What happened
Shares of AbCellera Biologics (ABCL -0.26%) fell 21.6% in October, according to data from S&P Global Market Intelligence. The biotech declined in response to news that an experimental pill developed by Merck has been shown to cut the risk of COVID-19-related hospitalization and death by half.
ABCL data by YCharts.
AbCellera provides an artificial-intelligence powered platform for identifying antibodies and developing treatments, and it scored a big win by helping Eli Lilly identify the antibody for its bamlanivimab COVID treatment. News of Merck's potentially highly effective treatment pulled valuations for vaccine stocks and some related biotech players lower at the beginning of the month, and this trend appears to have been the driving factor behind AbCellera's stock pullback.
Image source: Getty Images.
So what
Merck's molnupiravir oral antiviral pill could be a game changer in the treatment of COVID, and the market viewed its strong efficacy data as a sign that demand could be limited for Lilly and AbCellera's bamlanivimab with etesevimab treatment. But it's possible that the market overreacted to the potential competitive pressure that Merck's drug could create for AbCellera Biologics.
Stifel (NYSE:SF) analyst Stephen Willey published a note on Oct. 1 stating that the perceived threat to AbCellera appeared to be entirely unfounded. The analyst maintains a buy rating on the stock.
Now what
AbCellera stock has posted a significant recovery early in November's trading. The company's share price is up roughly 11.5% in the month so far.
ABCL data by YCharts.
AbCellera published a press release on Nov. 2 announcing that the U.S. government had agreed to purchase 614,000 additional doses of bamlanivimab with etesevimab from Eli Lilly. AbCellera generates the majority of its revenue from royalties, and continued use of the bamlanivimab treatment that it helped Lilly develop bodes well for sales.
AbCellera has a market capitalization of roughly $4.9 billion and is valued at approximately 17 times this year's expected sales and 47 times expected earnings. The company's performance will likely be uneven in the near term due to the nature of the antibody discovery process, treatment approval and marketability, and royalty cycles, but its technologies have already delivered some significant wins. For investors willing to take on the risks associated with the biotech space, the stock is worth a close look.
AbCellera Biologics is scheduled to report third-quarter earnings after the market closes on Nov. 9.
