Market Outlook

How has coronavirus impacted healthcare and biotech stocks?

The devastating effects of the coronavirus outbreak have been causing havoc across much of Asia. Despite global markets suffering, some healthcare and biotech stocks have been performing well.

News of a new string of a SARS-like virus emerging from the city of Wuhan in China at the start of the year wreaked havoc on global markets in January. Many markets in the region plunged as the healthcare threat continued to raise alarm.

The biggest impact was seen the weekend after 23 January, when Chinese authorities placed Wuhan, Xiantao and Chibi under quarantine. A range of events for the start of the Lunar New Year were cancelled in major cities including Beijing and Shanghai. The S&P 500 fell by 2.5% across the weekend, the Dow by 2.1%, the Hang Seng by 2.6% and the FTSE 100 by nearly 4%. Then on Monday (3 February), following news of more outbreaks over the Lunar New Year, the Shanghai Composite dropped as much as 7% throughout the day.

7%

Amount the Shanghai Composite dropped by on 3rd February

  

Travel and tourism stocks were particularly impacted during this time, with airlines such as International Airlines Group [IAG] losing 3.6% while Disney [DIS], which had to close its Shanghai resort in the same weekend, lost over 4%.

But there are some stocks, those that have a focus on curing respiratory diseases, that have climbed dramatically.

 

Biggest biotech gainers

Biotech stocks have been performing well in the past month even as other sectors have been beaten down by concerns over coronavirus.

NanoViricides [NNVC], which works on nanotechnology-based antiviral treatments, climbed by an astronomical 567% in January as news of the virus escalated. The stock was hovering at the $2 mark for nearly three months ahead of the news, but by close on 27 January it had climbed to $15.80 – it has since slipped back down to $10.13 (at close 4 February).

Novavax [NVAX] has also emerged as one of the biggest movers in January. The biotech company is working on a vaccine candidate to respond to the coronavirus outbreak. Its stock climbed by more than 75% through January, almost doubling its share price from $3.98 at the start of the year to $7.01 now (through 4 February).

75%

Amount Novavax stock increased by in January

  

Elsewhere shares in Moderna [MRNA], a biotech company that works on experimental vaccines that prevent and control viral infections, gained by close to 5% in the month of January. Spurring interest in the company was a regulatory filing stating that it is “working on a potential vaccine response to the current emergency”. This prompted the stock to climb by 4.9% on 22 January.

 

 

 

A viral past

Biotech stocks have proven to be volatile in the recent past. However, and maybe unsurprisingly, they are known to perform well when it comes to world health emergencies.

When SARS shook global markets between 2002-03 pharma and biotech companies offering antiviral medication appreciated the most, according to GuruFocus. Moderna, NanoViricides, and Novavax may all be relatively new companies, but there were a string of competitors who saw significant gains during that particular outbreak.

For instance, Abbott Laboratories [ABT] performed well and the stock gained by nearly 25% across the affected months. Meanwhile, the company, which focuses on diagnostics over treatment, has seen its share price gain by nearly 22% in the past 12 months. On 22 January it reached an all-time high of $91 while other stocks depreciated.

Elsewhere, Gilead Sciences [GILD] stock also climbed significantly, gaining more than 77% across the two years. The stock recently shot up 4.9% between 31 January and 3 February on news that it had struck a research agreement with Chinese authorities to begin a clinical trial of an antiviral medication it developed, called Remdesivir, on patients affected by the coronavirus.

 

 

 

 

Not all stocks in the sector climbed in a similar fashion, as GlaxoSmithKline [GSK] – a leader in antiviral treatments – fell by 0.3% during the SARS outbreak. However, this year, the stock reached a 52-week high of $48.25 on 17 January, proving it also climbs significantly if a health emergency does arise.

 

Mixed performance for healthcare

Unlike with biotech stocks, where a remedy to the problem is just around the corner, healthcare stocks do not always have such a direct solution to viral outbreaks. In fact, some of these stocks are put under pressure as a result of a global health emergency. Stocks in this category have offered up a mixed bag of responses to the recent news.

The big hitters include One Medical, the parent company of which, 1life Healthcare [ONEM], saw shares up 47% when it launched its public offering on 31 January. This was a significant result, as the wider S&P 500 index fell nearly 2% on the same day due to pressure from the health emergency.

Chinese medical supplier stocks such as Zhende Medical [603301] and Jiangsu Nanfang Medical [603880] – which make the popular disposable medical masks ­­– have also performed strongly. Since news of the virus broke on 31 December, shares in Zhende Medical have moved up by 52% through 3 February, while Jiangsu Nanfang has gained 22% in the same period.

Elsewhere, others struggled. UnitedHealth [UNH], which hit a record high at $300 on 21 January, dropped back down to $272 by the end of the month. By the end of January UnitedHealth — as well as other healthcare stocks including Humana [HUM], Anthem [ANTM], Cigna [CI] and Molina Healthcare [MOH] — had all fallen below their 50-day moving averages, a key indicator of technical weakness.

 

 

 

What’s the outlook for biotech and healthcare stocks?

With no indication of how long coronavirus will last nor of its full impact, many are cautious of these stocks as long-term buys. As mentioned earlier, biotech stocks can be volatile, amassing huge gains but also inflicting huge losses.

There is no guarantee of strong performance, Kevin Speight writes in the Motley Fool. “Remember also that there have been other viral scares in the past that caused the shares of some biotechs to spike, for example, Ebola, MERS, and Zika. But the gains were only temporary.” 

“Remember also that there have been other viral scares in the past that caused the shares of some biotechs to spike, for example, Ebola, MERS, and Zika. But the gains were only temporary” - Kevin Speight

It’s also important to note that a lot of the stocks impacted in January could recover later in the year. As MarketWatch notes that “Wall Street’s reaction to such outbreaks and quickly spreading diseases is often short-lived.”

Dow Jones Market Data, for example, shows that the S&P 500 posted a gain of 20.76% one year after the first occurrence of SARS in 2002-03, the publication notes. Later on, when the Avian flu virus took hold in 2006, the index rose 11.66% in the roughly six months following the first outbreak.

Despite this, it’s important that investors do not generalize when it comes to epidemics. As per a 2006 report commissioned by Fidelity Investments, MarketWatch states, we cannot draw any fixed conclusions about the effects of pandemics upon stock market performance, and that they should not be viewed in isolation.

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