Covid Stocks: How Coronavirus Mutations Offer A New Challenge For Vaccines, Treatments

The battle against Covid-19 is about to get uglier. Coronavirus mutations threaten to undercut a year’s worth of work that has given a spark to Covid stocks like Pfizer (PFE), Moderna (MRNA) and Regeneron Pharmaceuticals (REGN).


At least one mutation emerging out of the U.K. appears to be significantly more transmissible. Another out of South Africa eludes some vaccine protection. Less is known about a coronavirus mutation from Brazil, but it shares characteristics in common with the South Africa variation. More recently, a variant has emerged out of California that appears likely to reduce the effectiveness of vaccines, preliminary findings show.

So, experts say these companies have their work cut out for them — again. These mutations, also known as variants, emerged almost in lockstep with the first vaccines targeting the virus that causes Covid-19. Now, investors in coronavirus stocks are watching to see whether the current toolbox of vaccines and treatments will still capture these viral mutants.

It’s not all bad news, says Jeremie Capron, director of research for Robo Global. Many Covid stocks now have a long runway of growth in front of them. Pfizer recently guided to $15 billion in full-year sales of its Covid-19 shot. The pandemic also catapulted Moderna from a development to a commercial biotech company. It further validated the previously unproven technology behind both vaccines.

“It’s going to be good for their business if we enter a seasonal vaccine program,” he told Investor’s Business Daily. He predicts half a dozen — or more — coronavirus vaccines will launch in the near-term. Capron added: “The pie will be split between more players. It’s a positive for them. That’s why the stocks have worked well.”

Covid Stocks Battle Coronavirus Mutations

The Food and Drug Administration authorized Pfizer and BioNTech’s coronavirus vaccine on Dec. 11. Fellow Covid stock Moderna gained its vaccine authorization a week later. Sandwiching those were drugs to treat coronavirus post-infection cases from Eli Lilly (LLY) and Regeneron, which gained authorizations in November and January, respectively.

But in the days after the FDA blessed Moderna’s vaccine, researchers in the U.K. found the first variant. Since then, newer coronavirus mutations have cropped up in South Africa and Brazil. So, even as they first gained authorizations, coronavirus stocks were beginning to think about their next battle.

To understand the impact on Covid stocks, it’s necessary to understand a few key premises about the virus and the products that target it. The virus that causes Covid-19 is covered in spike proteins. Vaccines and medicines attempt to neutralize the virus by targeting that protein.

Vaccines from Pfizer and Moderna trick the body into making a single spike protein. This prompts the immune system to produce antibodies. Antibodies latch onto the spike protein, preventing the virus from replicating inside host cells.

Meanwhile, Regeneron and Eli Lilly have treatments that add antibodies to a patient’s system. These are helpful in cases where people aren’t capable of producing enough — or any — antibodies on their own. Those antibodies have the same function; they bind to the spike protein and prevent viral spread.

So, changes to the spike protein could be quite damning for coronavirus stocks.

Covid Stocks Gain On Vaccine Potential

That doesn’t mean Covid stocks are traveling sideways in 2021. Coronavirus vaccines could be big business for newly commercial biotech companies like Moderna and BioNTech. Novavax (NVAX) could potentially join their ranks as well.

On a year-to-date basis, Moderna stock had surged nearly 42% as of midday trading on Feb. 24. The company now expects to earn $18.5 billion in full-year 2021 sales. That’s a far cry from the $60 million it reported in 2019 and $803.4 million in 2020 sales.

Similarly, Novavax stock has earned a triple-digit increase in 2021, rising nearly 117% as of intraday action on Feb. 24. The biotech company doesn’t yet have an authorized Covid vaccine. But analysts are calling for $3.36 billion in 2021 sales. The pandemic could also prove the technology behind its drugs.

BioNTech stock has surged 39% this year as of midday Feb. 24. Pfizer recently guided to $15 billion in full-year Covid vaccine sales. That’s a drop in the bucket for Pfizer — which is expected to post $60.4 billion in total revenue this year — but that could provide a major boon for BioNTech. BioNTech is eligible for milestone payments under its Pfizer partnership. In 2021, analysts expect it to report $8.17 billion in sales. In comparison, the company had just $120 million in sales two years ago.

What about the potential to produce more coronavirus vaccine in response to variants? That could be huge for Covid stocks this year, Robo Global’s Capron says.

What’s The Road Map For Vaccines, Covid Stocks?

The most pressing question today is whether coronavirus mutations will escape vaccines. The answer isn’t a simple yes or no, according to Michael Breen, director of infectious disease and ophthalmology at GlobalData. In vaccine development — particularly when it concerns Covid-19 — there are nuances.

Breen likens the interaction between antibodies and the virus to a lock and key. A dent in the key’s handle won’t prevent it from opening the lock.

“But if you make a tooth (on the key) bigger, it might not even fit in the lock. If I were to erode a tooth, it might not turn the lock,” he told IBD. “There’s a lot of different ways that the interaction between the antibody and its target molecule on a virus don’t interact properly anymore.”

So, while the U.K. variant appears susceptible to vaccines, the South Africa and Brazil variants are more challenging. They share a mutation known as E484K that impacts antibodies’ ability to grasp tightly to the spike protein. Without a strong hold, the virus can escape and replicate.

As a result, today’s coronavirus vaccines are less effective against the South Africa variant.

What Do Covid-Focused Companies Say?

In South Africa, officials halted rolling out AstraZeneca‘s (AZN) coronavirus vaccine after data showed it only offered “minimal protection” against mild or moderate Covid-19 from the variant in that country.

