It took a viral outbreak to stall the market's bull run.
The U.S. market is in correction territory, with two of the three major averages having pulled back more than 10% from their recent peaks. The across-the-board sell-off has left many investors with evaporating gains and balance sheets dipping into the red.
The biotech sector has weathered the COVID-19 impact relatively better than the broader market.
Source: Trading View
Biotech stocks inherently are defensive bets that are largely immune to changes in economic conditions.
Stocks levered to COVID-19 — and specifically those developing therapies or vaccines targeting the virus — have seen meteoric gains.
Some of these stocks have netted returns higher than Tesla Inc (NASDAQ: TSLA) shares, which have been on a terrific run and are up 62% year-to-date following a mid-February pullback along with the broader market.
Biotech, Diagnostic Stocks Moving On COVID-19 Developments
Gilead Sciences, Inc. (NASDAQ: GILD): Gilead has initiated two Phase 3 studies to evaluate the safety and efficacy of remdesivir in adults diagnosed with COVID-19.
Remdesivir is an investigational nucleotide analog with broad spectrum antiviral activity. It has been successfully tested in animal models against Ebola, Marburg, MERS and SARS.
The initiation of late-stage studies follows the FDA's rapid review and acceptance of Gilead's IND for remdesivir for the treatment of COVID-19.
Vir Biotechnology Inc (NASDAQ: VIR): The company said it is working along with Chinese biotech WuXi Biologics to produce monoclonal antibodies for the potential treatment of COVID-19.
The monoclonal antibodies were isolated from individuals who survived a SARS infection.
Cocrystal Pharma Inc (NASDAQ: COCP): The company announced a licensing agreement with the Kansas State University Research Foundation to develop certain antiviral compounds for the treatment of norovirus and coronavirus infections covered by the latter's patents.
Novavax, Inc. (NASDAQ: NVAX): This late-stage biotech is assessing multiple nanoparticle vaccine candidates in preclinical studies to zero in on an optimal candidate for human testing. The company said it expects to begin human testing by the end of spring.
It is using its recombinant protein nanoparticle tech platform to generate antigens derived from the coronavirus spike protein and is planning to use its Matrix-M adjuvant with the COVID-19 vaccine to enhance immune responses.
Moderna Inc (NASDAQ: MRNA): This biotech, which develops messenger RNA therapeutics, said Monday it has released the first batch of mRNA-1273, its vaccine against COVID-19, for human use. It began shipping vials of mRNA-1273 to the NIH's National Institute of Allergy and Infectious Diseases to be used in a planned Phase 1 study in the U.S.
Inovio Pharmaceuticals Inc (NASDAQ: INO): Inovio announced in late January it is collaborating with Beijing Advaccine Biotechnology to advance development of INO-4800.
The company said it has already begun animal testing and preparations for clinical product manufacturing, and is looking ahead to use its Chinese partner's expertise to run a Phase 1 trial in China in addition to its clinical development efforts in the U.S.
Vaxart Inc (NASDAQ: VXRT): This San Diego, California-based biotech announced in late January it has initiated a program to develop a coronavirus vaccine candidate based on its proprietary oral vaccine platform VAAST. The company intends to evaluate the candidates in preclinical models.
Cleveland BioLabs, Inc. (NASDAQ: CBLI): The company, though it has not disclosed any COVID-19 development, has a vaccine adjuvant in the works.
Its SA-702's immune activity is being harnessed to enhance the efficacy of vaccines by eliciting a stronger immune response to a vaccine's particular antigen.
Co-Diagnostics Inc (NASDAQ: CODX): This molecular diagnostic company launched its research use only, or RUO, CoPrimer test for the COVID-19 diagnosis in early February. Last week, the company said the test has received a certification mark.
Some of the other companies engaged in COVID-19 related R&D are:
- Guardion Health Sciences Inc (NASDAQ: GHSI)
- Tonix Pharmaceuticals Holding Corp (NASDAQ: TNXP)
- BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX)
- Cerus Corporation (NASDAQ: CERS)
Big pharma names have also vied for a piece of the coronavirus market.
Johnson & Johnson's (NYSE: JNJ) Janssen unit, GlaxoSmithKline plc (NYSE: GSK), Sanofi SA (NASDAQ: SNY) and Regeneron Pharmaceuticals Inc (NASDAQ: REGN) are among the big names that are engaged in R&D for a COVID-19 vaccine.
COVID-19-Levered Stocks Fly
COVID-19 levered biotechs are outperforming even save hafen assets to which investors flock when there is uncertainty.
Gold, despite hovering near a seven-year high, is up about 8.15% year-to-date.
Bonds, also considered a safe bet due to the steady income they can bring, have rallied through the calamity. The yield on the benchmark 10-year U.S. treasury note dropped to the 1.3% level for the first time ever.
Are The Biotech Gains Sustainable?
The sell-side seems skeptical of whether the staggering near-term gains made by some of these stocks can be sustained.
Reflecting the uneasiness with the exuberance, Baird analyst Madhu Kumar downgraded shares of Vir Biotech from Neutral to Underperform last week, reasoning its pipeline cannot support the valuation.
On a macro basis, previous potential therapeutics for pandemics have failed to generate value in the medium-to-long term, the analyst said. On the micro level, there is no evidence the identified antibodies provide any therapeutic benefit in COVID-19 infections, he said.
"As such, for us it is unreasonable to simply cede over $1.7B in valuation for a disease market which might not exist by the time a drug lacking even preclinical proof of concept moves through clinical development."
Baird has a $17 price target on the stock, which was trading at the $42 level Monday.
Even with Gilead's remdesivir, Baird isn't convinced.
Analyst Brian Skorney said in a note that he's unsure of the commercial opportunity due to the difficulty in administering an IV therapy, which requires hospitalization, and questionable efficacy after severe symptoms have manifested.
"Finally, despite media frenzy, worldwide reach, and potentially high R0, the status of COVID-19 spread at the time remdesivir potentially reaches market is yet another obvious uncertainty."
The route that potential COVID-19 therapies and vaccines have to take from lab to the shelf and their potential timeliness in addressing the epidemic calls into question the sustainability of the stock gains.
Adequate analysis of the rest of the company pipelinex is key for those who are willing to stay invested in these stocks.