Omicron-specific vaccines are ‘already priced into COVID stocks’: Jefferies Managing Director

Jefferies Managing Director Michael Yee joins Yahoo Finance Live’s Julie Hyman and Brian Sozzi to discuss the biotech sector, outlook for M&A activity, and the outlook for COVID-19 stocks.

Video Transcript

JULIE HYMAN: Well, we have been closely watching the headlines out of JP Morgan's annual health care conference, but the headlines that perhaps are lacking in the minds of investors are those having to do with mergers and acquisitions. Now, we just heard the Abbott CEO speak this morning. And he talked about testing, of course, which is a big topic for Abbott.

He also made some comment on M&A and said they're looking closely at devices and diagnostics in M&A. And they have the flexibility for M&A at the right time in the right price. But didn't announce anything this morning.

Michael Yee, Managing Director at Jefferies is with us right now. Michael, it has been interesting. You have a lot of commentary around M&A, you have a lot of partnerships, you know, sort of development partnerships, but not many actual deals.

How is this year different than most years? And how does it sort of match with investor expectations?

MICHAEL YEE: Well, it's great to be here. Good morning. You know, the last 12-plus months have obviously been extremely challenging in the biotech sector. I think as you alluded to, it's only 11 days into the new year, XBI is down another 8%, so we're not off to a great start. And I think there have really been two issues.

I think that, go to your point one is, there just has not been a lot of positive clinical data, a lot of clinical news flow, a lack of positive developments out there fundamentally. And there's just-- it's been challenging for a lot of companies. The second is with the group down so much, you would think that there would be a pickup in M&A, particularly with the robust balance sheets of all these pharma companies.

But, you know, I said it was a busy day but no M&A yesterday. And this is typically a time where we do start to see M&A pick up. I think to your question, I would just say that there seems to still be a spread between bid and ask.

Bristol-Myers was also out making some comments around how seller expectations are still high. And companies, quite honestly, still have a lot of cash from all of that cash they've raised over the last 12 to 24 months from record IPOs. So bottom line is, look, I still think there's M&A that can happen this year. It doesn't happen to happen this week.

I still think that provides some optimism for the group. And I still do think the group can rebound this year.

BRIAN SOZZI: Michael, who are buyers in this environment? And what might they be looking to add?

MICHAEL YEE: Yeah. Well, I think that certainly companies like Pfizer, which, you know, is going to have $50 billion of free cash flow just from the COVID vaccine, let alone another $50 billion from the other core businesses, so over $100 billion. In addition, I think we've done some math saying that there's over $500 million across pharma and biotech. The guys like the Lilly, the Roche, the J&J pharma, which is spinning out, as well as guys like Pfizer and Merck.

So look, I think that these guys continue to look for innovative new transformative medicines, particularly in oncology and immunology. It just doesn't have to be this week. Stock prices are depressed. I think those things can come together this year. And look, we have a particular eye on oncology and inflammation.

JULIE HYMAN: Of course, the consumer market is still very focused on what's going on with COVID. And we've been hearing that there could be an Omicron-specific vaccine or booster that is ready in the coming months. Michael, you and I were just talking during the break about the necessity of these variant-specific vaccines.

And, you know, how do you think about that sort of variant chasing when it comes to that development and the utility for the public at large and for the drug makers?

MICHAEL YEE: Well, I think fundamentally, of course, it is absolutely, you know, positive that we are going to continue to have iterations of the Pfizer and Moderna vaccine. I know Pfizer made a comment about they're transitioning to an Omicron preparation, you know, to manufacture. And Moderna has also alluded to that, if not a multivalent or a multivariant vaccine all in one.

That's great. I think that's great. That's important to continue to keep the COVID at bay. However, a lot of this has already been priced into COVID vaccine stocks. And if you look at Moderna's stock, obviously a rough past few months, even despite new variants coming about as we do believe that there will be a tail for these businesses.

But these companies have outsized valuations as they need to have other stuff beyond COVID vaccines to really support a renewed interest level for investors to come buy these stocks. So we have said that I think that the guys last year who have been-- let's not call it losers-- have been bad performers last year and the big winners of 2021, which are the COVID stocks, probably have some rotation as investors kind of go back to the guys that have been beaten down. So again, COVID vaccine variants are important. They will be coming.

I am very confident and you're probably going to be hearing about a fourth boost. And you will be hearing about future boosts much like a flu vaccine every seasonal fall. However, that's largely priced into the stocks and I think we're telling investors, you want to focus on some of these other names that have been beaten down in the biotech sector. And maybe there are a couple of we talk about.

JULIE HYMAN: Gotcha. Really interesting stuff here, Michael. As always, good to see you. Michael Yee, Jefferies Managing Director.