It was the last thing anyone wanted to hear in the waning days of 2020. Researchers identified a new strain of the SARS-CoV-2 coronavirus that causes COVID-19. And it could be a lot more contagious than the current coronavirus strain that has wreaked havoc across the world.
European countries have implemented travel restrictions to try to prevent the spread of the new coronavirus strain, which scientists refer to as B.1.1.7. However, it's likely that such efforts are too late.
The obvious question on many people's minds is: Will the vaccines from Pfizer (PFE -1.46%) and Moderna (MRNA -1.96%) that are already being distributed in the U.S. still be effective against the new strain? So far, the answer to that question appears to be "yes." However, more research is being conducted.
While all of this is understandably concerning, there's a silver lining for some investors. Here's why the coronavirus strains could actually boost Pfizer and Moderna's fortunes.
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More mutations could mean greater earnings
Americans are accustomed to receiving vaccines. But there are some big differences in the vaccines that we get.
For example, tetanus shots are usually given around four weeks apart. A third shot usually is administered within six to 12 months later. After that, booster shots are needed every 10 years. Getting a flu vaccine, on the other hand, is an annual event.
One key reason why flu vaccines are required so much more frequently is that the influenza virus mutates at a rapid rate. Vaccines must be tweaked to provide protection against the new flu strains.
Research has found that SARS-CoV-2 has a lower mutation rate than the seasonal flu. However, the coronavirus definitely is mutating, as the more contagious strain identified in the U.K. underscores. For Pfizer, along with its partner BioNTech (BNTX -1.15%), and Moderna, these mutations could generate more money over the long run.
Bernstein analyst Ronny Gal projects a $40 billion COVID-19 vaccine market in 2021 that will taper off significantly after next year. However, future mutations to the coronavirus could cause the current versions of vaccines to be less effective. If that happens, the market size for Pfizer and Moderna will be much bigger in 2022 and beyond than Gal is predicting.
The mRNA advantage
Other coronavirus vaccines could be on the way soon. AstraZeneca hopes to win U.K. authorization for its AZD1222 this week. The British drugmaker should report its results from a pivotal U.S. study in late January. Johnson & Johnson expects to seek U.S. emergency use authorization for its COVID-19 vaccine in February.
However, Pfizer and Moderna could have a key competitive advantage due to their similar approaches. Both companies harness messenger RNA (mRNA) to spur the body's cells to produce a replica of the spike protein that's on the surface of SARS-CoV-2.
Pfizer and Moderna were able to get to market more quickly than their rivals in part because of the rapid development of a vaccine that mRNA technology makes possible. Once the genetic sequence of a virus is known, mRNA-generated antigens can be quickly produced and tested in preclinical studies with the best candidate advancing into clinical testing.
This rapid development and testing capability would likely become even more important in an environment where the coronavirus mutated frequently.
Too soon
Does the emergence of the U.K. coronavirus strain mean that Pfizer and Moderna are poised to dominate the COVID-19 vaccine market? No. For that matter, it's too soon to know if other future SARS-CoV-2 mutations will make a material financial difference for the companies.
However, it's definitely possible that new coronavirus strains could work to the benefit of Pfizer and Moderna down the road. Moderna seems likely to be the bigger winner since it owns the full rights to its COVID vaccine, while Pfizer and BioNTech split the revenue for their vaccine.
Moderna is up close to 500% in 2020. The biotech stock could move much higher if mutations with the coronavirus make the COVID-19 vaccine market more like the seasonal flu vaccine market than the tetanus vaccine market.
