History will remember 2020 as the year of the COVID-19 pandemic. But if we want 2021 and 2022 to avoid similar infamy, we need a cure. Better yet, a vaccine.
The Trump Administration’s “Operation Warp Speed” has turned the search into a gold rush, putting billions of dollars into companies seeking a way out of this mess.
Those companies are working as hard as they can to create new tests, treatments and vaccines.
Unfortunately, science takes time, not just money. Vaccines need to be tested, on people, before they go on the market. Working vaccines are unlikely to be produced until next year. And even then they must be manufactured, distributed and administered at scale. That’s where the grants and contracts offered by the government will prove their worth.
For investors buying tomorrow today, this has essentially already happened. Every company involved in the race for a COVID-19 vaccine has become a hot stock. Companies that end up producing safe and effective vaccines will make billions. Investments that fail the test will plummet.
Here are 6 stocks to play Covid-19 treatments:
- Moderna (NASDAQ:MRNA)
- Regeneron (NASDAQ:REGN)
- Sanofi (NASDAQ:SNY)
- Novavax (NASDAQ:NVAX)
- Sorrento (NASDAQ:SRNE)
- Inovio (NASDAQ:INO)
Not all of these companies will make it to the finish line to produce a vaccine. But a lot of interesting science is being done along the way. This work may result in compounds that work to treat other medical ailments, or that would be helpful against the next pandemic.
6 COVID-19 Vaccine Plays: Moderna (MRNA)
Moderna (NASDAQ:MRNA) was founded 10 years ago to create drugs based on Messenger Ribonucleic Acid (MRNA). These are short chains of nucleotides that can be copied by DNA to provide new blueprints for living organisms.
The virus has proved a perfect test case for Moderna’s technology, designing Messenger RNA to direct the body’s fight against disease. It was able to complete a Phase 1 trial of a COVID-19 vaccine within a few months and the stock was off to the races.
It’s one thing to show that a vaccine seems to work in a lab. It’s something else to prove that it works safely on real people. This makes investing in any COVID-19 stock volatile. A slight delay in Moderna’s second vaccine trial sent shares down 10%. They recovered, after the company tweeted an update.
Moderna’s weakness lies in lobbying; bigger companies with weaker candidates have gotten to huge piles of money before any Phase 3 trials begin. But if Moderna’s system does work, it’s in great shape even if it loses the vaccine race. COVID-19 could be the “proof of concept” that lets it quickly deliver dozens of drugs.
This would make Moderna a very attractive buyout candidate for a larger company like Regeneron (NASDAQ:REGN) or Pfizer (NYSE:PFE). A vaccine delivery winner could use Moderna to gain long-term biotech leadership.
I have never seen Regeneron (NASDAQ:REGN) as a COVID-19 play, although that’s how it’s being valued right now.
Regeneron already has several drugs on the market. Its flagship is Eylea, for treatment of macular degeneration. It also sells Dupixent for dermatitis, an arthritis drug called Kevzara and a heart drug called Praluent. Eylea alone had $6.7 billion in sales during 2019.
Regeneron has a pipeline of 20 product candidates and is studying additional treatment options for 5 existing drugs. Some of its most promising compounds are Libtayo, a cancer drug, and Fasinumab, a pain medication. It recently won a fast track review on Evicanumab, a cholesterol drug.
This means Regeneron still has a reasonable price to earnings multiple under 24 and sells at just 8 times annual revenue. These numbers aren’t unreasonable for a company growing at 24% per year.
REGN-COV2, Regeneron’s COVID-19 drug, isn’t a vaccine. Instead it’s a cocktail of antibodies that could treat the virus and prevent infection for front-line workers and elderly patients while waiting for vaccines to become available. If REGN-COV2 works, there’s $450 million in production funding waiting for it under the government’s “Operation Warp Speed” program.
A Phase 3 trial for REGN-COV2 began in July. The trial has enrolled 2,000 people in the U.S. as a preventative, and almost 3,000 more as a treatment. As with other Regeneron drugs, REGN-COV2 was produced with its Velocimmune mice, genetically modified to have a human immune system, which is part of Velocisuite.
Regeneron is pricey right now because of COVID-19, but it’s the kind of stock you should buy as a long-term holding. Genetic-based drugs are going to be one of the main investment themes of the coming decade, and Regeneron is an early leader.
A year ago, Sanofi (NYSE:SNY) was a slow-moving French drugmaker, locked in a trading range of $40 to 50. Then the company hired English executive Paul Hudson away from Novartis (NYSE:NVS) as its CEO.
Today Sanofi is the most talked-about name in the business. By selling its stake in Regeneron (NASDAQ:REGN) for $13 billion it has the capital to buy out other drug companies. Hudson has already started putting that money to work, buying Principia and its Multiple Sclerosis (MS) drug candidate for $3.7 billion.
When COVID-19 hit, Hudson quickly signed a deal with Glaxo SmithKline (NYSE:GSK) for mass production of its vaccine with a 2021 rollout. That meant spending money on facilities in advance of having a drug. The gamble paid off when the Trump Administration signed off on buying $2.1 billion of the product once it’s ready.
First half sales were up only 1.6% in constant dollars and were down in the second quarter. The diabetes and heart drugs are still in production with falling sales, and there’s also a consumer health business where sales are falling.
But analysts are starting to take notice. The average price target of 23 analysts on Sanofi is now over $60/share, the average rating an overweight. The new Sanofi is a swashbuckling company with a busy checkbook, aiming to buy potential blockbuster drugs before they reach the market.
