pure play The makers of COVID-19 vaccines closed the first half of 2022 as some of the worst performers in the battered biotech space amid concerns about how the group, once a pandemic favorite, can sustain growth as the impact of COVID fades .
The sell-off, worse than a ~33% decline among biotech stocks, follows sharp gains in 2021 as immunizations against COVID-19 combined with multiple waves of the pandemic brightened their outlook.
Led by vaccinations and actual infections, cases of COVID have declined globally this year, clouding further demand for vaccines and hurting developers’ revenue growth, dragging down their stock prices along the way.
Latest data from the world Health organization (WHO) indicated that weekly cases of COVID have decreased by ~89% since the recent peak in mid-January, and deaths related to COVID have decreased by ~94% since the peak in February.
Compared to the same period last year, leading vaccine developers Pfizer (PFE) and Moderna (MRNA), saw their 1Q2022 earnings increase only ~1.8x and ~3.1x, down from ~2.1x and ~12.6x in respectively the previous quarter.
Modern (MRNA) and BioNTech (BNTX) have lost over 43% each in 1H 2022 to dominate the underperformers among large-cap biotech companies. When mid-cap stocks are also added to the group, Novavax (NVAX) tops the list with a drop of over 64%.
Meanwhile, Pfizer (PFE), partner of BioNTech (BNTX), to develop the first COVID vaccine to win approval from U.S. regulators, fell more than 12% to become the second-worst performer among the health care mega-cuts.
However, few near-term catalysts remain for bargain hunters looking for a recovery.
Resurgence of COVID
The injection makers’ year-to-date selloff reflects concerns about the outlook for their vaccine-led growth as COVID cases decline along with the size of their target market, those who remain unvaccinated.
According to Our World in Data (OWID) project in Oxford University, about 61% of the world’s population is fully vaccinated, up from just 8% a year ago.
Although global cases of COVID are declining, complete eradication of the coronavirus is unlikely as the virus evolves, potentially evading vaccine-mediated immunity.
With a significant portion of the world’s population remaining unvaccinated, an increase in COVID cases could reignite demand, especially for new and differentiated vaccines from the likes of Novavax (NVAX) and Wavy (VALN).
In a statement this week, FDA vaccine chief Dr. Peter Marks highlighted the waning effectiveness of primary vaccine doses and initial boosters against new variants of COVID such as Omicron.
“As we enter fall and winter, it is critical that we have safe and effective vaccine boosters that can provide protection against circulating and emerging variants to prevent the worst consequences of COVID-19,” Dr. Marks writes.
After US health officials authorized vaccines for the last remaining age group in June, the need for reformulated vaccines set the stage for the next catalyst.
This week, the FDA advised vaccine manufacturers to update their booster vaccines for BA.4 and BA.5, the newest and fastest-growing subvariants of Omicron, ahead of a booster program planned for fall 2022.
Pfizer (PFE)/BioNTech (BNTX) and Moderna (MRNA) have already disclosed their clinical data for Omicron-adapted boosters, albeit with slightly lower efficacy for BA.4 and BA.5. Novavax (NVAX) shares added more than 10% on Friday after the company announced plans to introduce Omicron-containing captured in 4Q 2022
As these booster candidates progress through the regulatory path for the fall booster campaign, how well their failed developers could regain lost momentum will be in focus in the second half of 2022.
Mergers and acquisitions
With cash levels at a peak thanks to COVID-induced earnings, some of the vaccine makers are in an advantageous position to add active acquisitions to restore their slowing growth.
Amid difficulties raising equity capital, large-cap companies could be looking for smaller targets as biotechs run out of options after the recent selloff, Wells Fargo said in a recent research note. The firm also sees headwinds from rising interest rates amid a a parallel decline in transaction premiums.
Pfizer (PFE), a company with a strong manufacturing need, according to Wells Fargo, has already announced two multibillion-dollar acquisitions this year, including a deal to acquire migraine therapy maker Biohaven Pharmaceutical (BHVN) for more than $11 billion.
However, on a forward non-GAAP earnings basis, Pfizer (PFE) trades at ~7.7x, representing a ~38.6% discount to its 5-year average, while Moderna (MRNA) has fallen to a cheaper ~5.4x multiple on the same basis despite growth prospects.
With catalysts intact for COVID vaccine makers, opportunities abound for risk-takers to continue betting on a recovery in the second half of the year despite the 1H selloff, as can be seen in this graph.