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Here’s Why Pharmaceutical Stocks Will Keep the Nasdaq Party Going

Last Updated September 23, 2020 2:03 PM
Andrew Packer
Last Updated September 23, 2020 2:03 PM
  • Pharmaceutical stocks are leading the Nasdaq narrowly higher today.
  • The rally comes as Novavax secures $1.6 billion in funding for vaccine development.
  • Hepion Pharmaceuticals is jumping after pre-clinical research on a promising vaccine.

Pharmaceutical stocks anchored the Nasdaq against stock market volatility today, helping it avoid following the S&P 500 and Dow into negative territory.

This has been a common trend in recent weeks, and the Nasdaq’s large number of tech and biotech stocks are a key reason why.

Government Funding & Vaccine Research Push Pharma Stocks Higher

Novavax Inc. (NASDAQ: NVAX) shares rose over 33% in intraday trading on news that it would receive $1.6 billion in funding from the U.S. government . That helped add to the company’s already impressive gains.

novavax stock, pharma stocks, nasdaq
Novavax shares have soared over 1,400% in the past year. The company has been one of the early contenders for a successful vaccine to fight the coronavirus pandemic. | Source: Yahoo Finance 

The funding comes from Operation Warp Speed, a program designed to get vaccines into public hands as quickly as possible.

With this funding, the company can conduct advanced human studies and potentially manufacture up to 100 million doses by the end of the year.

Hepion Pharmaceuticals (NASDAQ: HEPA) joined Novavax in securing a double-digit advance today. The company announced that an anti-fibrotic drug candidate proved efficacious  in pre-clinical research when used to treat COVID-19.

Novavax shares have surged 1,451% in the past year  as the company has become one of the leading candidates for fighting the coronavirus.

Hepion has seen its stock price drop 23% compared to a year ago, but the company’s valuation has more than doubled off of panic lows in March.

Traders Turn to Big Pharma Plays as Analysts Urge Caution

With the news for these two companies being priced in rapidly, a number of Big Pharma plays that trade on the Nasdaq are rising in sympathy.

The top gainers on the Nasdaq 100 today are Vertex Pharmaceuticals (NASDAQ: VRTX) and Regeneron Pharmaceuticals (NASDAQ: REGN). Both stocks are up around 4%.

Nasdaq 100 top gainers
Biotech stocks led the Nasdaq 100 today, while smaller pharma stocks soared higher on positive news. | Source: Business Insider 

These larger pharma stocks haven’t been slouching over the longer term, either. Regeneron is up 111%  in the past year. Vertex has gained 70%.

Traders clearly see value in pharma stocks, even if analysts warn these bets might not immediately pay off  when COVID-19 vaccines hit the market.

“In the near term, they are not going make a ton of money on” the vaccines, Evan Seigerman, an analyst at Credit Suisse, said recently. “The initial round of vaccines are going to be given away or sold at cost. Where people will start making money is if COVID-19 vaccine becomes something like the flu shot and people need to constantly protect against it.”

Investors don’t seem to care.

Over the past few weeks, the Nasdaq has repeatedly hit new all-time highs , shrugging off the steepest bear market in history that started in March.

The Dow Jones and S&P 500, which contain fewer fast-growth pharmaceutical stocks, are still playing catch-up to highs hit in February.

With government funding more readily available for vaccine development, the pharmaceutical industry appears to be one sector that will continue to lead the market higher. At least as long as the pandemic remains front-page news.

That’s in stark contrast to the past few years, when fear of new legislation was a key reason pharma stocks underperformed .

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.