Earnings numbers less important than coronavirus progress for MRNA and GILD
MRNA could update on vaccine, while GILD treatment progress eyed
Timing on vaccine, possible new drug formulation among possible highlights
Ahead of earnings from two of the most closely watched biotechs—Moderna (MRNA) and Gilead (GILD)—one thing seems pretty certain: Investors are likely to care much less than normal about Q2 financial numbers from either.
Arguably, both companies could report their worst quarterly earnings and revenue ever and it wouldn’t make as large a dent as you may think. Instead, investors really want to hear about their progress on a coronavirus treatment (GILD) and a coronavirus vaccine (MRNA).
“I don’t think MRNA’s earnings or earnings commentary will matter much,” said Kevin Huang, senior equity research analyst at CFRA, an independent investment research firm.” Investors should be focused on clinical trial results and news related to competition.”
Any positive news for either firm could end up saying a lot more about where their shares (and maybe the markets) go than anything in their “schedules”—those endless sheets of numbers that go into the back of an earnings press release.
GILD reports this Thursday after the close, and MRNA reports Aug. 5.
GILD and MRNA are both front and center in the year’s biggest story: COVID-19. GILD has a treatment called remdesivir which is already being used against the virus, while MRNA recently shared positive early results from a virus vaccine study and plans to expand its clinical trials to a much bigger group soon.
So it might not be a big surprise that MRNA shares quadrupled between March and late July. On the other hand, GILD shares are up just 15% over that time period.
The biotech sector has outpaced the S&P 500 Index (SPX) since the March lows. As of late July, the Nasdaq Biotechnology Index (NDI) was up 54% from its low, vs. about 45% for the SPX. This partly reflects investor hopes that some sort of virus solution could come out of biotech, and GILD and MRNA are two companies at the center of that speculation.
Let’s look at MRNA and GILD separately for a sense of what to expect.
Moderna Makes its Move
Of all the biotech companies out there, few kindled as much hope as MRNA did recently when it released positive results from an early trial of its potential COVID-19 vaccine.
Many analysts say a vaccine would likely be the gold standard to let society get back toward normalcy. More than 100 COVID-19 vaccine projects are being studied, according to the World Health Organization (WHO), in what’s pretty much an unparalleled scenario. Other major companies working on vaccines include AstraZeneca (AZN), and Pfizer (PFE) in a collaboration with BioNTech (BNTX).
A vaccine could change the paradigm massively, which might be why MRNA shares have been outpacing shares of GILD.
“The vaccine opportunity is probably the biggest, much more so than a treatment, and Moderna appears to be a leader but it’s hard to tell who will come out ahead,” said Huang, of CFRA. “Some companies are working on more traditional vaccines, and others, like Moderna and Pfizer are focusing on a messenger-Ribonucleic acid (mRNA) vaccine, which is much easier to manufacture.”
You might want to think of mRNA as a software code that causes human cells to make proteins. In the case of the COVID-19 vaccine, those proteins would be viral proteins that would then stimulate an immune response. mRNA-based vaccines promise to hasten the typical development timeline for a vaccine, Huang said.
Typically, Huang said, a vaccine can take 10–15 years to reach the market. With COVID-19 a clear and present danger to the world’s health, Huang thinks the timeline for Moderna’s vaccine could be under two years, which is extremely fast. A Phase 3 study is expected to start in July, leading to a possible approval by early 2021.
“The U.S. Food and Drug Administration (FDA) has really sped up their process for COVID-19 related things,” he noted.
MRNA shares had been careening higher for weeks before hitting the brakes recently when they got downgraded by JP Morgan Chase (JPM), which cited valuation concerns. Another concern, potentially, is that MRNA has never produced an approved product, MarketWatch noted.
With the company’s valuation and lack of market experience in mind, investors might want to be careful jumping in, and understand the possible risk. No one knows exactly what sort of path the virus might take next, and Phase III trials are a lot harder to carry out than smaller ones like MRNA has successfully completed.
Speaking of which, MRNA raised a lot of hope earlier this month as its vaccine elicited antibodies in all people tested in an initial safety trial. Though there was a high rate of side effects among the 45 people in the study, most of the side effects were mild and as expected.
“These positive Phase 1 data are encouraging and represent an important step forward in the clinical development of mRNA-1273, our vaccine candidate against COVID-19,” MRNA CEO Stéphane Bancel, Chief Executive Officer of Moderna, said in a press release. “We are committed to advancing the clinical development of mRNA-1273 as quickly and safely as possible while investing to scale up manufacturing so that we can help address this global health emergency.”
The company’s Phase 3 study, which it calls COVE, was to begin site initiation starting July 21, with enrollment to start July 27, the company said. It’s completed manufacturing enough vaccine to support the study.
Timing is Everything
Progress on the Phase 3 trial and manufacturing are likely to be near the top of analysts’ minds during the company’s earnings call. How long until the 30,000-patient trial gets started? How long until it’s done? Earlier this month, shares stepped back on talk that the trial start might be delayed, but the company then said it was still on pace to start this month, and July 27 appears to be the date.
Phase 3 interim data, a crucial catalyst, is expected by Thanksgiving, Huang said.
Another thing investors might want to keep in mind with MRNA is the level of competition out there for a vaccine. As CFRA’s Huang said, it’s hard to say who will come out ahead.
Also, investors might want more insight into the company’s vaccine manufacturing capabilities. A working vaccine would be great, but the company needs to be able to produce it in very high amounts because demand could be enormous.
Would MRNA investors come out ahead if the vaccine succeeds? Some companies are pledging not to seek a profit from their coronavirus vaccines. MRNA isn’t necessarily one of those.
