Coronavirus fears have triggered volatility, a correction and ultimately a bear market in U.S. stocks in 2020. Many companies have suffered massive price drops, but a handful of stock picks have seen their prices hold up - and in some cases even soar. One such cluster includes pharmaceutical companies and other health-care stocks that are in the race to develop COVID-19 coronavirus vaccines and therapeutics.
You can't overstate the stakes. As of March 11, there were 129,771 officially recorded coronavirus cases worldwide, causing more than 4,700 deaths, across 125 countries. The World Health Organization (WHO) has officially declared this a pandemic, and the threat to life is very real. That has governments increasingly shutting down any mass gatherings of people to slow the spread.
The hope? That they can buy time for pharmaceutical companies to come up with antivirals and vaccines.
More than 30 Big Pharma and small biotechnology companies alike are already involved in COVID-19 coronavirus treatment and vaccine development. But other health-care stocks are rising to the challenge, too: Makers of diagnostic test kits, sanitizers and protective masks are all ramping up to meet unprecedented demand.
Here are 10 health and pharmaceutical companies playing a role in the fight to control the COVID-19 coronavirus. Each of these stocks has the potential for considerable gain, whether it's because they're developing a treatment or their products are in greater need amid the outbreak. And to date, each stock has outperformed the S&P 500 since it started plunging in mid-February, with many posting considerable gains.
Market value: $8.7 billion
Performance since market peak: +24.7%
Moderna (MRNA, $23.61) is a major player in the race to develop a coronavirus vaccine.
In late February, the biotechnology company began shipping batches of its development-stage COVID-19 vaccine for use in Phase 1 human trials to the National Institutes of Health. Moderna turned around this first vaccine batch in just 42 days, and it started recruiting human trial participants in March. If clinical trials commence as planned in late April, the time between initial vaccine design and human trials will be only three months - an amazingly quick turnaround that puts it far ahead of other top pharmaceutical companies.
In addition to its coronavirus vaccine candidate, Moderna has vaccines in development for zika virus, respiratory infections, Epstein-Barr, chikungunya and several types of cancer. In all, the company has 24 drug candidates in its pipeline, including 12 in clinical studies, and is partnered with AstraZeneca (AZN), Merck (MRK) and various U.S. government agencies. Moderna's vaccine for congenital cytomegalovirus (CMV), a leading cause of birth defects, is its most advanced product and is expected to enter Phase 3 clinical trials this year.
Moderna recently raised $500 million through a public offering and has access to more than $2 billion to invest in its research programs. The company is not yet profitable given a lack of marketed products. But the $490 million to $510 million it plans to spend on operations this year will be more than covered by cash on hand of $1.1 billion.
Roth Capital analyst Yasmeen Rahimi reiterated his "Buy" rating for MRNA shares in February and raised his price target, from $24 per share to $33, noting the company's successful efforts to de-risk its business with its mRNA-based prophylactic vaccines and by making its CMV vaccine a cornerstone for future growth.
Market value: $93.1 billion
Performance since market peak: +9.4%
Gilead Sciences (GILD, $73.70) hopes to beat the coronavirus with remdesivir, a drug initially developed to treat Ebola. The WHO recently said Gilead Sciences might have the only drug available right now with real efficacy. According to The New England Journal of Medicine, remdesivir has improved clinical outcomes for coronavirus patients treated in the US.
Remdesivir is being tested in Phase 3 clinical trials in China's Wuhan province, the epicenter of the coronavirus outbreak, on 761 patients. The results from the Phase 3 trials will become available over the next few weeks. In fact, a director for the Centers for Disease Control and Prevention said it's already being used on COVID-19 patients thanks to a U.S. Food and Drug Administration (FDA) loophole that allows people in life-threatening situations to use unapproved drugs.
Gilead Sciences built its business around its hepatitis C franchise but has branched out in new areas including cancer. GILD is paying $4.9 billion to acquire Forty Seven, whose lead drug candidate magrolimab is one of the first in a new class of cancer drugs. Gilead Sciences also entered the oncology market in 2017 by acquiring Kite Pharma and its cellular-based cancer therapies.
Growth has stalled recently, and earnings per share actually declined 1% last year. But a successful COVID-19 antiviral could be a game changer. Meanwhile, Gilead Sciences has more than enough operating cash flow ($9.1 billion over the past 12 months) and cash ($24.6 billion as of the end of 2019) to fund further development and commercial launches.
