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Merck COVID-19 pill success slams Moderna shares, shakes up healthcare sector

residents receive covid 19 vaccine at a care home in naples
A vial of the Moderna coronavirus disease (COVID-19) vaccine

Positive clinical trial results for Merck & Co’s (MRK.N) experimental antiviral COVID-19 pill reverberated through the healthcare sector on Friday, sending the drugmaker’s stock price soaring while denting high-flying shares of vaccine companies and makers of other coronavirus therapies.

Merck shares jumped as much as 12.3 per cent and hit their highest level since February 2020 after data showed the company’s pill molnupiravir could halve the chances of dying or being hospitalized for those most at risk of contracting severe COVID-19. Experts hailed the news as potentially a huge advance in the fight against COVID-19.

At the same time, shares of vaccine makers such as Moderna Inc (MRNA.O), Pfizer Inc (PFE.N) and partner BioNTech SE were hit, with some analysts saying the promise of an oral drug that can be taken at home could change the public perception of risks associated with COVID-19.

“We see modest perceived headwind to vaccine stocks such as MRNA (Moderna) if the market thinks people will be less afraid of COVID-19 and less inclined to get vaccines, if there is a simple pill that can treat COVID-19,” Jefferies analyst Michael Yee said in a client note.

Moderna shares tumbled 13 per cent in midday trading, while Pfizer, which is developing a COVID-19 pill of its own, fell 1.3 per cent. US shares of BioNTech dropped 11 per cent.

For Moderna investors, the Merck news presented an opportunity to lock in gains after an already stunning run. Shares of Moderna, which were added to the S&P 500 in mid July, remain up some 220 per cent in 2021 despite Friday’s declines. BioNTech’s shares were also still up about 200 per cent for the year, even with Friday’s fall.

The Merck news is a “great reason for folks to be taking profits off the table” in Moderna and BioNTech shares, said Sahak Manuelian, head of equity trading at Wedbush Securities. “These moves can get exacerbated to the downside given the momentum they have had to the upside.”

Shares of other companies with COVID-19 vaccines also fell, with AstraZeneca (AZN.L) down 2 per cent and Novavax (NVAX.O) falling 16 per cent.

Companies with other COVID-19 therapies that are administered intravenously or through injection also traded lower, with Regeneron Pharmaceuticals In (REGN.O) down nearly 5 per cent and Gilead Sciences Inc (GILD.O) off about 2 per cent.

Healthcare (.SPXHC) was the only one of the 11 S&P 500 sectors in negative territory in mid-day trading, falling 0.5 per cent.

“We see molnupiravir, with its oral format as a clear game changer that is likely to meaningfully impact not just the treatment paradigm for COVID-19 but also has potential utility in the prevention setting,” Piper Sandler analyst Christopher Raymond said in a research note.

Merck is conducting a late-stage trial to see if its antiviral pill can prevent COVID-19 infection, in addition to the study that showed it can significantly cut hospitalization and death in those already infected.

Merck, whose shares were last up about 9 per cent, leads the race in developing the first oral antiviral medication for COVID-19. Rivals such as Pfizer and Swiss drugmaker Roche Holding AG (ROG.S) with partner Atea Pharmaceuticals Inc (AVIR.O) are running late-stage trials of their pills. Atea shares were up 19 per cent.

Merck, which discontinued its own COVID-19 vaccineprogram, had seen its shares fall about 4 per cent for the year through Thursday, before they moved into positive territory for 2021 on Friday.

“Merck has kind of been dead in the water to investors for the past couple of quarters,” said Kevin Gade, portfolio manager with Bahl & Gaynor, which owns Merck shares. “This shows their R&D engine is not dead and they were first … in what could be a multi-billion dollar opportunity.”

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