Will Regeneron Face Troubles Against Omicron Variant?

Drugmaker Regeneron (REGN) is facing a problem that’s plaguing many drugmakers these days. Specifically, the arrival of the omicron variant of COVID-19 is leaving drugmakers—particularly those who face COVID-19 regularly—on the ropes.

While COVID-19 omicron is still in its earliest days, it’s unclear just what kind of impact it will have on the population. It’s also unclear what kind of impact it will have on treatment programs, though early reports suggest the news won’t be pretty.

Despite the incredible successes these companies have seen in the past, I’m still mildly bearish on Regeneron. However, I’m bearish for reasons that have little to do with omicron. (See Analysts’ Top Stocks on TipRanks)

Looking at Regeneron’s stock charts for the year so far shows us a familiar pattern. It’s a pattern we’ve seen, though to a different extent, with Moderna (MRNA).

While Regeneron experienced a spike with January 2021, it quickly lost that spike. Afterward, the company mostly settled down into the $450 – $500 range. May allowed the company to crack $500 per share for the first time since January, but this proved temporary. At least until the big surge kicked in with June’s arrival, that was when the real volatility in Regeneron showed through.

The company spiked, plateaued, spiked again, then plunged before staging another major spike. That’s where we stand today, near the top of a spike that’s not much lower than the highs for 2021. (See Regeneron stock charts on TipRanks.)

The latest news is also familiar. Regeneron CEO Leonard Schleifer revealed that the company’s treatment of COVID-19 may not be as effective against the omicron version as it is against the main version and the delta variant. There is no evidence as yet that’s the case. 

Oxford University scientists confirmed as much recently. However, some might call it the responsible move to make it clear that current treatments may not be as effective against a new version. This is the same story that Moderna brought out earlier as well.

Wall Street’s Take

Turning to Wall Street, Regeneron has a Moderate Buy consensus rating. That’s based on nine Buys and four Holds assigned in the past three months. The average Regeneron price target of $710.09 implies 12.6% upside potential.

Analyst price targets range from a low of $570 per share to a high of $844 per share.

Volatile and Near the Top

Regeneron is a lot like Moderna here for several reasons. We’re dealing with a stock that’s trading toward its year-to-date highs. Regeneron is trading at around $630 per share.

With an average price target of $710.09, that does make for some upside potential left to be gathered here. However, since there’s only about $130 of variance between the average and the high price target, those gains may not be in play for very long. Consider also that just six weeks ago, back in October, the company was trading around $540.

The problem here is that the market is attempting to make judgment calls with too little information. Worse, both Regeneron and Moderna are already taking the worst-case scenarios with little reason to do so.

Sure, it’s responsible to come out and say, “this may not be as effective as we’d like against this new problem.” However, there’s not a scrap of evidence suggesting that will be what happens. Like Oxford University says, it’s far too soon to tell.

Moreover, even if the treatments are less effective against omicron, they may not need to be particularly effective. The word from South African doctors actively treating omicron suggests that omicron is weak. Dr. Angelique Coetzee, current chair of the South African Medical Association, noted that symptoms of omicron were “extremely mild.” Coetzee also pointed out that the symptoms could be treated at home.

Thus, even if Regeneron’s drug cocktail indeed proves less effective against omicron, this may not be a serious problem. A slightly less effective treatment treats a virus that’s already having a reduced impact.

The loss in virulence omicron may have is offset by its slight resistance to treatment. That bodes well for Regeneron’s effectiveness and suggests that investors won’t be panicking out of their positions with Regeneron.

Concluding Views

Regardless of how the treatment options actually fare against omicron, Regeneron poses a major problem to investors. It’s trading much closer to its highs than its lows. It’s also demonstrated a great deal of volatility in the last three months.

Buying in now opens up investors to a lot of downside risk. It’s much more likely that Regeneron will rediscover its lower levels from the first half of 2021. Looking for further gains out of the company seems like a bit of a long shot.

With its primary product line now suddenly questionable in its impact, Regeneron may be in for a larger fall than expected. I’m mildly bearish on Regeneron. However, as was the case with Moderna, I’m only bearish for right now. Let the volatility work its way out of Regeneron, and then consider getting in.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.