Drug companies are scrambling to develop and roll out vaccines against the new strain of coronavirus, EG.5, which is rapidly spreading across the U.S. and Europe.
The Omicron variant, named “Eris” by Canadian evolutionary biologist T. Ryan Gregory at the University of Guelph, has been spreading at a significant pace, prompting the World Health Organization to upgrade its classification from a “monitored variant” to a “variant of interest”.
The following stocks could potentially benefit from the efforts to combat the new Omicron variant of the virus, which has been prevalent since last year.
One of the world's largest pharmaceutical firms, Pfizer boasts a staggering US$50 billion in annual sales. In the past, the company sold a variety of healthcare products and chemicals, but now the majority of its sales come from prescription drugs and vaccines. Some of its best-selling drugs include pneumococcal vaccine Prevnar 13, cancer drug Ibrance, and cardiovascular treatment Eliquis. International sales account for nearly half of its total sales, with emerging markets contributing the most.
Pfizer recently announced their updated vaccines are effective against the widely circulating Eris variant, which the WHO warns could become the dominant strain worldwide. The vaccine maker says the new version of its vaccine is slated to launch in the fall.
The company’s pipeline boasts several blockbuster drugs and treatments, including new shot designed to protect babies from respiratory syncytial virus (RSV), which recently got the U.S. FDA approval.
Morningstar sector director, Damien Conover, rates Pfizer as one of the best value stocks to buy for the long term. “We don’t think the market fully appreciates the pharmaceutical giant’s ability to offset major patent losses over the next five years,” he argues.
There is optimism about several upcoming Pfizer launches, including the vaccine for respiratory syncytial virus and the immunology medications named ritlecitinib and etrasimod, points out Conover, who pegs the stocks fair value at US$48.
U.S. biotech behemoth, Moderna became a household name during the outbreak of Covid-19 pandemic. The firm's mRNA technology was rapidly validated with its COVID-19 vaccine in the U.S. The drugmaker offers treatments across a wide range of therapeutic areas, including infectious disease, oncology, cardiovascular disease, and rare genetic diseases.
“Moderna is already serving a critical role in vaccinating millions of individuals during the pandemic and has several potential first-in-class vaccines in testing that could serve significant unmet needs,” says a Morningstar equity report.
The drugmaker is in the process of rolling out its vaccine against the new Omicron variant. This provides some comfort to Americans as Eris and other variants contribute to an uptick in cases and hospitalizations nationwide.
“Moderna's mRNA technology has gained rapid validation as sales of its COVID-19 vaccine soared in 2021,” says Morningstar sector strategist, Karen Andersen, but adds that competition and uncertainties regarding evolving virus remain a key barrier to a wide economic moat.
That said, the firm developed and manufactured a two-dose COVID-19 vaccine in a record-breaking span of just 11 months and grew into a commercial-stage biotech. “The firm's ramp-up in manufacturing and clinical know-how will pave the way for faster timelines for additional programs,” says Andersen, who recently bumped up the stock’s fair value to US$266 from US$232, following positive phase 2 data for the company’s personalized cancer vaccine, mRNA-4157.
CVS Health is a healthcare service provider. Its retail pharmacy operations comprise over 9,000 stores mainly in the U.S. CVS is also the largest pharmacy benefit manager (PBM) with over 2 billion adjusted claims annually. It also owns a top-tier health insurance segment which serves about 26 million medical members. The company recently gained exposure to the primary care services market via acquisition of Oak Street.
This month, CVS Health will start providing the updated vaccine to fight the new Omicron variant, Eris, which has been on the rise in recent months.
CVS is striving to become the most customer-centric health company in the U.S. and has positioned itself as a managed care leader through strategic acquisitions including Caremark, Aetna, and Oak Street.
“CVS' top-tier retail pharmacy, health insurer, and PBM franchises create the potential to improve health outcomes and even bend the healthcare cost curve for its clients,” says a Morningstar equity report.
The company is well-positioned to improve health outcomes by leveraging its assets through digital means and adopting a consumer-centric approach to healthcare, which could offer copious benefits.
“The relatively high-margin healthcare services business could eventually accelerate CVS' profit growth directly or by reducing long-term costs in its medical and pharmacy benefit businesses,” says Morningstar equity analyst, Julie Utterback, who recently lowered the stock’s fair value US$103 from US$113, to reflect the loss of a key contract.
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