President Joe Biden announced during his State of the Union address on Tuesday that individuals who test positive for Covid-19 at a pharmacy will soon be able to get free antiviral treatments immediately after. The cost will be funded by the federal government, which could result in a huge boost to the revenue of companies in the pharmaceutical, pharmacy, and diagnostic industries over the coming year.
"We've ordered more pills than anyone in the world has. Pfizer (PFE, Financial) is working overtime to get us a million pills this month and more than double that next month," Biden said. "And now we're launching the 'Test to Treat' initiative. So people can get tested at a pharmacy and, if they prove positive, receive the antiviral pills on the spot at no cost."
There is little appetite for lockdowns in the U.S. and other western countries. While many may be "done with Covid," the virus still exists very much and will continue to mutate and seek out new hosts. The Test to Treat initiative is a smart move aimed at preserving hospital and health care capacity and cut down on serious illness and death.
So, what does that mean for health care-related companies that have benefited from the pandemic thus far?
Pfizer and Merck & Co. Inc. (MRK, Financial) are, of course, among the companies producing Covid antiviral treatments. Pfizer appears to be a favorite among investors as its Paxlovid is considered to be the more effective of the two antivirals approved so far (Merck's pill is molnupiravir).
These pills cost between $500 and $750 for a course of five days and, given that millions are going to get infected, that is a lot of dough for the pharma giants. However, this is a bargain compared to the cost of hospitalization, disability or death.
For people who get more seriously ill, there is sotrovimab, an intravenous monoclonal antibody drug developed by GlaxoSmithKline Plc (GSK, Financial) and Vir Biotechnology Inc. (VIR, Financial). This treatment is a much costlier option at over $2,000 a course, coupled with a week or more in the hospital. The cost of hospitalization of a Covid patient is estimated to be between $50,000 to $300,000 in the U.S.
The GF Value Line indicates the Pfizer is significantly undervalued currently.
As for Merck, it is looking modestly undervalued currently. Both companies pay nice dividends.
The initiative will also help brick-and-mortar pharmacies like Walgreens Boots Alliance Inc. (WBA, Financial), CVS Health Corp. (CVS) and Rite-Aid Corp. (RAD, Financial), as well as the in-house pharmacies of supermarket chains like Kroger Co. (KR, Financial) and Walmart Inc. (WMT, Financial). The pharmacies will be providing professional services for testing and dispensing of drugs as well as advising, counselling, and monitoring the patient for any drug interactions and side effects. These services will be paid for by the federal government.
Of these companies, I favor Walgreen's as it is modestly undervalued based on the GF Value Line.
Companies that manufacture Covid-19 rapid tests like Abbott Laboratories (ABT, Financial) will also continue to benefit, as will companies who make equipment for rapid polymerase chain reaction tests like Thermo Fisher Scientific Inc. (TMO, Financial). PCR tests are more sensitive and accurate, but require more sophisticated reagents and equipment, making them the gold standard.
Currently, Thermo Fisher appears to be fairly valued.
This may also be a suitable time to get into RNA vaccine companies like Moderna Inc. (MRNA, Financial) and BioNTech SE (BNTX, Financial) if you missed it the last time. The stocks have come down to reasonable levels. The virus will continue to mutate, and it is almost certain we will be lining up to get booster shots next fall. The RNA vaccine technology, moreover, has wide application in many disease states and will be a key technology in the future.
However, the GF Value Line warns that Moderna may be a possible value trap currently. As such, investors should due thorough research before making a decision but I think the company has a bright future.
Conclusion
While many may wish to be "done with Covid", it does not look like the virus is done with us. Investors seem to have moved on and sold off many stocks they had bid up during the pandemic, which include PayPal (PYPL, Financial), Peloton (PTON, Financial), Netflix (NFLX, Financial) and Meta Platforms (FB, Financial). While I don't think lockdowns are coming back, the virus is moving from a pandemic stage to an endemic stage. I expect it to lurk in the background and ebb and flow like the flu for many years to come. The federal government is trying to reduce future hospitalizations by emphasizing vaccines, antivirals and testing wherever possible to head off the spread of the virus.
In my opinion, the current weakness in the above health care names is premature and should be taken advantage of as Covid is certain to be back in some form.
