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Here's Why Investors Should Follow Sanofi and GlaxoSmithKline's New Coronavirus Collaboration

By Rachel Warren - Apr 30, 2020 at 8:11AM

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The combined effort of these two companies marks one of the largest manufacturing collaborations on the planet toward a coronavirus vaccine.

Ever since GlaxoSmithKline (GSK 0.84%) and Sanofi (SNY 2.19%) announced on April 14 that they were entering an unprecedented collaboration to develop a COVID-19 vaccine, both stocks have soared. On the day of the announcement, GlaxoSmithKline stock closed at the highest it had been all month, up about 8% from its price at the beginning of April, with shares continuing to rise ever since. 

Sanofi stock experienced a somewhat less newsworthy boost that day, but shares have risen significantly over the past few weeks. Sanofi stock closed at $49.87 on April 28, sitting at roughly 4% below its 52-week high and 33% above its 52-week low. As for GlaxoSmithKline, the stock's recent closing price was $42.09, about 13% below its 52-week high and 34% above its lowest trading price during the past year. 

While neither GlaxoSmithKline nor Sanofi was immune to the coronavirus-induced plunge into bear market territory, shares for both companies have certainly been on an upward trajectory since the end of March, and the April 14 announcement has only served to build this momentum. 

Three people in white lab coats working in a laboratory

Image source: Getty Images.

One of the world's largest COVID-19 vaccine collaborations 

The GlaxoSmithKline-Sanofi collaboration is not the first in the latest wave of companies racing to develop coronavirus vaccines and treatments. Lately, an increasing number of pharma giants have joined forces to maximize research, testing, and production capabilities on prospective COVID-19 solutions.

For example, Pfizer (PFE 3.77%) and German drugmaker BioNTech are working on a vaccine candidate that could be on the market before the end of the year. Amgen (AMGN 0.02%) and Adaptive Biotechnologies (ADPT 1.65%) are two other well-known names teaming up to perform genetic testing and locate active viral antibodies against SARS-Cov-2 in the hope of rolling out a drug candidate. 

So what makes GlaxoSmithKline and Sanofi's collaboration one to watch?

Sanofi brings to the table its S-protein COVID-19 antigen. (An antigen is a foreign or harmful substance that enters the body and produces an immune response; vaccines use antigens to make the body respond. GlaxoSmithKline says Sanofi's COVID-19 antigen is "an exact genetic match to proteins found on the surface of the virus," and it The combined DNA technology is also used in the company's well-known influenza vaccine, Flublok. 

GlaxoSmithKline will be contributing its vaccine adjuvant technology, used to manufacture the company's H1N1 vaccine Pandemrix, which was widely administered in Europe during the 2009 "swine flu" pandemic. (A vaccine adjuvant is an agent added to the antigens in the vaccine to produce a longer-lasting response.) The company's adjuvant technology has also been the primary driver of its successful Shingrix shingles vaccine. GlaxoSmithKline noted in its April 14 press release that the use of an adjuvant "has been shown to create a stronger and longer-lasting immunity against infections than the vaccine alone. It can also improve the likelihood of delivering an effective vaccine that can be manufactured at scale." 

Phase 1 trials may be just months away 

With the unprecedented amalgamation of GlaxoSmithKline's pandemic adjuvant technology and Sanofi's S-Protein COVID-19 antigen, the timeline from research to trials to production could be shortened significantly. The companies are planning on starting phase 1 clinical trials on human subjects in the second half of this year. If phase 1 trials and subsequent studies prove successful, subject to regulatory approval, the companies hope to have a product ready for consumer distribution by the latter half of next year. 

This seems to be a reasonable timeline. During phase 1 studies, a drug candidate is usually tested on only a small group of subjects before more extensive phase 2 and 3 studies to assess efficacy. Each trial phase can last several months or longer, depending on any clinical and regulatory roadblocks that arise during the process. Some collaborations, like Pfizer and BioNTech, are projecting a shorter time frame before a vaccine is on the market, but the viability of this target is uncertain.

Investor outlook

Sanofi recently reported its Q1 earnings, showing encouraging sales growth and guidance for 2020. The company's sales grew by 6.6% on a year-over-year basis to approximately $10 billion. Pharmaceutical sales were a huge factor in Sanofi's growth story, with a 7.5% overall increase to more than $7 billion in the first three months of 2020. One of the leading drivers of Q1 sales was Dupixent, a drug the company developed with Regeneron Pharmaceuticals (REGN 0.77%) that is used to treat certain allergic diseases such as asthma and eczema. Dupixent sales in the U.S. totaled over $950 million in Q1 alone. Sales for rare-disease drugs and blood disorder drugs were up by approximately 11% and 4%, respectively, from Q1 2019. 

The company came into the 2020 coronavirus crisis from a strong 2019, having raked in sales surpassing $39 billion, with free cash flow of about $8 billion. Management expects a 5% growth rate in earnings per share (EPS) in 2020.  And Sanofi's collaboration with GlaxoSmithKline isn't its only iron in the fire. Sanofi is currently partnering with Regeneron in phase 2/3 adaptive-designed trials to test the efficacy of arthritic drug Kevzara in critically ill COVID-19 patients. The company has also signed an agreement with Luminostics to evaluate a possible joint development of COVID-19 self-tests on smartphones. 

GlaxoSmithKline's first-quarter earnings were released yesterday. 2019 was a good year for the company, with annual sales over $42 billion and Q4 earnings surpassing $11 billion, and it beat earnings and revenue estimates in Q1 of 2020 as well. The company has a diverse portfolio of products, including a thriving vaccine division that reported sales of more than $2 billion in Q4. The consumer healthcare division, another significant revenue driver for the company, brought in earnings well over $3 billion in the last three months of 2019.

Besides its collaboration with Sanofi, GlaxoSmithKline is offering its adjuvant technology to a few other companies working on coronavirus vaccine candidates, including Vir Biotechnology (VIR 2.69%)

Summing it up 

GlaxoSmithKline and Sanofi are leveraging tried-and-true technologies that were proven to work in the last great pandemic. The two companies are starting from a position of immense strength, using established platforms and methodologies that have already produced successful and widely used vaccines. This undoubtedly puts them paces ahead of many other leading drugmakers feverishly working on vaccine candidates. GlaxoSmithKline and Sanofi are also the largest and third-largest pharmaceutical companies on the globe, respectively, in terms of earnings. If you've been eyeing one or both of these pharmaceutical stocks as a potential buy, there are more than a few compelling reasons to follow Sanofi and GlaxoSmithKline's landmark collaboration closely in the weeks and months to come. 

Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Sanofi Stock Quote
$44.37 (2.19%) $0.95
GSK Stock Quote
$36.03 (0.84%) $0.30
Pfizer Inc. Stock Quote
Pfizer Inc.
$50.11 (3.77%) $1.82
Amgen Inc. Stock Quote
Amgen Inc.
$248.39 (0.02%) $0.04
Regeneron Pharmaceuticals, Inc. Stock Quote
Regeneron Pharmaceuticals, Inc.
$628.71 (0.77%) $4.81
Adaptive Biotechnologies Corporation Stock Quote
Adaptive Biotechnologies Corporation
$12.32 (1.65%) $0.20
Vir Biotechnology, Inc. Stock Quote
Vir Biotechnology, Inc.
$28.60 (2.69%) $0.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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