Vir Bio (VIR -4.46%) is one of the strongest buying opportunities I see in the market today. The company's COVID-19 treatment, Xevudy, works against the omicron variant. So the U.S. and other governments are spending a lot of money buying supplies of the drug, which runs about $2,000 per patient. The Biden administration bought $1 billion worth of the drug last November. In January, it bought another 600,000 doses, adding another $1.2 billion in sales.
These numbers are huge for Vir Bio, a tiny biotech with a $3.2 billion market cap. While Vir has to share its COVID revenues with its marketing partner, GlaxoSmithKline (GSK -0.39%), almost 75% of the revenues are going to Vir. That makes sense because it was Vir that discovered the drug, not Glaxo. If you want to invest in science, Vir is the stock you should buy.
Last week my family did just that, opening a position in Vir Bio. It's kind of a no-brainer, given how cheap the stock is and how much money the company stands to make. Here's why you might want to start researching this fast-growing biotech.
Image source: Getty Images.
Xevudy has brought in $3.4 billion already -- more than Vir's market cap
The company reports that 1.7 million doses of its COVID treatment have already been sold around the world. At $2,000 a dose, that's $3.4 billion. In other words, the stock market is basically paying nothing for the rest of Vir Bio right now. Granted, as a marketing partner, Glaxo will take some of these Xevudy revenues. But it's Vir scientists who actually discovered the drug. Those scientists found a molecule worth $3.4 billion (so far).
If you bought Vir Bio outright, you would be paying $3.2 billion to get major rights in a drug that brought in $3.4 billion in a matter of months. You'd be an owner of all of Vir's other drugs too, including one that might be a cure for Hepatitis B. At that price, it's like you're buying Xevudy and you're getting the rest of Vir Bio for free.
If that's not enough to convince you, how about the price-to-earnings (P/E) ratio? When you buy shares of Vir, you're paying 1.3 times forward earnings. These earnings aren't speculations or hopeful guesses. The drug has already been sold! Vir's numbers are so strong you want to rub your eyes and look at them again. Profit margin? 48%. Revenues over the last 12 months? $1.1 billion. Revenue growth rate in the most recent quarter? 46,771%.
If you want a COVID analogy, German drug company BioNTech (BNTX 1.63%) is the company that discovered the Pfizer (PFE 0.19%) COVID vaccine. They had a 50-50 split (Vir's deal is much stronger for Vir). Now BioNTech is a $36 billion company. Can Vir pull off an 11-bagger and get up to that level? If the market gave Vir the same multiple as BioNTech, that would be over a triple. The failure to give Vir any multiple at all is a real margin of safety.
COVID is not over
Recently, the Centers for Disease Control and Prevention (CDC) finally changed its mask guidance. So that's good news, and as we head into spring, it's likely that COVID cases will decline. But it's also entirely possible that COVID will return next winter. COVID, like influenza, is a mutating virus.
One of the reasons that Vir's revenues spiked so dramatically is that other COVID treatments did not work against the omicron variant. In January, the Food and Drug Administration (FDA) narrowed the authorization of competitor drugs from Regeneron (REGN -0.68%) and Eli Lily (LLY -0.12%) to 1% of COVID cases. That's because 99% of COVID cases are now made up of the omicron variant, and those drugs are ineffective against that mutation. That's why the U.S. government has been stockpiling Vir's treatment.
COVID continues to mutate, and now there are two omicron strains, BA.1 (prevalent in the U.S. and the U.K.) and BA.2 (which is showing up in China and India). Some early studies suggest that Vir's treatment is less effective against the BA.2 variant.
Last week, the FDA gave a geographic limitation to VIR's Emergency Use Authorization (EUA). Now the authorization is limited to areas where the original strain of omicron (BA.1) is dominant. That's not a limitation at all right now since it's the original strain of omicron that we're seeing in the U.S. (And the FDA has no authority over China or India.)
The future is bullish
No doubt, COVID will keep mutating, and new treatments will continue to hit the market. Vir has a very promising pipeline of drugs. The biotech is working on an antibody treatment more powerful than Xevudy and with a broader application. Vir is also working on a COVID vaccine designed to be variant-proof. A one-and-done version would likely end this pandemic once and for all.
One of the Vir's most promising drug candidates is iyd treatment for Hepatitis B. If this drug works as the company hopes, it will effectively be a cure for Hepatitis B around the world. While this is not as big a market as COVID (429 million COVID cases have been reported), it's nonetheless a huge market opportunity (300 million people live with chronic Hepatitis B). Vir's Hepatitis B drug is in phase 2 trials right now.
In my opinion, the amazing success of Xevudy has largely de-risked Vir Bio as an investment. This COVID drug is already a blockbuster and has brought in more revenue than Vir's whole market cap. My advice is to buy Vir stock for its COVID treatment and be sure to hold on to it for the impressive pipeline that could make the shares a whole lot more valuable than they are today.
