All but eight of the 2,247 deaths reported by the WHO occurred in China, the epicenter of the outbreak. (WHO reported 2,239 Chinese deaths as of February 21, compared with 2,236 reported by China’s National Health Commission.)
“There’s obviously immediate need for diagnostics and treatments, so any company that has something that might potentially help is basically giving it away right now,” says Morningstar analyst Karen Andersen, CFA.
But assessing the longer-term impact of the COVID-19 outbreak on the biotech industry is a tricky call.
In China, Zhejiang Hisun Pharmaceutical won Commission approval to offer its antiviral treatment Favilavir (favipiravir) as an investigational therapy for SARS-CoV-2 in an upcoming clinical trial.
Favilavir is one of three potential drugs that has shown clinical or preclinical effectiveness against coronavirus. Remdesivir, Gilead Sciences’ Phase II antiviral, is in clinical trials in China and has shown promise when administered to the first American confirmed to be infected with SARS-CoV-2, according to “First Case of 2019 Novel Coronavirus in the United States,” a case study published in The New England Journal of Medicine. Remdesivir and a marketed anti-malarial, chloroquine, showed promising in vitro results in a study published a few weeks ago in Cell Research.
Another drug, AbbVie’s marketed HIV-1 treatment Kaletra® (lopinavir/ritonavir), sold in Europe as Aluvia, has been authorized by the Commission to treat pneumonia caused by SARS-CoV-2. AbbVie last month said it would donate RMB 10 million ($1.4 million) of Kaletra to Chinese authorities.
Despite the ferment of coronavirus drug activity, Morningstar recently stated that it would not change its fair value estimates of biopharma and other healthcare stocks as a result of the outbreak. The firm acknowledged that some drug and diagnostics developers could see stock gains—citing Roche, which has a coronavirus assay available for research use.
“We don’t assume any significant long-term financial impact from the outbreak. Unless [SARS-CoV-2] has staying power, most of these sales tend to reverse in the following year, limiting the impact of any valuation effect,” Morningstar explained.
Andersen is a Healthcare Strategist with Morningstar wholly-owned subsidiary Research Services LLC—recently named as one of GEN Edge’s Ten Life Sciences Analysts to Watch in 2020. Andersen granted GEN Edge an interview to share the firm’s thinking and broader trends shaping the development of coronavirus treatments (lightly edited for length and clarity):
GEN EDGE: What trends are shaping the broader market for development of coronavirus drugs?
ANDERSEN: Obviously we’ve seen the number of cases skyrocketing in China. It’s not clear at this point if that’s just because there’s been a backlog of cases that were diagnosed by imaging, and we didn’t know about them, or if there’s actually been an increase. It’s really impossible to say.
The other trend that has been happening is, we’ve seen a lot more small biotech and large pharma companies throw their hats in the ring and say that they’re working on a vaccine, or they’re working on antibodies, or working on small-molecule drugs. There’s a lot more companies entering the space, and a few more companies volunteering more information on some of their development timelines, too. From that perspective, it has gotten a little clearer.
GEN EDGE: Why is Morningstar not changing its Fair Value Estimates on biopharmas, diagnostics developers, and other healthcare stocks?
ANDERSEN: It really ties to the urgency of the situation and the fact that on the diagnostic side and the drug side, there’s obviously immediate need for diagnostics and treatments, so any company that has something that might potentially help is basically giving it away right now.
Down the road, say for example, we find out in a couple of months that it looks like Gilead Sciences’ remdesivir might actually be helping patients, then I think Gilead will continue to ramp up production and start sending more and more drug over. We’ll probably also see companies in China producing the drug, in either some kind of an arrangement between China and Gilead, or potentially China will just say, “we’re just going to manufacture it, because there’s such a large emergency.”
It’s not really clear financially what Gilead will get out of this in the short run. In the long run, the uncertainty is more about how big a threat is this virus, or related viruses. In the long run, is this something that we’re going to be seeing cropping up every year? Or is it something that is a one-time event, and then once this abates, we will only see problems with it?
I think that as we get more information on how well Gilead’s drug works, and more information on how long this virus may be a problem for society, for humanity, then we’ll have a better idea whether that’s something that should be factored into an evaluation. But short run, donations and other drugs, generic drugs being huge, and long-term, we don’t know enough about the virus.
GEN EDGE: Fair to say a longer-run answer will depend on remdesivir’s clinical success and regulatory approvals over time?
ANDERSEN: Yes. If Gilead is able to get a new drug approved—say the threat goes away over the next few months, but people assume that it will come back. Then we might start to see stockpiles. We might start to see China and the U.S., and governments around the world, starting to stockpile the drug. And if there’s only one drug that’s working, that can be a huge benefit to a company like Gilead.
Or we could be in a situation where there are several vaccines available. These vaccines could be coming from big pharma, big biotech, smaller biotechs… there’s a smaller biotech I just saw on the news today partnered with a large manufacturer of vaccines in India. There could be a host of different players that could be jumping into this market, and offering either treatments or prevention therapeutics.
GEN EDGE: How much does Gilead’s coronavirus activity, namely the repositioning of remdesivir into a candidate for SARS-CoV-2, explain the company’s 6% stock price increase [from $63.20 to $67.00] between the initial January 31 announcement and February 20?
ANDERSEN: I think (the increase) was probably tied to investor interest in their ability to help with the Coronavirus outbreak. There are definitely cases where investors are already placing bets and putting money on companies that are involved.
GEN EDGE: You cited a potential driver of future value for coronavirus drugs as the ability to stockpile them. How much of a driver is stockpiling? Is that what value increases will key on or is stockpiling simply an additional factor?
ANDERSEN: I guess the simplest way to think about it is, are we going to have a vaccine to prevent this? And if we do, I think that would take priority, and I think that would be probably the most appealing route for everyone to try to prevent future outbreaks.
But if we don’t have a vaccine, I think something like what happened with Roche’s Tamiflu — we had a couple of different versions of these forms of influenza that came from animals, such as avian flu and swine flu. Tamiflu was seen as a solid treatment in a situation where we don’t have a vaccine that’s going to be working so we saw over a couple, as I mentioned, there are a couple of years where we saw pandemic sales really peak for both of those outbreaks, in addition to the regular sales that would be just for the standard flu.
[Ed. Note: Tamiflu sales peaked at nearly $3 billion in 2009 before declining. Last year, Tamiflu generated CHF 377 million ($385 million) in sales, Roche reported on January 30.]
GEN EDGE: A Chinese drug developer, BrightGene Bio-Medical Technology Co., has announced that it manufactured the active pharmaceutical ingredients (APIs) of remdesivir. How much of a challenge does Chinese domestic production of its drugs pose to Gilead?
ANDERSEN: I think it becomes an issue given how rapidly this has been spreading, and as it continues to spread throughout the provinces in China. I wouldn’t be surprised if China decided to use their ability to license drugs in an emergency situation to allow these domestic firms to just manufacture a Gilead drug.
For right now, they have been saying that before selling this, they will approach Gilead and come to some kind of an agreement. But it’s not clear what that would amount to: Would it be some kind of small royalty that Gilead would get for their intellectual property here? It’s just not clear at what level Gilead would see a financial reward.
Ed. Note: GEN has gathered its rolling coverage of the coronavirus crisis.
