COVID-19 probably isn't going to be a passing fad. Despite the very real possibility that one or more vaccines will be approved in record time, clinicians still expect the viral illness to persist as a fairly common seasonal ailment over the current decade. Vaccines, after all, are highly unlikely to be 100% effective. Furthermore, the virus is expected to mutate in a manner that degrades the effectiveness of both first-generation vaccines and background immunity from prior infections over time.
What this all means is that COVID-19 treatments will likely be a key new product category within the world of biopharma for a long time to come. That being said, this niche area within the broader biopharmaceutical landscape is fraught with risk for a variety of reasons.
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Therefore, investors on the hunt for a COVID-19 treatment play may want to stick to companies that don't necessary require a win on this therapeutic front to push their stocks higher. With this theme in mind, Eli Lilly (LLY -0.12%) and Regeneron Pharmaceuticals (REGN -0.68%) stand out as two of the most compelling plays -- from a risk-to-reward perspective -- within this emerging growth area of biopharma. Read on to find out more.
Eli Lilly: A well-diversified growth and dividend stock
Lilly is developing two COVID-19 neutralizing antibodies, known as LY-CoV555 and LY-CoV016. Taken together, Wall Street thinks these novel coronavirus therapies could rake in billions in future sales, which would be a big win for a company of even Lilly's titanic stature.
Last month, the drugmaker applied for emergency use authorization (EUA) with the Food and Drug Administration (FDA) for LY-CoV555 as a treatment for patients with milder forms of the disease. During the same update, Lilly said it expects to file for EUA for a combination therapy consisting of both LY-CoV555 and LY-CoV016 in November.
Unfortunately, Lilly's COVID-19 antibody program has been struck with two major setbacks in the interim. Enrollment in a late-stage trial evaluating LY-CoV555 in combination with Gilead Sciences' Veklury has since been shuttered because of a low likelihood of success. This combo therapy was being evaluated as a treatment for hospitalized COVID-19 patients. Second, the agency cited the manufacturer for problems at the manufacturing site for the antibodies. Lilly has vowed to rectify these manufacturing issues, but these latest hiccups will surely delay a potential EUA.
What's important to understand is that these experimental antibodies are essentially icing on the cake from an investing standpoint. Lilly already sports one of the best growth portfolios in the business, with numerous high-powered products such as the diabetes medications Trulicity and Jardiance, the immunology drugs Taltz and Olumiant, and the anti-cancer treatments Verzenio and Tyvyt. Topping it off, Lilly offers shareholders a fairly respectable dividend yield of right around 2% at current levels.
Bottom line: Lilly's stock is arguably worth owning regardless of what happens to these promising COVID-19 antibodies.
Regeneron: A proven growth play
Regeneron's antibody cocktail REGN-COV2 -- consisting of two potent neutralizing antibodies known as REGN10987 and REGN10933 -- is perhaps the best known COVID-19 therapy among the general population, thanks to its use during President Trump's recent bout with the illness. Although the therapy has yet to be approved in any form, the president was able to receive the experimental antibody combo through the FDA's compassionate use program.
Recent events suggest that REGN-COV2 -- like Lilly's antibodies -- isn't particularly effective at treating patients with severe cases of COVID-19. However, the therapy has shown a clear-cut ability to reduce viral loads among patients with milder cases of the diease.
Regeneron, in turn, appears to have a lock on grabbing an EUA for REGN-COV2 as either a prophylactic treatment for at-risk individuals, and/or as an interventional med for less severe COVID-19 cases, in the not-so-distant future. So, in short, this powerful antibody therapy should turn out to be a healthy revenue generator for the biotech.
Nonetheless, REGN-COV2 isn't the main reason to buy this large-cap biotech growth stock. Regeneron's top-line has been racing higher of late because of newer products such as the allergy med Dupixent, and the immuno-oncology treatment Libtayo. What's more, this top biotech company sports an extremely robust clinical pipeline, a healthy balance sheet, and an attractive valuation, with its stock trading at under 15 times forward-looking earnings at the moment.
The key takeaway: Regeneron will almost certainly benefit financially from its COVID-19 antibody program over the next two to three years. But its long-term outlook isn't dependent on this singular drug candidate -- a fact that should appeal to the risk-averse crowd.
