One of the biggest winners among coronavirus stocks in 2020 has been Vir Biotechnology (VIR -4.12%). The company's shares have more than doubled in the span of one year, turning a $10,000 investment from last September into about $22,700 today. That substantially outperformed the S&P 500, which gained 15% over the same period.
But sometimes, the higher you climb, the harder you fall. Recent controversy surrounding the company's progress with its COVID-19 programs caused the stock to fall more than 40% from its peak in late August. Should investors expect this company and its stock to rebound? Let's take a look at whether buying Vir on the dip is a golden opportunity or whether the company's drug pipeline spells trouble for its future.
A slow-moving COVID-19 pipeline
Vir has two antibody treatments and a small interfering RNA (siRNA) treatment against COVID-19 in its pipeline. siRNA therapeutic candidates are based on tiny double-stranded RNA sequences coded to destroy genetic material responsible for a virus' protein synthesis, rendering it unable to replicate. The RNA treatment is undergoing preclinical studies, the results from which are expected by the end of the year. Meanwhile, one of the company's antibodies, VIR-7832, will enter phase 2 clinical trials in the fourth quarter, while the other, VIR-7831, is in phase 2/3 clinical trials. The latter candidate could made available first under an early access program like an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) in the early months of 2021, if trial results are positive.
Vir has partnered with GlaxoSmithKline (GSK 0.89%) to develop its COVID-19 programs. The company is responsible for research and development (R&D) costs while GlaxoSmithKline is handling commercialization costs. Under the agreement, 72.5% of costs and profits go to Vir while the remaining 27.5% are GlaxoSmithKline's.
Without a doubt, Vir's pipeline has potential. However, there are already coronavirus treatments on the market, including Gilead Sciences' (GILD 0.18%) antiviral, remdesivir, and the generic steroid, dexamethasone. What's more, large-cap biotechs such as Moderna (MRNA -4.99%) and Pfizer (PFE 0.22%) are already far along in their efforts to develop coronavirus vaccines. In fact, a vaccine could be available as soon as October. While there are no guarantees that any one of the vaccine candidates in particular will prove effective against COVID-19, it is likely that by 2022, the need for coronavirus treatments will have significantly diminished as people around the world are (hopefully) inoculated.
A hepatitis B candidate with company
The company's hepatitis B pipeline is facing similar problems. Even though its treatment candidates for the disease are well into phase 2 trials, the question of their commercial feasibility is a key concern. There are already a number of effective hepatitis B vaccines available worldwide, meaning that the need for a treatment is limited to those who don't get immunized (or those whose immunizations are ineffective) and subsequently contract the virus. While 257 million people are currently living with hepatitis B, many are in developing nations and may not have the purchasing power to afford a pricey treatment course.
If that wasn't enough, Arrowhead Pharmaceuticals (ARWR -1.41%) and Johnson & Johnson (JNJ 0.89%) are also on their way to developing a treatment for hepatitis B. Clinical data for their candidate has looked solid. Whatever comes out of Vir's pipeline would have to compete with both existing standard-of-care treatments such as Entecavir and Tenofovir and new ones from other biotechs. This would significantly affect the company's pricing power in the event of its drug's approval.
Buying the dip isn't always the smart move
Vir only brought in $67 million in combined licensing plus collaboration revenues in the past quarter. But currently, it has about $552.4 million in cash and investments, is operating at a net loss of $31.2 million per quarter, and has a $4.05 billion market cap. So in terms of its ability to keep moving forward with research and development, Vir's financial position is fair.
However, I don't think its shaky pipeline can justify its stock price, even after a recent decline. The market opportunities for hepatitis B and COVID-19 treatment candidates are too unstable and full of heavyweight pharma competitors. Buying Vir Biotechnology now could be like catching a falling knife. Investors looking at coronavirus stocks may wish to consider other opportunities.