studies (depending on the source) that are either ongoing or completed having tested the efficacy of the drug in COVID.

But it has never been approved in North America–or Europe—for any indication. And its track record in COVID trials, at least the one’s I have access to, is a little spotty. 

So really this comes down to the Phase 2/3 PRESECO trial, which will determine the drugs fate and the two micro-caps that are driving it.


The Appili/AiPharma Connection


As I said there is not one but two micro-cap companies with an interest in favipiravir. I’m going to start telling the story of these companies – but fair warning: it is going to get complicated.

Again—the entire reason for this story, now, is that favipiravir is due to have a read-out on its Phase 2/3 trial within 3-5 weeks. If it’s positive, both these stocks (well under $100 million market each) could both soar. But this is far from a “gimme”.

The first company is Appili. This is a small (~$55 million market cap) Canadian-listed, Canadian-based biotech firm. In addition to favipiravir, Appili has several other microbial targets in various stages of development:

Source: Appili Investor Presentation

Appili has the right to receive royalties on favipiravir in regions where the data from the PRESECO Phase 2/3 trial of the drug is used for approval. These are high single-digit royalties in countries like the United States and Europe.

Simple, right? Well, not so fast.

First, while Appili owns royalties on favipiravir, it does not seem to be earning anything off of it – at least so far.

According to a recent Appili press release, favipiravir has done $190 million in sales so far this year. But when I look at the first six months of earnings, Appili does not have any royalty revenue at all?

Second, Appili recently took an interest in a private company called AiPharma, which has a sizable interest in favipiravir, via a stock swap.

AiPharma holds a 50% equity stake in a consortium called Global Response Aid (“GRA”). I was told by Balboni that GRA owns a 50% interest in worldwide sales of favipiravir, which would mean AiPharma owns a net 25% of sales.

GRA includes Appili, as well as Dr. Reddy’s Laboratories (RDY – IND), Agility (AGLTY – KSE/DFM) and FUJIFILM Toyama Chemical Co. Ltd, a subsidiary of FUJIFILM, the creator of the drug.

The consortium works “to coordinate and accelerate the worldwide development” of favipiravir.

The stock swap between Appili and AiPharma give Appili a 6% ownership in AiPharma and AiPharma a 19.4% ownership in Appili.

If you think that is a bit complicated, just wait – I’m only getting started.


The AiPharma/ADiTX Connection


I said there were two public microcaps involved here. The second is ADiTX.

ADiTX appears to be mostly a shell company that also owns a very early-stage product to evaluate the strength of an individual’s immune system.

But ADiTX made a jump into COVID this month when they announced “a binding agreement” to buy AiPharma.

To give you the timeline here: the Appili/AiPharma agreement was press released September 29th.  Less than a week later the ADiTX press release came out.

The ADiTX / AiPharma deal had been in the works for a while. ADiTX actually announced its intent “to Negotiate the Acquisition of a Biopharmaceutical Company Commercializing and Distributing Antiviral Oral” back in August.  

But they did not name the target. It seems they had to satisfy deal requirements for a stock offering and bridge loan to AiPharma first, something they did in early September.

The terms of the acquisition included a bridge loan from ADiTX to AiPharma of $15 million and shares to AiPharma equal to “65% of the number of Aditxt’s outstanding shares calculated as of September 30, 2021”.

ADiTX had about a $58 million market cap after the above transactions.


Is This Complicated Story Worth The Effort?


In summary – it’s VERY complicated. But with a read-out on results expected next month, it could also be very lucrative.

AiPharma owns some of Appili. Appili own some of AiPharma. And if AiPharma and ADiTX reach a definitive agreement by the end of November – AdiTX will own all of AiPharma.

What is really going on here is anyone’s guess.  The only thing I can be sure of, is if the current Phase 2/3 trial for favipiravir gives favorable results, both of these stocks should go up a lot.

Consider that Merck, a $200 billion behemoth, went up close to 10% the day it announced the molnupiravir results.

Merck has already said they are planning to produce 10 million courses of molnupiravir this year. That will double to 20 million courses next year. 

That math on that means $2.5 billion of sales to Merck this year, rising to $5 billion next year.

The US government recently signed a deal to procure approximately 1.7 million courses of molnupiravir at a cost of US$1.2 BBBBillion, and there are deals with other governments as well.

So you get an idea of how big an approval of this kind of drug can be.

If that sounds exciting – well remember, The Big Question is – what are the results going to be?

And that, unfortunately is not at all clear.


Favipiravir Has Mixed Results


Favipiravir has been involved in a lot of the trials – somewhere between 30 and 40 depending on the source. But almost all the trials have taken place in rest-of-world countries – meaning not North America, not Europe.

That means that the trial results are not all available and not all in English.

And judging the results from those that are…has proven to be tricky.

For one, many of these trials are not double-blinded – that means there is no placebo arm to compare the results to.

For example, there was a very large trial (1,083 patients) from India that was commissioned by Glenmark, an Indian generic company that manufactures favipiravir there. 

The press release from Glenmark plays up the efficacy and safety, highlighting favipiravir’s “consistent ability to provide symptomatic relief and improve clinical outcomes in patients with mild to moderate COVID- 19.”

But the study was single-arm – there was no comparison placebo group. So whether the results are actually better than standard of care is impossible to assess.

The second problem is…that in the trials that are double-blinded…the results have been mixed.

There was a Russian trial and a couple of Chinese trials where the results suggest the drug works. But there were other trials from Saudi Arabia (in severe COVID), Japan and China that indicated no benefit at all.

It is very hard to say. It could be that favipiravir only works under some circumstances (mild-to-moderate vs. severe COVID for instance). Or it may not work at all.

All in all, I have to conclude I have no idea whether the PRESECO trial will meet its endpoint or not.

But you can take that either way. Yes, the data is mixed, but the data is also mixed. I can’t look at the data available and rule out a positive result for favipiravir either.

It may be worth pointing out that in the $7 million public offering that Appili just closed, Bloom Burton, a 20% holder of the company, does not appear to have participated beyond broker warrants they received for their role as lead broker.

That tells me that Bloom Burton does not know something. And that these favipiravir results are probably just as much a dice roll to them as they appear to me.

ADTX also just completed a quick financing–which to me suggests that neither management team–APLI nor ADTX–is completely confident in the upcoming results.

And that makes Appili and ADiTX exactly what you would expect – a pure and simple gamble.

But they are also a fairly cheap gamble, and one with a big pay-off if the cards fall right.

Appili is expecting top-line results on this study somewhere between November 5th and November 15th. Those results will make or break the stock, as they will AdiTX.

I’ll be watching closely. I have a very small position (way under 1% of my portfolio) in both stocks.