Pharmaceutical stocks have enjoyed big gains in 2020. The SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH), which tracks pharmaceutical companies in the S&P 500 index, is up 52% since March. Many pharmaceutical companies have seen their stock prices more than double this year, and a few have seen increases of more than 1,000%.
However, now that companies such as Pfizer (NYSE:PFE) Moderna (NASDAQ:MRNA) and AstraZeneca (NASDAQ:AZN) have emerged with viable vaccines against the novel coronavirus and are on the verge of regulatory approval to deliver those vaccines to the public, the hype surrounding many pharmaceutical stocks is fading.
In this article, we look at four pharma stocks that aren’t worth their 2020 gains and likely to deflate in coming months.
- Regeneron Pharmaceuticals (NASDAQ:REGN)
- Inovio Pharmaceuticals (NASDAQ:INO)
- Abbvie (NYSE:ABBV)
- Novavax (NASDAQ:NVAX)
Pharmaceutical Stocks Not Worth Their 2020 Gains: Regeneron Pharmaceuticals (REGN)
Few stocks have benefitted from expectations for a Covid-19 cure as much as Regeneron Pharmaceuticals. Since January, REGN stock nearly doubled (up 96%) to a 52-week high of $664.64.
The share price got a hefty bump in October after it was reported that President Donald Trump received the company’s antibody cocktail to treat his own Covid-19 infection. The company has since received an emergency-use authorization from the U.S. Food and Drug Administration to sell the cocktail of two antibodies that it supplied to President Trump.
That’s all great news for the Regeneron. However, there’s more to the FDA emergency-use authorization than many investors may realize. First, Regeneron’s treatment, REGN-COV2, is not a vaccine that prevents people from contracting the virus. It is a medication that doctors give to people who have been hospitalized with Covid-19 to lessen the severity of their symptoms. Also, Regeneron still needs to wait for full FDA approval.
In the meantime, it must still test its Covid-19 treatment. And, other drug makers, Eli Lilly (NYSE:LLY) and Gilead Sciences (NASDAQ:GILD) have similar treatments that are just as effective and further along in terms of their commercialization.
REGN stock has fallen more than 23% in recent weeks and is now at $516.03 a share. The momentum seems to be fading with this pharmaceutical company.
Inovio Pharmaceuticals (INO)
Inovio Pharmaceuticals is a stock that has not been able to hold its gains from earlier this year. Since peaking at $33.79 a share on June 26, INO stock has fallen just about 65% to its current level of $12.22 a share. The drop has been due to the growing realization that Inovio’s vaccine candidate is not likely to make it to market, as well as a number of other problems afflicting the company.
To date, Inovio has not received any orders for its Covid-19 vaccine, a DNA-based candidate known as INO-4800. The vaccine is not even on the U.S. government’s list of coronavirus vaccine developers receiving funding as part of “Operation Warp Speed.” Plus, the U.S. Food and Drug Administration (FDA) — which approves vaccine candidates — partially halted clinical trials of INO-4800, saying it needs more information before the company can proceed.
All this would be bad enough, but Inovio has also reported negative financial results. For its most recent quarter, INO reported a per share loss 83 cents compared to the 17 cents loss per share that analysts had expected . The company’s revenue — which consists of license fees, collaborative research and development arrangements — has declined 90% since 2017. It’s a bad situation anyway you look at it for this bio-pharmaceutical company.
Shares in Abbvie are up 58% from their March low at $102.18 a share, but have been up-and-down lately. The ABBV stock price fell to $80 a share at the end of October before it regained ground in recent weeks. However, much of the recent share price appreciation came after it was revealed in a 13F filing that Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) holding company bought shares of Abbvie.
But before investors get too excited, it’s worth pointing out that Abbvie was one of many pharmaceutical stocks that Buffett’s company loaded up on to take advantage of the Covid-19 vaccine roll out.
Long-term, it’s not clear whether Abbvie has enough going for it to justify the continued growth of its stock. The main thing ABBV stock seems to have going for it is the fact that it pays an attractive dividend.
The dividend has nearly tripled in the last decade and currently yields 5.3%. That’s impressive, but can’t alleviate some of the challenges looming on the horizon for Abbvie. The biggest challenge facing the company is that Humira, its blockbuster drug to treat arthritis and related conditions that happens to be the world’s top-selling pharmaceutical, is going to come off its patent in 2023 and face competition from generic drug makers. Investors should be cautious.
Novavax stock has enjoyed one hell of a run this year. In January, NVAX stock was trading at for $4.45 a share, in penny stock territory. In August, the share price hit an all-time high of $189.40, representing a mind-blowing 4,155% increase. A $5,000 investment made in Novavax stock in January would have been worth more than $210,000 in August. Incredible!
However, much of the stock’s run up was on hopes that Novavax would emerge as a leading contender to develop a vaccine against Covid-19. That hasn’t happened, and, as a result, NVAX stock has come sharply off its August high over the past three months, falling exactly 50% from its August peak to a low of $93.98 a share.
The stock recently enjoyed a resurgence and rose to just under $140 a share yesterday before falling as much as 10% today.
The up-and-down action came after Novavax announced that its late-stage Covid-19 vaccine study in the United Kingdom and its phase two study in South Africa had completed their respective enrollments of about 1,500 patients each. The company also said that its U.S./Mexico study is expected to begin in late December. However, the initial investor excitement by these announcements seems to have been tempered.
Novavax had previously stated that its U.S. study would begin in November. The new timelines underscore that Novavax is late with its vaccine candidate, NVX-CoV2373, at a time when other vaccines from Pfizer, Moderna and AstraZeneca are about to make the case for government approval. Novavax is at risk of missing the boat.
These company still has agreements in place with government in the U.S., Canada and the U.K. to supply vaccines, and those agreements have left Novavax with $2 billion in cash. But it’s not clear how much demand there ultimately will be for the vaccine when it finally receives regulatory approval.
The company’s recent third quarter results also disappointed. NVAX stock rode a lot of hype to incredible gains this year, but the share price is now pretty volatile and investors should look to book profits and move on.
On the date of publication, Joel Baglole held long positions in MRNA and BRK.B.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.