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The fading of the pandemic has reduced demand for Covid-19 vaccines produced by Moderna and Pfizer.
Apu Gomes/AFP/Getty Images
Investors have fled healthcare stocks this year, ducking out of a trade that seemed a smart defensive play last year, as market conditions have changed. Fear of a recession has eased and interest rates have climbed, making the pull of big pharma’s steady dividends less potent.
The
Health Care Select Sector SPDR Fund
(ticker: XLV), an exchange-traded fund that tracks the sector, is down 3% so far this year, while the broader S&P 500 is up 18%. The
S&P 500 Pharmaceuticals
industry index, meanwhile, is down 5.7%.
There is reason for legitimate concern for companies in the sector. A newly emboldened Federal Trade Commission is challenging mergers in healthcare in a way that could disrupt business models. Pharma companies say that Medicare’s new ability to negotiate the prices of some drugs could hurt the industry.
Still, the pullback across the healthcare sector leaves room for stock-picking. To help find opportunities, Barron’s screened the healthcare companies in the S&P 500 for those that have been hit hardest by the shift in investor sentiment. We looked for those that have seen their share prices fall more than 20% over the past 12 months and then highlighted the five with the biggest potential gains, based on the average price targets among analysts tracked by
FactSet.
The stocks that passed the screen are the Covid-19 vaccine maker
Moderna
(MRNA), the women’s health-focused
Organon
(OGN), the pharma titan
Pfizer
(PFE), the biopharma company
Incyte
(INCY), and
Bio-Rad Laboratories
(BIO), which makes instruments and tools used in scientific research and medical testing.
| Company / Ticker | Recent Price | 1-Year Price Change | Average Analyst Price Target | Implied Potential Upside |
|---|---|---|---|---|
| Moderna / MRNA | $125.00 | -26.5% | $209.33 | 67.5% |
| Organon / OGN | 20.69 | -36.3 | 30.00 | 45.0 |
| Bio-Rad Laboratories / BIO | 386.12 | -21.5 | 548.67 | 42.1 |
| Incyte / INCY | 62.45 | -23.7 | 82.24 | 31.7 |
| Pfizer / PFE | 36.39 | -30.7 | 45.95 | 26.3 |
Source: FactSet
Moderna,
which leads the list, has slid sharply since late 2021. The stock, which climbed more than 2,000% from the start of 2020 through early September 2021, is down about 60% since the beginning of October that year. While the company is testing a long list of drugs in late-stage programs, the Covid-19 vaccine remains its only marketed product. Analysts expect revenue to drop to $7.1 billion this year from $19.3 billion last year, according to FactSet.
Still, many analysts remain hopeful about the stock’s longer-term prospects. The company is planning a vaccine for respiratory syncytial virus vaccine that would be launched next year and compete with new shots from
Pfizer
and
GSK
(
GSK
). It also intends to offer combination shots to protect against multiple respiratory viruses at once. Also promising is the company’s cancer pipeline.
Pfizer is in a similar boat. Not only is revenue from Covid-19 vaccines dropping, but some lucrative drugs on its roster will lose patent protection at the end of the decade. Management is aiming to offset that so-called patent cliff with revenue from newly launched drugs; the company has had five new drugs approved in the first half of 2023 alone.
Organon,
which was spun out of
Merck
(MRK) in 2021, recently launched a steeply discounted biosimilar competitor to
AbbVie’s
(ABBV) anti-inflammatory drug Humira. Analysts see promise both in the company’s biosimilars portfolio, and in its focus on women’s health.
Write to Josh Nathan-Kazis at [email protected]
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