Covid-19 has affected all businesses in all sectors of the stock market. This crazy year has allowed many biotech investors to capitalize on myriad opportunities. As we enter the new year with two vaccines from Moderna and Pfizer, even more opportunities may be provided. As I write this article, a massive effort to manufacture and distribute these vaccines is underway, and with this gargantuan effort comes opportunities for these three companies.
By John Coughlin, Biotech Analyst
West Pharmaceutical Services
With a massive effort towards manufacturing the two current Covid-19 vaccines, syringes, injectors, and many other components are needed to supply the new demand. West Pharmaceutical, a “leading manufacturer of packaging components and delivery systems for injectable drugs and healthcare products,” could benefit from this need for vaccine components. Founded in 1923, West has been dedicated to providing medical materials in North and South America, Europe, Asia, and Australia. The company currently manufactures auto-injectors, pen injectors, pulmonary delivery devices, and many other pharmaceutical components necessary to inject the vaccine’s ingredients. In 2021, both Moderna and Pfizer expect to manufacture over 2 billion vaccines, which does not include the over 70 million manufactured in Q4 2020. This new manufacturing will allow the syringe manufacturing industry to see unprecedented and new growth. According to IBIS World, the industry for “Syringes & Injection Needle Manufacturing in the U.S. industry trends” has seen an average yearly increase of .2% for the past five years. With 2020 and 2021 expected to bring growth to the industry, companies like West can capitalize on the new demand and bring in future revenue.
Over the past year, West Pharmaceutical has seen large stock returns. YTD, the stock is up over 80% and is continuing to make new all-time highs.
From a financial standpoint, West Pharmaceutical Services is very attractive. In their most recent quarterly report, net income was up 46% ($82.3 million compared to $56.3 million), while net sales were up over 20%. When looking at their “percentage of net sales by geographic location,” the case for West becomes even better. For Q3 2020, the Americas represented 49% of their sales. By having established markets in the United States, West will tailor their manufacturing towards the new Covid-19 vaccines.
To no surprise, pharmacies that administer flu and other vaccines will benefit from the new Covid-19 vaccines. That’s why CVS, a retail pharmacy corporation in the United States, is on this list.
In a recent New York Times article, it was reported that “at least 614,000 People in the U.S. have received the Covid-19 vaccine,” a tiny number compared to the overall U.S. population. Currently, most locations that administer the vaccines are in hospitals, where healthcare workers are being vaccinated. When the vaccine becomes widely available to the general public, retailers, such as CVS will become places where they can be administered. Even before Covid-19, CVS has distributed millions of vaccines over the company’s lifetime. In 2020, the CVS “administered nearly 20 million non-COVID-19 vaccinations.” In their most recent quarter (Q3), CVS administered 13 million flu vaccines, up 78% YoY, a showcase of their large-scale vaccination capabilities. In a recent article, CVS anticipated that in early 2021, the company would be able to administer the vaccine in “nearly 10,000 CVS Pharmacy locations nationwide” and administer “as many as 20-25 million shots per month.” Although the Covid-19 vaccine will be at no charge to the general public, CVS will likely benefit financially from this mass administration. With billions of vaccines being manufactured in 2021, the only way they can be administered on a larger scale is through the retail sector. Although the vaccine’s retail distribution will be competitive, CVS will likely be the leading non-government provider of the vaccine in the retail pharmacy sector, further solidifying its rank in pharmacies across the United States.
Although Covid-19 has been most present throughout this year and likely 2021, the timeline for administering the vaccine is still unknown. If Covid-19 is like the flu in a manner of timing, the vaccine will have to be taken yearly, lengthening CVS’s administration timeline.
CVS stock (NYSE: CVS) has underperformed the market throughout recent years, down nearly 40% from its all-time high of $110. Administration of millions of Covid-19 vaccines will bring in new revenue: it might shift sentiment in the market for CVS stock.
The product of a 2006 mega merger, Thermo Fisher is one of the American lead providers of scientific instruments, reagents, and other healthcare software. Throughout 2020, the company has tailored some of its products to Covid-19 by creating testing kits for the virus. With the introductions of two Covid-19 vaccines into the market, Thermo Fisher’s current products could tailor these two vaccines. According to both companies, Moderna’s vaccine needs to be stored at -20°C (-4°F), while Pfizer’s vaccine needs to be stored between -60°C and -80°C. Currently, Thermo Fisher provides multiple freezers to the market, including the TSX Series High-Performance Plasma Freezers, Revco™ High-Performance Lab Freezers, and other generic freezers. Their coldest freezer can store samples at -80°C, which accommodates both the Moderna and Pfizer vaccine. With a large variety of freezers that have storing temperatures ranging from -20°C to -80°C, Thermo Fisher can capitalize on the new demand for cold freezers.
Thermo Fisher has seen unprecedented growth due to Covid-19. In their most recent quarterly report (Q3), the company noted it had “generated $2.0 billion of COVID-19 related revenue in the quarter and returned the base business to growth.” Thanks to this new revenue, the company also reported a “Third quarter revenue increase of 36% to $8.52 billion” and an EPS increase of 91% to $5.63. With the new possible demand for freezers, even more revenue related to Covid-19 can be realized.
Thanks to their new revenue, Thermo Fisher’s stock has seen tremendous stock growth in 2020. Year-to-date, the stock is up 40%, pushing the company to a $140+ billion valuation.
Covid-19 has and will continue to provide excellent opportunities for these three companies. Thermo Fisher and West Pharmaceutical could be considered speculative bets; but the risk may well be worth the considerable upside. With new revenue and an influx of cash entering these companies, the future looks bright for West Pharmaceuticals, Thermo Fisher and CVS.
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