Pharma Comes to the Rescue – Again

The S&P 500 dropped 3% between the end of 24 November – when the WHO alerted of a potentially deadly new COVID-19 variant from South Africa – and 1 December.

Since then, as more evidence emerges that the Omicron variant, although potentially more transmissible, may produce milder symptoms than the previously dominant Delta variant, there has been a recovery in sentiment.

The S&P 500 closed 7 December at 4,686, up from the 4,655 level it was sat at on 24 November. The FTSE 100, which dropped 3% from 7,310 at the close on 24 November to 7,122 at the close on 3 December, has also recovered to sit at 7,339 at the close on 7 December.

However, uncertainty remains about the wider impact of Omicron. Even a milder disease could lead to more hospitalisations if it affects more people, potentially leading to more social and economic restrictions and once again knocking shares.

AJ Bell investment director Russ Mould said: "It doesn't feel like we are out of the woods yet. It still feels like we're in the guesswork stage of working out what the impact of Omicron will be, so it would be naive to rule out further volatility as markets attempt to work out exactly what's going on."

That means a continued focus on the pharmaceutical giants who have already developed COVID-19 vaccines and treatments. Can they once again ride to the rescue and save the equity markets?

“It doesn't feel like we are out of the woods yet. It still feels like we're in the guesswork stage of working out what the impact of Omicron will be, so it would be naive to rule out further volatility as markets attempt to work out exactly what's going on” - AJ Bell investment director Russ Mould

 

 

Pfizer

The Pfizer [PFE] share price has gone in a different direction to that of the leading indices, receiving a boost from the emergence of Omicron and then dropping on reports of its mild nature. Pfizer's share price stood at $51.72 at the close 7 December.

It is still unclear whether the BioNTech/Pfizer vaccine will be as effective against Omicron as it has been for other Covid variants. If it is, Omicron will be both milder and controllable; if it isn't, then people face the risk of re-infection even if vaccinated.

The first lab tests of the new variant in South Africa suggest that it can partially evade the Pfizer jab. However, the study has yet to be peer-reviewed.

However, Dr Michael Ryan, executive director of the emergencies programme at the World Health Organization, said there was no sign that Omicron would be better at evading the vaccine than other variants. Ryan suggested that Omicron did not make people sicker than the Delta and other strains. "If anything," he said, "the direction is towards less severity."

The US Food and Drug Administration (FDA) recently approved the Pfizer COVID-19 booster for all adults, hoping that this will lead to better immunity against the disease.

 

Moderna

The FDA has also given the booster vaccine the green light, but Moderna [MRNA] has publicly stated that it and other COVID-19 vaccines may be less effective against Omicron.

Moderna CEO Stéphane Bancel told the Financial Times that: "There is no world, I think, where [the effectiveness] is the same level… we had with the [Delta] variant. I think it's going to be a material drop. I just don't know how much because we need to wait for the data. But all the scientists I've talked to are like, 'This is not going to be good'."

If, after all the data is analysed, vaccines are ineffective, or more people are ending up in hospital through contacting Omicron, then, of course, a new vaccine tailored explicitly to the variant may be needed.

 

New Vaccine?

US public health regulator, the Centers for Disease Control and Prevention, has already stated that it would "move swiftly" to streamline the authorisation process.

Pfizer said it could have an updated version of its COVID-19 vaccine manufactured and distributed within 100 days. Moderna told Reuters that it could have a COVID-19 booster shot targeting the Omicron variant tested and ready to file for US authorisation as soon as March.

“There is no world, I think, where [the effectiveness] is the same level… we had with the [Delta] variant. I think it's going to be a material drop. I just don't know how much because we need to wait for the data. But all the scientists I've talked to are like, 'This is not going to be good'” - Moderna CEO Stéphane Bancel

 

 

Analysts Views

Piper Sandler analyst Edward Tenthoff, who has a Buy rating on Moderna, believes the group – as reported by The Street – is prepared for the emergence of new variants and "ideally suited to rapidly swap in new versions of the Spike antigen" to make new vaccines.

Vamil Divan, analyst at Mizuho Securities, believes Omicron may increase near-term demand for Pfizer's COVID-19 vaccine, especially booster doses. JP Morgan analyst Chris Schott raised its price target on Pfizer to $53 from $42 with COVID-19 "remaining a focal point of the Pfizer story". Schott said he would not be surprised to see shares rally near-term on Omicron headlines.

It's not just vaccines. In addition, Pfizer is working on its antiviral COVID-19 pill, Paxlovid, which can be taken at home. It is hoped Paxlovid will help reduce the severity of the illness and help limit the number of people needing hospitalisation. JP Morgan believes that Paxlovid sales are "set to clearly exceed expectations". Merck [MRK] says its new antiviral pill – molnupiravir – should be as effective against any new COVID-19 variant. However, it hasn't yet carried out any specific research studying the pill's effect against Omicron.

That indicates the uncertainty out there among scientists, pharma chiefs, doctors, patients and investors.

What we do know is that the world is in a much better place to fight COVID-19 than it was two years ago when stock markets plummeted, and economies were shut down.

Investors don't need to panic.