Jefferies analyst Michael Yee thinks Gilead could be an acquisition target, albeit for a potential buyer with very deep pockets. A takeover offer would likely need to exceed $100 billion, he wrote in February.
Market value: $448.0 million
Performance since market peak: +32.1%
Novavax (NVAX, $10.51) surged in late February after the company updated its progress on developing a coronavirus vaccine. The pharma stock is assessing multiple vaccine candidates and expects to begin human testing in late spring.
Novavax's vaccines use a proprietary nanoparticle technology platform to generate antigens derived from the coronavirus protein, then add its novel Matrix-M adjuvant to the vaccine to enhance immune responses. The COVID-19 coronavirus is very similar to Severe Acute Respiratory Syndrome (SARS) coronavirus, for which Novavax already had a vaccine candidate.
NVAX also is developing vaccines for respiratory syncytial virus (RSV), a leading cause of severe respiratory tract disease in infants and young children, and seasonal influenza. Its NanoFlu flu vaccine, which has the FDA's "fast track" designation, is involved in Phase 3 studies, with top-line results expected by the end of the first quarter. Novavax's RSV vaccine will undergo additional Phase 3 studies, and the company is seeking a strategic partner to supply funding.
Unlike many larger pharmaceutical companies, Novavax is not currently profitable and reported a $132.7 million net loss in 2019 thanks to heavy spending on research and development. The company ended the year with only $78.8 million in cash but added $150 million to its cash balance through an early March stock sale. It also received an initial $4 million funding from the Coalition for Epidemic Preparedness Innovations to speed up its vaccine development.
Ladenburg Thalmann analyst Michael Higgins reiterated his Buy rating for NVAX stock last month, noting rapid progress since Novavax first began working on a coronavirus vaccine in early January. Oppenheimer's Kevin DeGeeter recently reaffirmed his Outperform rating, calling the company "competitively positioned to secure additional government and NGO support for its COVID-19 vaccine program."
Market value: $1.2 billion
Performance since market peak: +119.4%
Inovio Pharmaceuticals (INO, $8.37) is scheduled to begin human clinical trials of its COVID-19 vaccine candidate in April, initially in the U.S. and thereafter in China and South Korea, where more people have been affected by the virus so far. INO expects to deliver 1 million doses of its vaccine by year-end 2020, but it will need to expand manufacturing capacity to scale larger than that.
Inovio has the only vaccine candidate in Phase 2 clinical trials for Middle Eastern Respiratory Syndrome (MERS), another species of the coronavirus. Its drug development program focuses on synthetic DNA products for treating cancer and infectious diseases.
Inovio has a rich research pipeline and multiple drug candidates in advanced trials. Analysts expect the company to publish results from two Phase 3 trials, four Phase 2 trials and three Phase 1 trials across this year and next. Its most advanced drug programs are in cervical dysplasia (a precursor to cervical cancer), brain tumors and recurrent respiratory papillomatosis. Inovio also is developing treatments for prostate cancer, hepatitis, Ebola, MERS, Zika, HIV and Lassa fever.
Like other early-stage pharmaceutical companies and biotech stocks, Inovio is challenged by a high cash-burn rate. The company spent $66 million on research during the first nine months of 2019 but generated only $3.8 million of sales. Inovio ended the September quarter with cash and short-term investments totaling $93.8 million, and expanded the amount of an equity sales agreement from $100 million to $200 million in February.
Roth Capital analyst Jonathan Aschoff is among analysts who are bullish on INO at the moment. He likes the company's rapid progress from target validation to drug candidate selection and envisions a steady flow of clinical news from Inovio in 2020. He thinks Inovio could reach $1 billion in revenues by 2030 on anticipated sales of its three lead drug candidates. A $13 price target suggests shares can rise 55% from current prices.
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Market value: $125.5 billion
Performance since market peak: -9.9%
AbbVie (ABBV, $84.85) is among companies looking for coronavirus drugs among their current stable of treatments. Chinese authorities are using an AbbVie HIV treatment to address coronavirus-related pneumonia. Kaletra (also known as Aluvia) contains antiviral components that block virus replication. Although not yet approved as a treatment for coronavirus, Kaletra has shown efficacy across multiple trial cases.
