As record levels of volatility continue to plague the market, investors globally have been left grappling with the economic fallout. After landing in the green the preceding day, March 18 saw stocks slump back into the red.
Given the current state of the market, you would be hard-pressed to find an investor that hasn’t been somewhat spooked. That being said, Wall Street pros say to first stop and take a breath, arguing that the market’s turbulence isn’t a reason to rush to sell-off all assets. They remind investors that a few names, especially within the healthcare sector, can still deliver returns even amid unprecedented volatility.
Taking this advice to heart, we used TipRanks data to zero in on two healthcare stocks primed to emerge from the public health crisis as long-term winners, according to the analysts. The tool also revealed one name that has fallen out of favor with some members of the Street.
Moderna Inc. (MRNA)
Amid the ongoing public health crisis, Wall Street’s gaze has locked in biotech Moderna. The company, which uses messenger RNA (mRNA) to spur patients’ own cells to produce disease-fighting proteins, is advancing an experimental COVID-19 vaccine. On the heels of its recent update on the vaccine’s status, several analysts are backing MRNA as they believe its 66% one-month gain is just the beginning.
While the market plunged on March 16, Moderna notched a 24% increase after it revealed that the first participant in the Phase 1 trial of its mRNA-1273 COVID-19 candidate had been dosed. The National Institute of Allergy and Infectious Diseases (NIAID) is currently running the trial in Seattle, and a grant awarded to the company by the Coalition for Epidemic Preparedness Innovations (CEPI) is being used to fund the Phase 1 manufacturing material. In an effort to advance the vaccine candidate as quickly as possible, MRNA has already started to prepare for a possible Phase 2 trial, initiating the manufacturing of Phase 2 material.
Writing for Chardan Capital, analyst Geulah Livshits has been impressed by this development. “…the company is scaling up manufacturing by increasing the number of instruments, shifts and people, and does not anticipate needing to divert resources from other programs,” she pointed out.
However, Livshits does mention that the limited understanding of COVID-19 will make it more challenging to interpret efficacy data. “In theory, if prior exposure to SARS-CoV-2 confers immunity against future infection, one could look to see neutralizing antibody titers at levels comparable to those in convalescent patients (though this doesn’t take into account the contribution of mucosal surface antibodies or T cell responses),” she explained. That being said, the analyst argues that a similar situation occurred with its cytomegalovirus vaccine, mRNA-1647, but the company was able to determine a threshold for comparison.
Even though the vaccine’s approval is likely at least a year out, Livshits thinks mRNA-1273 is a “demonstration of Moderna’s platform rather than as a commercial opportunity given the rapid evolution of the situation and the many uncertainties for the virus in the long-term.” As a result, the analyst left her Buy rating and $40 price target as is, suggesting 27% upside potential. (To watch Livshits’ track record, click here)
Turning now to the rest of the Street, other analysts are on the same page. 6 Buys and 2 Holds assigned in the last three months add up to a Strong Buy consensus rating. (See Moderna stock analysis on TipRanks)
While Novavax has had its fair share of wild swings, like Moderna, the biotech has attracted significant attention thanks to its COVID-19 vaccine candidate. With shares having already soared 169% since the start of 2020, Wall Street is getting behind NVAX.
Cantor Fitzgerald analyst Charles Duncan’s bullish thesis is in part driven by the company’s COVID-19 program. The CEPI has awarded NVAX a grant, $4 million to be exact, to further the development of an experimental vaccine. As this funding could cover its costs through Phase 1, Duncan thinks that the development program “represents asymmetric risk/reward with no additional burn burden for shareholders.” A Phase 1 study is expected to be initiated in May or June, and the implications could be significant.
That isn’t all NVAX has going for it. The biotech is slated to read out top-line Phase 3 NanoFlu data by the end of Q1 2020. According to Duncan, the Phase 3 study of its seasonal flu vaccine candidate has been de-risked by the Phase 2 study results.
“We believe the Phase 2 data is robust and that the immunogenicity data increases the probability of translating into superior efficacy. We look for increased visibility on the strategy and timing of a potential efficacy study to further asses our market penetration assumptions, as we believe showing superiority would drive substantial demand for NanoFlu, if positive and approved,” the analyst commented.
On top of this, NVAX reached a commercial agreement with the Serum Institute of India for Matrix-M, which is an important component of its malaria vaccine candidate.
This combined with all of the above prompted Duncan to upgrade his rating from Neutral to Overweight. Not to mention the analyst lifted his price target from $6 to $16, putting the upside potential at 50%. (To watch Duncan’s track record, click here)
All in all, with 100% Street support, 5 Buys to be precise, the message is clear: NVAX is a Strong Buy. Should the $15.25 average price target be met, a twelve-month rise of 43% could be in the cards. (See Novavax stock analysis on TipRanks)
Inovio Pharmaceuticals (INO)
Moving on to Inovio Pharmaceuticals, the immunotherapy-focused healthcare name hasn’t received the same warm reception from Wall Street analysts. Despite climbing 124% year-to-date on its decision to join the fight against COVID-19, one analyst isn’t convinced that INO can outperform in the long run.
Piper Sandler’s Christopher Raymond acknowledges that there’s value in its development platform. Citing its VGX-3100 candidate, he sees proof of concept data for its use in vulvar intraepithelial neoplasia (VIN) and anal intraepithelial neoplasia (AIN) as well as top-line Phase 3 data for its use in cervical dysplasia as being potential catalysts. Additionally, INO-5401, its potential therapy for Glioblastoma, could drive significant upside.
However, Raymond argues that INO’s share price is “too hot to handle”, even if it could create an effective COVID-19 vaccine. Given its dramatic recent increase, some investors have questioned the validity of management’s claims, but this isn’t what is troubling for the analyst. “We think this debate misses the point, which to us centers on tangible value assignable to the stock from a successful COVID-19 vaccine. Back of the envelope, given the breadth of competition now in this space, and the unclear downstream revenue potential, we think at best, there’s maybe $2-$3 per share at play here,” he stated.
While Raymond can’t know for certain that shares won’t skyrocket again on announcements related to funding or clinical advancement, he doesn’t think these movements are connected to INO’s key value drivers and therefore, can’t remain a buyer. “However, by the same token, we cannot in good conscience continue to recommend purchase as this bull/bear debate swirls around a program that is a long way from proof of concept. Given this, we prefer the safety of the sidelines on this name,” he explained.
In line with his cautious approach, Raymond downgraded the stock to Neutral and maintained the $8 price target. This conveys the five-star analyst’s belief that shares could move 8% higher in the next twelve months. (To watch Raymond’s track record, click here)
As for the rest of the Street, other analysts are more optimistic when it comes to INO. Its Moderate Buy consensus rating breaks down into 4 Buys and 2 Holds set in the last three months. With a $10 average price target, shares could surge 34% in the next year. (See Inovio stock analysis on TipRanks)