If you’ve been holding Sanofi for its dividend, now may be the time to sell. But if you’re looking for a solid drug company that might provide big gains down the road, Sanofi may be what you’re looking for.
No company was better prepared for COVID-19 than Novavax (NASDAQ:NVAX). You could have gotten this stock for under $5 a share in January. By August it was over $140. That’s a market cap of nearly $9 billion for a company with sales of just $18.8 million last year.
And that valuation may not be out of line.
That’s because Novavax is collecting $1.6 billion from the U.S. government for development of its COVID-19 vaccine. It has a contract to supply 60 million doses to the U.K. And it’s signing manufacturing deals that could produce nearly 3 billion doses of its candidate, called NVX-CoV2373, which has just started a clinical trial.
Partners and nations are rushing to Novavax’ side because it has been working against coronaviruses for many years. The company is built around Matrix-M, a plant-based adjuvant that enhances the effectiveness of vaccines. It was acquired with a Swedish company in 2013.
Two years later, after a $89 million grant from the Bill and Melinda Gates Foundation, Novavax had an Ebola vaccine candidate. Its pipeline also includes vaccines against SARS and MERS. What’s important here is that these are all coronaviruses, like COVID-19.
There remain big risks. There is no guarantee Novavax’ vaccine will work. Its track record isn’t great: its previous coronavirus vaccine candidate, ResVax, failed in two late-stage trials. Missed revenue estimates provided an excuse for speculators to take profits in August. Shares plunged after earnings, from a high of $181 to a low of $112, though they have since made back half the ground.
Critics pounced on management after the stock options owned by CEO Stanley Erck and his team rose to over $100 million in value. Those options vest a year after starting a Phase 2 trial, which has now begun in South Africa. Early clinical data is encouraging, but it’s early; ResVax also had positive early clinical data.
However, if NVX-CoV2373 can show even 50% efficacy, with minimal side effects, it would be a game changer. Successful vaccines could split a $100 billion market and share $40 billion in profits. That would make Novavax’ current market cap cheap by comparison.
In 2020 it’s the ultimate coronavirus play. Shares that opened the year under $5 were due to trade August 18 at over $12.75.
But when dealing with a global pandemic, size matters. The big money is going to be on big companies. Whatever the solution turns out to be, this is a big market that will demand big manufacturing support.
Sorrento is not a big company. Sales for the first half of the year came to $16 million.The company listed assets of $533 million at the end of June, with $198 million in debt. Yet the company has a market cap of $2.9 billion, thanks to announcements that hold enormous promise.
Shares tripled in May after a Sorrento release saying its STI-1499 “demonstrated 100% inhibition of SARS-CoV-2 virus infection in an in vitro virus infection experiment at a very low antibody concentration.” Over the next two months the value of shares tripled again.
Then it said it will buy privately-held SmartPharma, saying the combination “may potentially provide longer-acting, single injection protection” from the virus. Finally it announced the agreement with Columbia University for a saliva-based antibody test it said could deliver results in 30 minutes.
All this sounds great. But Sorrento is not producing a working vaccine, it is not delivering a cure, and even the test is experimental. It’s the perfect recipe for a short seller.
Sorrento has threatened to take legal action, but the market already has. The company lost one-third of its value in less than a week. Shares that were at $18 fell to $12.
Sorrento may be a worthwhile speculation. But if you buy it keep an eye on it, not just by the day but by the hour, the minute, the second. What goes up can come down quickly.
Of all the COVID-19 vaccine candidate stocks, I’ve been hardest on Inovio Pharmaceuticals (NASDAQ:INO).
I’m no scientist, but even scientists aren’t sure. Of course, that’s what clinical trials are for. But the negative media swarm has had an effect on Inovio shares. Over the last month their value has been cut nearly in half.
Inovio opened for trade on August 20 at $14.30, indicating a market cap of about $2.4 billion. As with other such stocks there are no fundamentals to base this on. Sales last year came to $4 million.
Inovio whipped up its vaccine candidate, INO-4800, in a matter of hours. This came after researchers mapped the chemical “spike” on the virus that looks like a little crown, hence the name coronavirus.
The Inovio vaccine is built with DNA that tricks the body into thinking it’s infected, rather than being built with a weakened form of COVID-19. Inovio’s Phase 1 human trial was considered a success by the company and is now going through peer review. A Phase 2/3 trial is due to start in September.
Inovio’s small size means it offers speculators what they most want in a COVID-19 stock, which is action. Those who bought in February and sold in June scored profits of 800%. During March alone Inovio rose from $4 to $14 before backing down to $6. These are much bigger swings than for Moderna (NASDAQ:MRNA), although the direction of the moves mirrors it.
The bear case starts with the fact that CEO Joseph Kim has been making vaccine promises for a decade, but has yet to bring one to market. Inovio’s Phase 1 announcement was short on details. And while it shouldn’t matter too much, it doesn’t help that the Inovio candidate is administered by a patented device it calls the Collectra that looks like a nose hair trimmer. Investors wonder what that’s all about.
Inovio also has failed to win the kind of multi-billion dollar supply contracts, backed by government money, won by AstraZeneca (NYSE:AZN), Novavax, Sanofi, Glaxo SmithKline, Moderna, BioNTech (NASDAQ:BNTX) and Pfizer. This means the results of the new clinical trial are crucial.
If Inovio demonstrates safety and better protection than other approaches, it will have a spectacular win. Anything less and it will be left behind. But here’s the bottom line. Money can’t solve the problem of COVID-19. Only science can. We don’t know what will work.
You’re speculating no matter which candidate stock you buy. I’m not a speculator which is why I’m not playing the game. If you are one, Inovio is as good a name to play as any.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.