In a 2004 clinical study, Kaletra was proven effective as a treatment for the SARS (Sudden Acute Respiratory Syndrome) version of coronavirus. AbbVie has donated $1.5 million worth of Kaletra to China for use as an experimental treatment option. If proven effective over large numbers of patients, Kaletra could become worth billions as a coronavirus therapeutic.
AbbVie's current focus is offsetting declining sales of its blockbuster drug Humira, which accounted for roughly half of the company's $32.3 billion in revenues last year. To that end, ABBV spent $63 billion last year to buy Allergan for its blockbuster products Botox and Restasis. Steady cash flow from Allergan products will help bolster AbbVie's balance sheet.
But AbbVie also has potential for organic growth through cancer drugs Imbruvica and Venclexta, as well as immunology drugs Rinvoq and Skyrizi.
AbbVie is one of several pharmaceutical stocks among the Dividend Aristocrats - a group of 64 dividend stocks that have improved their dividends annually for at least a quarter century. Goldman Sachs has ABBV among its "Dividend All-Stars" - companies expected to boost dividends by at least 9% annually through 2021.
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Market value: $51.1 billion
Performance since market peak: +15.9%
Regeneron Pharmaceuticals (REGN, $464.70) recently expanded its agreement with the U.S. Department of Health and Human Services to develop new antibody-based treatments for COVID-19. The National Institute of Allergy and Infectious Diseases is testing the company's drugs, REGN3048 and REGN3051, as a coronavirus treatment. This drug combo has already been proven effective in treating Ebola and MERS. REGN and Sanofy (SNY) also are readying studies to test their drug Kevzara, a rheumatoid arthritis treatment, to see if it can prevent COVID-19 patients' immune systems from attacking healthy cells.
Regeneron is more than just coronavirus potential, of course. It has 22 drug product candidates in its pipeline, including five approved products being tested for additional indications. REGN has drug development programs underway in eye disease, allergic and inflammatory disease, cancer, cardiovascular, infectious and rare diseases.
Analysts expect Regeneron to enjoy increased demand for its macular degeneration drug Eylea due to safety concerns about a rival Novartis (NOV) product. Jefferies analyst Biren Amin and Evercore ISI analyst Joshua Schimmer upgraded their REGN rating to Buy based on expectations the company will gain massive share in the macular degeneration treatment market. With 2019 sales topping $4.6 billion, Eylea is already Regeneron's best-selling drug, but the company also produces sales of nearly $2 billion from dermatitis drug Dupixent, which it sells through a partnership with Sanofi.
Regeneron has been a model among pharmaceutical companies and biotech stocks, boasting average annual revenue growth of nearly 23% over the past five years. Its stock, however, has ebbed and flowed, gaining just 3% overall in the same time frame.
Market value: $100.0 billion
Performance since market peak: -8.3%
Big Pharma play GlaxoSmithKline (GSK, $39.87) is partnering with China-based Clover Biopharmaceuticals to accelerate development of Clover's protein-based coronavirus vaccine candidate. Under the new agreement, GSK will provide Clover with its pandemic adjuvant technology, which will embed an adjuvant in the vaccine candidate for further clinical studies.
GlaxoSmithKline's pandemic adjuvant boosts immune system response, effectively creating stronger immunity against infections than the vaccine alone. Adding an adjuvant enables scientists to reduce the amount of vaccine protein required per dose, which allows more vaccine doses manufactured and more patients treated.
GlaxoSmithKline has been strengthening its oncology franchise with a new treatment for bone marrow cancer that could produce $1.3 billion of sales and other treatments for advanced forms of cancer that has significant revenue potential. Another potential blockbuster is the company's Shingrix vaccine for shingles. GlaxoSmithKline expects to bring additional production capacity on-line by 2024, and analysts estimate Shingrix sales will peak at $5.1 billion in 2027.
GlaxoSmithKline is currently one of the world's largest pharmaceutical companies. However, to become more agile, GSK is splitting into two businesses: a pharma firm with drug pipelines in immunology, genetics and advanced technologies; and a consumer health-care company that owns leading over-the-counter brands including Advil, Theraflu, Excedrin and Robitussin.
Just be careful, says Credit Suisse. "GSK are clearly working hard to transform the pharma business by improving the level of innovation, but the headwind of 50% of the current business continuing to decline at a mid-to-high single digit rate is a meaningful drag on the speed of transformation."
