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Omicron Fears Fuel Rally in Vaccine Stocks: Will It Continue?

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The World Health Organization (WHO) added another name to its list of coronavirus variants, which is called Omicron (B.1.1.529). It was first reported in South Africa earlier this month. The variant is found to have several mutations in the spike-protein that is targeted by vaccines for providing immunity against the COVID-19 infection.

Some of the mutations in the Omicron variant were previously seen in the Delta variant that are believed to increase transmissibility. Some mutations were previously reported in Beta and Delta variant that is likely to help avoid natural and vaccine-induced immunity.

With the combined features of previous variants, the Omicron mutant is raising concerns of high transmissibility and lower vaccine potency. The potential high risks of this latest variant prompted WHO to add it to its “Variant of Concern” list on Nov 26, two days after putting it under the list titled “Variant Under Monitoring”.

The spread of the Omicron variant will likely decelerate the economic revival as several countries already started imposing travel bans. Although the restrictions currently cover only those countries that reported Omicron infection cases, including South Africa, a rapid spread can otherwise engulf major countries. Moreover, COVID-19 infection cases have risen significantly in the United States and Europe over the past few weeks. Therefore, this new variant will likely add fuel to the fire.

Stocks Rise

The rising concerns of supply-chain disruptions following the potential constraints triggered a decline in broad market indices, including S&P500, on Nov 26. However, stocks of vaccine makers like Pfizer (PFE - Free Report) , BioNTech (BNTX - Free Report) , Moderna (MRNA - Free Report) and Novavax (NVAX - Free Report) diverged from the downtrend and saw a significant upside on the same day, possibly aided by an anticipated increase in demand for vaccines and their boosters.

Shares of Pfizer and its COVID-19 vaccine partner BioNTech were up 6.1% and 14.2% each last Friday. Stocks of Moderna and Novavax gained 20.6% and 9% on Nov 26. We expect the upside momentum in these stocks to continue over the next few weeks and in 2022, probably as these companies already announced their strategies to combat the new variant under discussion.

Pfizer & BioNTech

Per Pfizer, its partner BioNTech is expecting to gather additional data on the Omicron variant over the next two weeks. The collected data will help PFE determine its path forward in fighting the new variant. BioNTech will assess whether its vaccine Comirnaty needs to be reworked, based on this extra update. Both Pfizer and BioNTech expect to be able to ship the redesigned Comirnaty, if needed, to provide protection against the Omicron variant in approximately 100 days, per a Reuters article.

Moderna

Moderna announced a three-pronged strategy to provide protection against the Omicron variant. Firstly, it is developing a 100-microgram booster dose compared to its authorized booster dose of 50-microgram of its COVID-19 vaccine, mRNA-1273. MRNA stated that the higher dose of its booster dose led to the highest neutralizing titers against the prior SARS-CoV-2 strains in an ongoing study conducted by the National Institutes of Health in the United States. Secondly, MRNA has been developing multi-valent booster candidates, designed to anticipate mutations observed in the Omicron variant, over the past few months. MRNA is working to rapidly complete the studies. Thirdly, MRNA is also planning to develop an Omicron-specific booster candidate.

Novavax

Apart from the two approved/authorized mRNA-based COVID-19 vaccines, Novavax’s nanoparticle protein-based COVID-19 vaccine, NVX-CoV2373, also holds strong prospects to gain from the prevalent pandemic and an anticipated spurt in infection cases amid Omicorn fears. Novavax’s COVID-19 vaccine received its first authorization in the Philippines and Indonesia earlier this month. NVAX also submitted a regulatory application seeking approval for the vaccine in Europe earlier this month. Regulatory filings for the authorization of NVX-CoV2373 were also submitted in multiple markets, including Australia, Canada, the EU, India, New Zealand and the United Kingdom. Per a Reuters article, Novavax already started developing a modified version of its COVID-19 vaccine to provide protection against the Omicron variant. NVAX expects the initial work for redesigning the vaccine to take a few weeks.

Conclusion

Successful development of Omicron-specific COVID-19 vaccine or booster dose is likely to generate strong sales from COVID-19 vaccines. While Pfizer is expected to generate revenues of approximately $36 billion from the sale of Comirnaty in 2021, Moderna is likely to record $15-$18 billion from the sales of its COVID-19 vaccine. A potential rapid spread of the Omicron variant, as feared, will likely provide a similar opportunity next year for the vaccine-makers.

Per a Bloomberg article, more than 7.91 billion doses of COVID-19 vaccines were administered across 184 countries as of Nov 29. The article stated that it will take at least three months to immunize 75% of the total world population, with at least one dose of any COVID-19 vaccine. This suggests that there will be significant demand for the vaccine doses. Moreover, these many people may also need a booster dose in another six months of the initial vaccine regimen, thereby creating a second opportunity of reaping dollars worth several billions for the vaccine makers.

Pfizer, BioNTech, Moderna and Novavax currently carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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