The news of a new variant of the coronavirus Friday sent financial markets into a tailspin. The adversity could present an opportunity for a handful of biopharma stocks, according to a Morgan Stanley analyst.
The Biopharma Analyst: Matthew Harrison maintained an Equal-Weight rating on Pfizer, Inc. PFE shares and increased the price target from $50 to $60.
The analyst maintained an Equal-Weight rating on Merck & Co., Inc. MRK shares and reduced the price target from $88 to $82.
Harrison upgraded shares of Adagio Therapeutics, Inc. ADGI from Equal-Weight to Overweight and lifted the price target from $33 to $49.
The Biopharma Thesis: Omicron highlights the continued variant risk in an evolving pandemic and it is likely to replace the delta variant, increasing infection rates and reducing vaccine effectiveness, Harrison said in a note.
Transmission appears to be the significant difference, as reflected by the proportion of sequenced cases pointing to omicron overtaking delta and the faster rate at which it has reached a high proportion of local cases relative to other key South African variants, the analyst said.
"If it outcompetes Delta, then the level of concern should be very high. If it does not, Omicron will create limited disruption," Harrison said.
There are 15 mutations in the receptor binding domain, and this is likely to reduce susceptibility to vaccines and antibody treatments, the analyst said.
Omicron may not be more virulent than delta, but governments are likely to stockpile vaccines and treatments irrespective of disease severity unless it is dramatically less virulent than delta, he said.
Harrison Says mRNA Vaccines Have Edge: mRNA vaccines, certain antibody therapies and Pfizer's oral treatment are most likely to benefit, Harrison said.
mRNA vaccines are likely to be preferred for their speed to market, the analyst said.
Thus, Pfizer and Moderna, Inc. MRNA should be the key beneficiaries of additional boosting and primary vaccination series, he said.
Pfizer Over Merck In Antivirals: Merck and Pfizer will sell what they can make but Pfizer will likely be preferred given the more limited impact from the full Merck data and concerns around the profile of the drug, Harrison said.
Morgan Stanley raised its 2022 sales estimate for Pfizer's Paxlovid oral COVID-19 pill to $26 billion from 50 million courses of treatment.
Adagio Is Morgan Stanley's Antibody Pick: Omicron will reduce the number of effective antibodies, Harrison said. Deep mutational scanning suggests that antibodies from Eli Lilly & Co. LLY and Regeneron Pharmaceuticals, Inc. REGN will not be significantly effective against Omicron, he added.
Adagio's antibody, however, has a very strong profile against omicron and has preferable characteristics such as long half-life, the analyst said.
Vir Biotechnology, Inc. VIR, which has partnered with GlaxoSmithKline plc GSK, and AstraZeneca plc AZN, also has antibodies that retain neutralization against omicron, Harrison said.
The analyst expects governments to focus on purchases of antibodies in the near-term given they can be effective while a vaccine booster, if required, is developed and distributed.
Biopharma Price Action: At last check, Pfizer shares were down 0.6% at $53.70.
Moderna shares were rallying 10.15% to $363.20.
Merck was slipping 5.55% to $74.77.
Adagio was jumping 71.8% to $43.16.
Related Link: Will Pfizer Outgun Merck With Oral COVID-19 Pill?
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