In the last two months alone, Wall Street investors have pumped billions into a number of biotech companies in the early stages of producing vaccines or drugs to combat. Some of these companies are pursuing promising treatments, experts say, but others are likely to strike out in search of a cure. The result: a coronavirus investment bubble worth close to $ 200 billion in stock market value.
On Monday, Novavax vaccine developer shares fell 15% in the news that the company had begun testing its coronavirus vaccine on people in Australia. Test results, which are just the first phase of getting a vaccine approved for widespread use, will not be available until July. Still, investors were impressed: Novavax̵7;s stock price, which started the year at $ 4, has risen by 1,200% to over $ 50 this week; shares were trading at about $ 44 apiece on Wednesday.
Since coronavirus lockdowns began throughout the United States in mid-March, the total stock market value for eight biotech companies on the S&P 500-stock index has hit $ 130 billion to over $ 600 billion. The total value of a half-dozen smaller biotechs outside the S&P 500 working on coronavirus treatments or vaccines has grown by more than $ 40 billion.
Most of these stocks are unknown to the average investor even a few weeks ago. Now they are the talk of CNBC, Yahoo Finance, Reddit message boards and other marketplace mavens gathering these days.
“There is no doubt if you are in the midst of the kind of situation you are in right now it is very easy to get overwhelmed by over-optimism,” said MIT’s professor of finance Andrew Lo of Mlo’s Sloan School of Management.
Lo compared the craving for biotechs during the coronavirus to madness for tech stocks in the late 1990s, and more recently to bitcoin and other digital currencies. “We are very impressed with Facebook, but [early competitors] MySpace and others, we do not “remember” them.
Not everyone is ready to call biotech stocks to stir a bubble. For starters, as speculative spasms go, this is in small part. The dotcom roof has sunk almost $ 2 trillion a generation ago, or 10 times bigger than it is today. What’s more, bubbles tend to hang around for a while before they pop. Coronavirus stocks have been selling for only a few months.
In fact, the Swiss-based Financial Crisis Observatory, whose mission includes scanning the investment horizon for signs of excess, is not of concern today.
“It’s possible that there were bubbles in some biotech stocks,” said chief observer, Didier Sornette, a professor at ETH Zurich. “However, the biotech index has not yet generated a significant bubble based on our metrics.”
The biggest biotech: Moderna
Biotech stocks attract a lot of money from investorsis Moderna. The company’s stock market value grew more than 300% in just five months to nearly $ 30 billion last week, making Moderna one of the most important biotech businesses. (Its market value was about $ 25 billion on Wednesday.)
Moderna is also today the largest holder of the popular Spider S&P Biotech exchange-traded fund. More than $ 500 million flowed this year into the ETF, which now manages $ 5 billion for investors from retirees to large pension funds.
Much of the investor’s enthusiasm is due to the positive buzz around initial test results for a coronavirus vaccine that Moderna is racing to develop. There is no more authority than Dr. Anthony Fauci, the leading contagious infectious disease, called the results “promising.”
Few executive executives saw their net worth more than Moderna CEO Stephane Bancel during the pandemic. His stock holdings in the company have nearly tripled since January to just over $ 1.5 billion.
However, Moderna is far from a sure bet for new investors. The company, founded in 2010 in Cambridge, Massachusetts, has a history of big promises with few results to date. In 2016, Moderna said it was accelerating the development of a Zika virus vaccine and secured funding for “large scale manufacturing.” Four years later, the company has yet to bring a vaccine or treatment to the market.
In 2017, Bancel said that in five years his company would have “twice as many clinical drugs than anyone else in the world.” Currently, Moderna has 22 developmental vaccines, but only three are in Phase II trials. The Zika vaccine is still undergoing Phase I testing, while others have been abandoned.
In early March, Bancel told President Donald Trump at a White House meeting with biotech executives that Moderna would have a vaccine ready for widespread testing in “several months.” Other industry executives in the room said a vaccine would last for several years.
The stock heard all over the world
Much of the chaos around Moderna has to do with its use of a new scientific technology that, if successful, can in theory produce vaccines faster than the traditional method, which is to develop and grow a benign version of a virus in a lab and inject it into healthy people. Instead, Moderna creates synthetic proteins to transform a person’s DNA to effectively produce a benign virus inside the body, skipping the step of growing it in the lab.
While the method was new, the idea was to use “messenger” proteins to alert the cells that a virus was coming. Moderna Chief Scientific Officer Melissa Moore, hired in 2016, told Wired that after joining biotech she realized it was using a technique she had mapped three decades earlier while still studying .
As for coronavirus today, Moderna’s announcement last week that this vaccine had caused patients in Phase I trials to create coronavirus antibodies – an announcement that pushed the stock price 30 % a day, at $ 87 a share on May 18 – soon asked by outside observers. The results are not peer reviewed or published in a medical journal, which is common practice in drug development. And the STAT health news site reported that four of the Moderna trial patients experienced significant, though not life-threatening, side effects.
Also raising concerns: Bancel, who joined the vaccine developer in 2011, and many other Moderna’s top executivesin the days following last week’s release of preliminary test results. Most of the sales were made through predictable stock plans for executives, the company noted, and there was no allegation of illegal insider trading.
On Tuesday, Moderna will reveal more insider sales. Chairman Afeyan Noubar and an investment fund he controlled sold 1,000,000 shares last week at prices ranging from $ 66 to $ 72 a share, according to a regulatory filing. The filing does not mention the type of initial stock-sales plan used by Moderna’s top executives.
In addition, the company early last week filed to sell $ 1.2 billion in new shares to the public in less than 12 hours after it released the vaccine trial news on May 18. Moderna shares jumped. to a full-time high of $ 87 on Monday, but has since dipped to $ 49 – well below the $ 76 price it sold the stock to investors last week.
A Moderna spokesperson did not return a request for comment for this story. The spokesman said previously that all stock sales by executives have been prearranged.
Derek Lowe, who writes a widely-followed drug blog called In the Pipeline, noted that Moderna’s vaccine goes a long way. But there is hope for a positive outcome, he said, even though the odds are long.
Lowe said 80% of drugs passed Phase I trials, as Moderna had, but only 10% passed Phase II. “The people are [concerned] about the side effects, “he said. But the fact that Moderna’s vaccine was able to produce antibodies is a promising sign. Lowe concluded,” The results were better than I expected because we didn’t know theirs. method that works with everyone. “