Pfizer tested the blood of vaccinated people against three coronavirus mutations and the original strain. Antibody levels were 63% lower after exposure to the South Africa variant vs. the original virus. Moderna reported a sixfold decrease in antibody levels when testing against that coronavirus mutation.

In late February, Pfizer and Moderna said they were planning to test boosters to their Covid vaccines.

Moderna already has developed a new coronavirus vaccine that targets the South Africa variant. It has shipped that vaccine to the National Institutes of Health for clinical testing. Moderna plans to test that vaccine, alone, as a booster to its original regimen. It also plans to study a combination of the new and first vaccines. Finally, Moderna says it will test a third, lower dose of its original shot as a booster.

There’s also a chance the variant-specific vaccine and combination vaccine could be used as primary means of inoculating people against Covid.

Pfizer and BioNTech also plan to test a third dose of their vaccine as a booster. The companies say they are discussing with regulators the next steps to testing a variant-specific shot.

More Authorizations Could Be Coming

Meanwhile, though Novavax‘s (NVAX) unauthorized coronavirus vaccine is 95.6% effective against the original strain, it’s only 60% effective against the South Africa mutation. Johnson & Johnson (JNJ) says its one-shot vaccine is 57% effective against the South Africa virus.

Johnson & Johnson’s coronavirus vaccine is scheduled to head before an advisory committee of medical experts on Feb. 26.

The committee will make a recommendation on whether it believes the vaccine should be authorized for emergency use. Pfizer’s and Moderna’s vaccines nabbed advisory committee recommendations and gained their authorizations within the following 24 hours.

Covid Stocks: Reconfiguring Vaccines

The lower antibody levels don’t mean the vaccines won’t work, Chardan analyst Geulah Livshits told IBD. The immune system has a memory. Further, experts don’t agree on what level of antibodies are necessary to confer immunity.

Pfizer and Moderna say their coronavirus vaccines still generate enough antibodies to protect against the existing viral mutants. These coronavirus stocks are now working on vaccine boosters. Moderna is also hoping its booster will require less material, meaning it can manufacture more doses.

The FDA acknowledged in late February that companies might need to tweak their vaccines and treatments to target the coronavirus mutations. To that end, BioNTech (BNTX) has said it only needs six weeks to reconfigure the Pfizer-partnered coronavirus vaccine.

In order to gain new authorizations, however, companies will have to run additional testing to prove that their reconfigured vaccines do elicit an immune response. The FDA expects the manufacturing information to be the same, so that will save a step.

UBS analyst Matthew Taylor noted in a recent note to clients that mutation-targeting vaccines could launch in the fall of 2021 if the FDA requires new Phase 3 studies.

Treatments And Coronavirus Mutations

Trouble is, the use of monoclonal antibodies and plasma from recovered Covid-19 patients seems to have accelerated coronavirus mutations, Taylor said. This is because the virus is “cornered” and finds a new way to escape.

For that reason, a monoclonal antibody treatment from Eli Lilly known as bamlanivimab isn’t effective against the South Africa variant, according to recent research. Lilly is now working with Vir Biotechnology (VIR) and GlaxoSmithKline (GSK) to attempt new combinations that could tackle the South Africa coronavirus mutation.

Lilly management has said it would take five to six months to grow adequate cell supply to make new potential antibodies, SVB Leerink analyst Geoffrey Porges said in his report to clients. Eli Lilly representatives didn’t respond to a request for comment from Investor’s Business Daily.

Regeneron also sells an antibody cocktail to treat Covid-19. Christos Kyratsous, Regeneron’s head of infectious diseases, says the two-antibody approach to Covid-19 treatment is key — especially where variants are concerned. Already the antibody known as casirivimab has lost effectiveness against the South Africa mutation. But the combination still works.

“The other antibody doesn’t lose any of its potency,” he said in an interview. “That’s the benefit of the cocktail approach. When the variant arrives, then the other antibody is there to complement the activity.”

Meanwhile, antiviral approaches like Gilead Sciences‘ (GILD) Veklury should still work against coronavirus mutations, Informa Pharma Intelligence senior director Michael Haydoc said in an interview. He sees a potential for combinations of antibodies and antivirals to treat Covid-19.

Will The Virus Continue To Mutate?

Experts are split on whether new coronavirus mutations will continue to crop up.

Regeneron’s Kyratsous says the South Africa coronavirus appears to have accumulated all the mutations that would most impact immunity. But there’s only so much mutating a virus can do before it undoes its ability to replicate, he said.

“It can’t change too much because then the virus can’t bind,” he said.

Similarly, Illumina (ILMN) Chief Medical Officer Phil Febbo says there’s a finite number of ways the virus that causes Covid-19 can mutate.

“It’s not like we’re playing Whac-A-Mole infinitely,” he said in an interview.

Tracking Coronavirus Mutations

But that’s where Illumina has its work cut out. The coronavirus stock is among a cadre tracking the variants — where they crop up and how quickly they’re spreading within a community. Such information is necessary for public health officials to make determinations about reopening.

Illumina and companies like Thermo Fisher Scientific (TMO) and Pacific Biosciences of California (PACB) accomplish this by reading the viral DNA in a positive Covid-19 sample. The U.S. trails other countries in this regard, however. In December, just 0.3% of positive cases were sequenced, Febbo said. So, it’s hard to tell where the variants are within the country.

That’s starting to change, however. A proposed budget package for Covid-19 has $1.75 billion set aside for genomic sequencing. This would help public health officials understand where the variants are and how effective vaccines are against them.

“What we’re really worried about are strains that are more resistant to vaccines,” he said. “That would change the approach to get through this pandemic.”

Follow Allison Gatlin on Twitter at @IBD_AGatlin.


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