By Caitlin McCabe 

Biotech stocks were expected to be a bright spot in a stock market battered by worries over the coronavirus.

The shares initially surged when the rest of the market tumbled as companies raced to develop vaccines and treatments for the virus. But investors may be realizing that the path to containing the pathogen is more complicated than originally thought.

Shares of biotech and pharmaceutical companies working on coronavirus medications tumbled Tuesday despite gains across the broader U.S. market. Drugmaker Gilead Sciences Inc. fell as much as 6.4% shortly after the market opened, before ending the day down 1.6%. In contrast, the benchmark S&P 500 jumped 4.9%.

Moderna Inc. also retreated, falling 8%. Inovio Pharmaceuticals Inc. fell 42%, Vir Biotechnology Inc. slumped 23% and Regeneron Pharmaceuticals ended the session up a mere 0.1% after spending much of the day in negative territory.

Analysts said some of the declines across the sector could be tied to lingering questions about how successfully coronavirus treatments could be monetized amid rising political pressure to keep virus medications affordable. There are also worries about how long development of treatments will take. Some research trials for drugs aren't expected to be completed for several years, long after the coronavirus has done its damage.

"We've seen this in the past with other pandemics historically," said Brian Abrahams, senior biotech analyst at RBC Capital Markets, noting that biotech stocks can rise sharply "just on pandemic potentials."

For weeks, large, well-entrenched drugmakers and smaller startups have been jostling to find treatments for the coronavirus, which has killed more than 3,800 people and infected more than 109,000 world-wide. No treatment or vaccine currently exists for the virus, which has spread quickly, in part, because many people don't begin showing symptoms until several days after exposure.

Gilead and Moderna are widely considered to be leaders in developing vaccines and treatments for the virus, with products from both companies already in the early stages of trials. Researchers at the University of Nebraska started testing Gilead's experimental treatment, called remdesivir, in February. The National Institutes of Health is also expected by the end of April to start testing a vaccine developed by Moderna.

Smaller companies including Vir Biotechnology, Inovio Pharmaceuticals, Novavax Inc. and Altimmune Inc. are also all working to develop medical solutions to the coronavirus.

Investors since late February have rewarded these biotech companies by piling into the stocks while the broader market was tumbling. On Feb. 25, for example, Moderna's share price skyrocketed 28%. On Feb. 28, Novavax, jumped 36%.

Other companies, including iBio Inc., which in early February announced a partnership with Beijing CC-Pharming Ltd. to develop a plant-based coronavirus vaccine, have seen their shares rise by an eye-popping amount this year. Delaware-based iBio's stock price is up 474% year-to-date.

Analysts said Tuesday's declines may have also been spurred by broader gains in U.S. stocks, which surged as investors took comfort in U.S. government officials' plans to try to offset any economic slowdown from the coronavirus.

"It seems like you have this coronavirus basket of stocks inversely trading to market performance," said Edward Tenthoff, a senior biotechnology analyst at Piper Sandler Cos. "When the market does a little bit better, coronavirus fears [may be] subsiding a little bit."

Within the biotech sector specifically, Dr. Abrahams, of RBC Capital, noted investors may also be reacting to concerns about how the coronavirus will affect company operations.

"It could be difficult to enroll clinical trials when mobility and travel is limited," he said. "And from a regulatory standpoint, with the [U.S. Food and Drug Administration] potentially being preoccupied with management and containment of the coronavirus outbreak, they could have less resources for the review of new drug applications."

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

 

(END) Dow Jones Newswires

March 10, 2020 18:06 ET (22:06 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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