COVID-19 was a once-in-a-lifetime type of catalyst for scores of biopharmaceutical stocks in 2020 and 2021. However, the strength of this catalyst has started to wane over the past two months, as seen in the steady drop in the share prices of nearly every pure-play COVID-19 stock. The core reason is that investors are growing increasingly concerned about what the next phase of this global viral outbreak will mean in terms of demand for COVID-19 therapies and vaccines.
In brief, immunologists and epidemiologists alike have started to float the idea that the highly infectious omicron variant might ramp up natural immunity to the virus around the globe, sparking the end to the pandemic phase of the outbreak and marking the beginning of the endemic phase. The endemic phase is expected to be characterized by seasonal outbreaks in COVID-19, much like the flu.
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While there is a solid rationale behind this hypothesis, the endemic phase won't result in a complete drop-off in demand for COVID-19 products. If anything, this next stage of the outbreak ought to result in sustained, albeit lower, demand for these life-saving products in the years ahead.
Which COVID-19 growth stocks are the best buys as the outbreak transitions into a chronic, seasonal illness? Novavax (NVAX -0.95%) and Vir Biotechnology (VIR -1.11%) both appear to be deeply undervalued relative to their long-term prospects as key players in the COVID-19 space. Here's why.
Novavax: Buy the dip
Despite a string of positive regulatory outcomes in ex-U.S. territories and the potential emergency use authorization of its COVID-19 vaccine in the U.S. before the end of the first quarter of 2022, Novavax's shares have dropped by 42% since Dec. 1. Investors appear to concerned that Novavax's novel coronavirus vaccine will enter the U.S. market too late to compete effectively against the mRNA juggernauts from Pfizer and Moderna.
That worst-case scenario may or may not be true. The fact is that there is still a large contingent of Americans who would prefer a more traditional protein-based vaccine like the one from Novavax, compared with a novel mRNA vaccine. Regardless of how the U.S. COVID-19 vaccine market plays out, though, Novavax ought to have a significant commercial opportunity for its vaccine abroad in the years ahead, especially in emerging markets.
The big picture is that Novavax's shares are in bargain territory after this sharp downturn over the prior six weeks. The biotech's stock is now trading at less than 3 times Wall Street's most pessimistic 2022 sales forecast. What's more, the company could have another blockbuster product on the market at some point in the near future with its flu vaccine NanoFlu. And if Novavax's shares fail to rebound soon, this novel vaccine maker might simply get bought out by one of the many big pharmas that missed the boat on the COVID-19 vaccine opportunity.
Vir Biotechnology: A best-in-class antibody play
Vir's value proposition centers on its GlaxoSmithKline co-developed antibody sotrovimab. The key reason is that sotrovimab has reportedly shown activity against every single known variant of COVID-19, according to Vir's most recent investor presentation.
Meanwhile, most of the drug's chief competitors have exhibited reduced efficacy against the omicron variant. Sotrovimab, in turn, may be on the cusp of dominating this multibillion-dollar-per-year drug market. Wall Street, for its part, expects the drug to garner net revenue for the company of anywhere from $1.32 billion to $2 billion this year. Even Wall Street's low-end revenue forecast qualifies as a significant sum for a company with a $5.71 billion market cap.
And thanks to sotrovimab's commercial potential, Wall Street thinks this mid-cap biotech stock could more than double in value over the next 12 months. Not many pure-play COVID-19 stocks offer that kind of upside potential at the moment.
Nevertheless, Vir's stock may even outperform these upbeat expectations. This top COVID-19 antibody, after all, could realistically surpass $3.6 billion in peak sales within the next year or so.