Market value: $328.4 million
Performance since market peak: +337.9%
Co-Diagnostics (CODX, $13.18) is a small-cap company specializing in products for diagnostics labs. And it has been one of the best "coronavirus stocks" of 2020, more than quadrupling thanks to its diagnostic test for spotting coronavirus-related illness. Indeed, it's the first U.S. company to gain European Union approval for a coronavirus test kit.
The advantages of its in-vitro test are a reduced risk of false positives and enhanced multiplexing, which allows scientists to identify multiple targets simultaneously and different mutations of the coronavirus.
The FDA recently changed its policy regarding test kits and is allowing certified labs to purchase Co-Diagnostics' coronavirus test kit without first filing an Emergency Use Authorization. Prior to the outbreak, labs were required to secure FDA sign-off to order the test kit.
"We are already manufacturing and shipping coronavirus products to countries on four continents (U.S., Europe, Asia and Australia) along with additional demand we are experiencing pursuant to the policy change," CEO Dwight Egan recently said.
Co-Diagnostics has emerged as one of the early winners in the coronavirus race, but investors should use caution. Prior to the coronavirus outbreak, the company had minimal sales, mounting losses and only $2.5 million of cash in the bank. Its coronavirus test could be a blockbuster, but Co-Diagnostics likely will need to raise significant new funding to ramp this product.
Wild price swings also mean valuation could be an issue. Jason McCarthy downgraded the stock in early March, citing price issues after a phenomenal run-up. A few days later, however, H.C. Wainwright analyst Yi Chen said he sees plenty more upside. He reiterated his Buy recommendation on CODX shares on March 10, giving it a $20 price target that gives it another 52% upside from current levels.
Market value: $12.3 billion
Performance since market peak: -13.7%
Steris (STE, $145.25), while still beating the S&P 500 through its bear turn, hasn't held up as well as most of these other stocks. Still, it might end up being a good coronavirus play in the coming months.
Steris supplies disinfectants, sterilizers and related services to health-care facilities. The company has a strong revenue model in which 75% of its sales are recurring. Half of annual sales are from consumables and infection prevention equipment, 30% are from equipment maintenance services and 20% are from sales of equipment such as surgical tables and lights.
Steris became the worldwide leader in infection prevention and sterilization following its 2014 acquisition of U.K.-based Synergy Health. The deal combined Steris' established North American presence with Synergy's vast European footprint.
Global demand for disinfectants and sterilizers is on the rise as more than 100 countries battle the coronavirus. As the acknowledged leader in this space with unmatched scale and capabilities, Steris is well positioned to thrive.
Even before the coronavirus outbreak, this steady Eddie was rewarding shareholders with 15% five-year annual EPS growth. The company aims to deliver mid- to high-single digit annual sales gains and double-digit adjusted EPS growth. Steris also boasts a solid balance sheet and cash flow, and it pays a dividend - albeit a modest one yielding just 1%.
Market value: $48.3 billion
Performance since market peak: -6.7%
Kimberly-Clark (KMB, $134.16) is something of an outsider on this list - a consumer staples play rather than a pharmaceutical company or health-care stock. However, one of its products is playing a key role on the front lines.
KMB is a leading manufacturer of N95 respirator masks, which experts say can help the spread of COVID-19. Unlike conventional masks, the N95 mask can filter out 95% of airborne particles, including bacteria and viruses. Millions of health-care workers are relying on these masks to protect their health.
Demand for protective N95 respirator masks is surging, and manufacturers are struggling to keep pace with demand. The Department of Health and Human Services said in late February that it had a stockpile of roughly 30 million N95 respirators, but says it will need 300 million as the risk of the coronavirus continues to rise.
In addition to N95 respirator masks, Kimberly-Clark produces Kleenex tissue and Scott toilet paper - products that are flying off the shelves as consumers stockpile everyday essential items. The company's top consumer brands (including Kleenex, Scott, Cottonelle, Tampax and Huggies) hold either No. 1 or No. 2 market share in 80 countries. Kimberly-Clark generates 52% of sales in North America and the rest overseas.
Consumer staples stocks like KMB have largely outperformed the market thanks to their defensive positioning and attractive dividends. Kimberly Clark increased its dividend 4% in January, extending its streak of consecutive payout hikes to 48 years, and it offers a 3%-plus yield at current prices.
Copyright 2020 The Kiplinger Washington Editors