Narrative Pharmaceuticals: Omi – GuruFocus.com
I tend to ignore most financial academics with their absurd efficient market assumption. Having said that, and because he’s not in this band, I really enjoy following the work of Robert Shiller. After a few years in the financial markets, I have noticed that stories and fads, acronyms, phrases and sentiments regularly come and go in popularity. The Greenspan put, the Asian contagion, risk against risk, whatever it takes and there is no alternative are just a few examples. This also applies to companies known as Glamor Stocks. Shiller explains all of this in his book “Narrative Economics: How Stories Go Viral and Drive Major Economic Events.”
Over the past two years, the narrative in the UK pharmaceutical industry has been that AstraZeneca (AZN, Financial) was a success and GlaxoSmithKline (GSK, Financial) (LSE: GSK, financial) was a failure. Indeed, today AstraZeneca is the UK’s largest stock by market cap, holding a 6.7% weighting of the FTSE 100. GlaxoSmithKline hasn’t done too badly – now 3.9% of the FTSE 100 , but he certainly underperformed his Anglo-Swedish rival.
The reason: the Oxford-AstraZeneca vaccine. It doesn’t help Astra to be associated with the best university in Europe. You don’t need to be a fund manager with a doctorate in a biotechnology-related field to own AstraZeneca. It’s just a favorite of fund managers because, quite simply, it’s a clear Covid-19 ‘do your part’ contribution.
Meanwhile, Glaxo’s failure to find a Covid vaccine has put more pressure on CEO Emma Walmsley’s turnaround story. It didn’t matter whether it was the fault of the French partner Sanofi (SNY, Financial). The story on Glaxo was second place is the first loser. Elliott Management even requires Walmsley to re-apply for his job.
It was really bad luck for Glaxo. Apart from Covid-19 vaccines, there is a particular interesting situation in the company. Walmsley has tried to bring growth and simplification to this big name in pharma, and has been successful in some ways. Investors should welcome the increased spending on research and development and the spinoffs from the consumer health sector.
A change in the narrative
Is the story of change about Glaxo? The new buzzword in the markets is… yes, you guessed it: Omicron. Thus, Glaxo’s announcement that sotrovimab retains its activity compared to the Omicron variant could be a key enabler.
Sotrovimab is a Covid antibody treatment, sold under the brand Xevudy that Glaxo jointly developed with Vir Biotechnology (VIR, Financial). This can be a huge deal for the company. The first signs show that it works against the Omicron variant. Regeneron Rivals (REGN, financier) and Eli Lilly (THERE IS, Financiers) have so far failed in their treatment.
Obviously, we have to be careful here. Glaxo-Vir research has not yet been peer-reviewed and lab testing has yet to be completed. But the UK health regulator, the Medicines and Health Products Regulatory Agency, has approved the use of Xevudy for patients at high risk of Covid-19, with the UK government pledging to buy 100 already. 000 doses. In a clinical trial, one dose was found to reduce the risk of hospitalization and death by 79% in high-risk adults.
Ironically, sotrovimab was one of a dozen drugs that Walmsley highlighted in June as a potential blockbuster, with annual sales of $ 1 billion. But nobody cared, because the narrative was still for AstraZeneca.
It’s a big boost for Walmsley under pressure. This gives it a bit more credibility, given that its own background is consumer goods, not pharmaceuticals or biotechnology. It also makes Scientific Director Hal Barron look good.
In April of last year, Walmsley sanctioned a $ 250 million Glaxo investment in Nasdaq-listed Vir at $ 37.73 per share – with another investment of $ 120 million in February of this year, as well as 225 million dollars for exclusive collaboration rights. These investments are good in the money now.
In a recent press release, Vir CEO George Scangos said:
“Sotrovimab was deliberately designed with a mutant virus in mind. By targeting a highly conserved region of the spike protein that is less likely to mutate, we hoped to fight both the current SARS-CoV-2 virus and future variants that we expected. inevitable. This hypothesis has been confirmed time and time again – with its continued ability to maintain activity against all of the variants tested of concern and of interest to date, including key mutations found in Omicron, as evidenced by preclinical data. We expect that this positive trend will continue and work quickly to confirm activity against Omicron’s full combination sequence. “
Glaxo is only entitled to one-third of the drug’s benefits, but somehow that doesn’t matter in today’s environment. The narrative about Walmsley and Glaxo may finally change.