At a congressional hearing last week, MRNA President Stephen Hoge said the company wouldn’t sell its vaccine at cost, the Wall Street Journal reported. Hoge said the federal funding MRNA has received is supporting research and development, and MRNA hasn’t signed a supply contract with the government.
An MRNA spokesman said the company plans to price the vaccine “responsibly to ensure it can be broadly accessible to everyone who needs it.”
MRNA executives might also be asked on the call to provide a little more color around the side effects seen in the early trial and whether that could pose a risk for the broader trials to come.
Gilead: It’s All About Remdesivir
Earlier this year, GILD found itself in a place many other pharma firms might envy. Due to the pandemic crisis, the U.S. Food and Drug Administration (FDA) issued an Emergency Use Authorization allowing the use of antiviral drug remdesivir for the treatment of hospitalized patients with severe COVID-19.
This was despite remdesivir being an investigational drug that hasn’t been approved by the FDA, and despite the safety and efficacy of remdesivir for the treatment of COVID-19 not having been established.
Follow-up studies of the drug—which got its Emergency Use Authorization by demonstrating in a randomized trial that it reduced the time to recovery by an average of four days—have also been positive.
This month, GILD released more data showing that severely ill patients treated with remdesivir were 62% less likely to die than patients with similar characteristics and disease severity, The Wall Street Journal noted. A separate analysis found that 74.4% of severely ill patients treated with remdesivir recovered within 14 days compared with 59% of a control group.
All this sounds hopeful, and investors are likely to approach earnings waiting to hear more news on safety and efficacy, as well as more about future studies on those fronts.
One possibly touchy issue centers around pricing. How should GILD price a product like remdesivir in the middle of a global pandemic that’s shutting down economies and taking a huge toll on low-income communities?
Last month, the company disclosed some of its thinking in a letter posted by Chairman and CEO Daniel O’Day.
“In normal circumstances, we would price a medicine according to the value it provides,” O’Day wrote, adding that a key study showed remdesivir shortened time to recovery by an average of four days. “Taking the example of the United States, earlier hospital discharge would result in hospital savings of approximately $12,000 per patient. Even just considering these immediate savings to the healthcare system alone, we can see the potential value that remdesivir provides. This is before we factor in the direct benefit to those patients who may have a shorter stay in the hospital.
“We have decided to price remdesivir well below this value. To ensure broad and equitable access at a time of urgent global need, we have set a price for governments of developed countries of $390 per vial. Based on current treatment patterns, the vast majority of patients are expected to receive a 5-day treatment course using 6 vials of remdesivir, which equates to $2,340 per patient.”
O’Day might be asked on the call how long GILD intends to continue this pricing policy if the pandemic continues into 2021 and demand rises further. The company might also be asked to address its manufacturing capacity and whether it can keep up with the need for the drug.
Any Progress on Expanded Use, New Formula?
Investors and analysts might also want to hear whether GILD thinks it can demonstrate the product’s ability to help patients earlier in the course of the disease, which would conceivably raise demand. The company is also exploring an inhaled treatment formula of remdesivir that might allow patients to use it outside of hospitals, so any progress on that front might be interesting to hear about.
Also, how much financial capacity does GILD have to continue its clinical programs? These can be costly, and O’Day has said that by the end of this year, GILD expects its investment on the development and manufacture of remdesivir to exceed $1 billion. The company’s commitment will continue through 2021 and beyond, he added.
For now, the U.S. government has struck a deal with Gilead that gives the U.S. 100% of Gilead’s projected production for July and 90% in August and September. Will the agreement be extended into Q4? That could be another question that comes up.
There’s also a political debate on Capitol Hill, with some congressmen arguing that privately insured Americans are charged too much for the drug considering taxpayers helped pay for its development. Others counter that the U.S. government pays the same as foreign countries, and that the drug saves thousands of dollars in costs per patient by getting them out of hospitals more quickly.
GILD has explained that private insurers will pay more because of regulations that require drug makers to give government programs a hefty discount off the wholesale price, The Wall Street Journal reported. These mandatory government discounts are one reason for the nominally high list prices that some drug makers charge but relatively few people actually pay.
Executives might be asked to comment on this debate, which has been in the news lately.
FIGURE 1: I’LL HAVE WHAT HE’S HAVING. This year-to-date chart comparing Moderna (MRNA—candlestick) to Gilead (GILD—purple line) shows the vast difference in how shares of these two coronavirus-fighting firms have fared in the market. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Gilead Earnings and Options Activity
When GILD releases results Thursday, it’s expected to report adjusted earnings of $1.45 per share, vs. $1.82 per share in the prior-year quarter, on revenue of $5.31 billion, according to third-party consensus analyst estimates. That revenue would represent a 6.7% decline from a year ago.
Options traders have priced in a 3.3% share price move in either direction around the coming earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. Implied volatility was at the 16th percentile as of Wednesday morning.
Looking at the July 31 weekly expiration, put volume has been highest at the 73 and 75 strikes. There’s been a bit more activity to the upside, with the heaviest concentration at the 80-strike calls.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
Moderna Earnings and Options Activity
When MRNA releases results, it’s expected to report an adjusted loss of $0.36 per share, vs. a loss of $0.41 per share in the prior-year quarter, on revenue of $27.43 million according to third-party consensus analyst estimates. That revenue would represent a 110% growth from a year ago.
The options market is implying about a 7.5% stock move in either direction around the upcoming earnings release. Implied volatility was at the 41st percentile as of Wednesday morning.
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