As the coronavirus from China sparks outbreaks throughout the world, many investors have shifted their priorities. At least for the immediate term, risk-on growth names which were popular following the phase one trade deal between the U.S. and China have lost their luster. Nevertheless, several healthcare firms, including Regeneron Pharmaceuticals (NASDAQ:REGN), have benefitted from the coronavirus. On a year-to-date basis, Regeneron stock has jumped to a 23% lead.
As one of the pharmaceutical firms racing to develop a treatment for the coronavirus, Regeneron naturally enjoyed a substantial uptick in speculative interest. However, the company is bringing some teeth into the narrative.
In early February, management announced an expanded agreement with the U.S. Department of Health and Human Services. The purpose is to develop antibodies that target harmful pathogens, including the influenza virus and the coronavirus, designated as 2019-nCoV.
Unsurprisingly, Regeneron stock spiked on the news. It continued to add to the initial gain as the coronavirus ravaged Wuhan, China, the epicenter of the epidemic. Sure enough, REGN surged for a second round as the virus rapidly crossed borders.
Indeed, keeping track of the disease is like watching our national debt clock: the case number moves alarmingly higher every day. At the time of writing, there are over 91,300 cases worldwide, with 3,120 deaths. Worrisome are the escalating cases in South Korea, Italy and Iran, which number over 8,700 combined.
Back home, we have over 100 cases across 15 states, with six fatalities. As a result, several people have panicked, empty store shelves of food, water and essential goods. Overall, it’s a terrible situation, but one that cynically bodes well for Regeneron stock.
But how long can this catalyst last?
Beyond the Coronavirus
Of course, I understand the temptation to dive into REGN. Because of immediacy bias, we’re fixated on the current epidemic. Anything that can possibly resolve the crisis appears a viable investment.
But step away from this emotional thought process and you’ll realize that gambling on outbreaks is not an easy business. For one thing, competition is fierce in this space. Many pharmaceutical and biotechnology firms, including Moderna (NASDAQ:MRNA) and Gilead Sciences (NASDAQ:GILD) have thrown their names into the mix. Should one emerge as a decisive winner, it essentially negates other companies’ research and development dollars.
Mark Esser, vice president of microbial sciences at AstraZeneca (NYSE:AZN) said it best. “Vaccine development is not for the faint of heart…if you can’t scale, it won’t be a product.”
Esser’s last point is especially important to consider when evaluating Regeneron stock. It’s not just the science but mundane factors like production that can make or break a treatment.
Ultimately, the short-lived nature of the coronavirus makes chasing REGN on this one outbreak a risky venture. However, Regeneron stock is more than just a play on the coronavirus.
When we talk about this virus, we should really consider that it’s part of the broader family of communicable diseases. If history is any guide, we will continue to ignore the lessons of the past. Even with the best preparedness protocols, the rise of globalization will stymie containment.
Additionally, once we finally control the coronavirus, a similar virus will likely strike again. And I hate to bring it up, but it will probably come from China. Customs such as wet markets, which involve close quarters between humans and animals raised for meat, are fertile microbial grounds. However, pointing this out is politically unpalatable (though letting people die apparently isn’t).
REGN Unfortunately Has a Long Upside Pathway
Author Steven W. Mosher blasted the Chinese government in a New York Post article last month. In it, Mosher accused China of covering up that the coronavirus escaped from their highest-level bioresearch laboratory. Sure enough, that lab is located in Wuhan.
Mosher made another startling accusation. “Some Chinese researchers are in the habit of selling their laboratory animals to street vendors after they have finished experimenting on them.”
I don’t know what to make of this matter. Sadly, though, I wouldn’t put it past China to cover up the real cause of the coronavirus. For several years, noted experts have blasted the country for false economic data. And we all know about China’s human rights violations, an issue that has always threatened a lasting trade deal between the U.S. and the Asian superpower.
This much is certain. Over the last few weeks, we’re getting a glimpse into China’s dirty laundry. And it is quite dirty, both figuratively and literally. Thus, I don’t characterize Regeneron stock as a flash in the pan. It probably has many years of upside ahead of it.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.