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Blog Posts — May 14, 2020

Biopharmaceutical Stocks Take Lead amid COVID-19 Pandemic

Given the health and economic devastation wrought by the pandemic, with no clear end in sight, the search for new treatments and a vaccine against the virus that causes COVID-19 has taken on new urgency.

Investors have also turned their attention in recent weeks to companies that provide diagnostics and treatments for the novel coronavirus, and those that, more crucially, could develop a vaccine. There are currently 118 vaccines against COVID-19 in the research pipeline and 205 treatments in consideration.1

As such, the pharmaceutical sector has outperformed in equity markets since Feb. 19, the day that marked the high point before a pandemic-induced sell-off.  

The STOXX® Global 1800 Health Care Index has topped all other 18 Supersector indices within the STOXX® Global 1800 Index during that period.2 Among STOXX Thematic Indices, drug innovation has also been a stand-out theme: the iSTOXX® FactSet Breakthrough Healthcare Index has performed better than 23 other thematic indices.

Chart 1 shows both indices and their benchmark, the STOXX Global 1800 Index, between Feb. 19 and May 7. The iSTOXX FactSet Breakthrough Healthcare Index is 1 percentage point away from recovering its Feb. 19 high, while the STOXX Global 1800 Health Care Index is 4 percentage points below the high watermark. The benchmark, on the other hand, is 16% below the February peak.

Chart 1

Source: STOXX Index data. Gross returns in dollars. Feb. 19, 2020-May 7, 2020. ­Data normalized at 100 on Feb. 19.

Seeking a more targeted approach

In order to attain a more targeted exposure to companies that may benefit from spending in COVID-19 diagnostics, treatments and vaccines, we created a hypothetical index with the help of iSTUDIO™.3 Our starting universe was the STOXX® Global Total Market Index4, and our main filtering criteria was the generation of at least 10% of revenue from the following business categories within FactSet’s Revere Business Industry Classification System (RBICS):

  •    General Infectious Diseases Biopharmaceuticals
  •    Viral Biopharmaceuticals
  •    Lower Respiratory Biopharmaceuticals
  •    Other Respiratory Biopharmaceuticals

We have chosen these four categories to create a narrow basket of stocks with exposure to the targeted theme. The narrow screen means we may miss on some companies that are working on COVID-19 applications, but it helps avoid selecting companies involved in other areas that are not of our interest.

Chart 2 adds our biopharmaceuticals basket (which we will call the Coronavirus Custom Index), next to the indices already featured in Chart 1. The Coronavirus Custom Index gained 3.7% from the close on Feb. 19 through May 7.

Chart 2 

Source: STOXX Index data. Gross returns in dollars. Feb. 19, 2020-May 7, 2020. ­Data normalized at 100 on Feb. 19.

Among the 31 constituents in the custom index, companies currently working on COVID-19 treatments and vaccines include Gilead (+15% from Feb. 19 to May 6), Moderna (+259%), Sanofi (-1.7%), Johnson & Johnson (-0.6%), AstraZeneca (+16%) and Vir Biotechnology (+70.8%).5 The custom index is equally weighted.

Many of the smaller biotechnology researchers have signed multi-million distribution agreements with larger pharmaceutical companies with a focus on a cure or treatment for COVID-19. The Coalition for Epidemic Preparedness Innovations (CEPI) is raising $2 billion to support the development of a vaccine.6

As mentioned, the constituents of the custom index do not form an exhaustive list of companies currently developing and researching potential vaccines. For a complete list, visit the Milken Institute’s COVID-19 Treatment and Vaccine Tracker

Uncertain outlook

To be sure, the road towards a permanent cure for COVID-19 is uncertain. Johan Giesecke, one of the world’s leading epidemiologists, wrote in The Lancet this month that a vaccine will take time to be developed, tested and marketed, and that, ultimately, “it is not certain that vaccines will be very effective.”7

Yet, as the pandemic continues to have grim human and economic consequences, pharmaceutical and biotechnology stocks involved in the investigation and potential development of vaccines or therapeutics are likely to continue gathering attention.

Data from the Milken Institute. 
2 Return data from Feb. 20 through May 6 in gross returns and dollars. 
3 STOXX iSTUDIO is an integrated development application that allows users to build their own indices.
4 The STOXX Global Total Market Index currently consists of 9,149 stocks and represents 95% of the free float market capitalization worldwide.
5 For more info, see Jaimy Lee, ‘These 23 companies are working on coronavirus treatments or vaccines — here’s where things stand,’ MarketWatch, May 6, 2020. 
6 CEI, ‘$2 billion required to develop a vaccine against the COVID-19 virus,’ Mar. 14, 2020. 
7 J. Giesecke, ‘The invisible pandemic,’ The Lancet, May 5, 2020. Mr. Giesecke is a professor at the Karolinska Institute Medical University in Stockholm and member of the World Health Organization’s Strategic and Technical Advisory Group for Infectious Hazards.