Valneva Races Ahead in Stock Market Even as Vaccine Lags Behind

(Bloomberg) -- French biotechnology company Valneva SE is a laggard in the race to develop a coronavirus vaccine, but it’s starting to catch up to peers in the stock market after a 56% jump this year.

While the company says regulatory approval for the shot may not come until the fourth quarter, the shares have been soaring as investors increasingly bet on the success of an inoculation that has less complex storage needs than those currently available. And it may have further to run if Valneva is able to win more government contracts, such as with the European Union.

Valneva is the only drugmaker in the U.S. or Europe developing an inactivated shot against the virus. The approach stimulates an immune response by injecting a coronavirus sample that has been killed, a method used for years in other vaccines.

Shots from BioNTech SE and Pfizer Inc. and Moderna Inc., which are already being administered, use a new technology known as messenger RNA, which doesn’t involve infectious material. AstraZeneca Plc’s uses a weakened version of a common cold virus to carry genetic material from the coronavirus into cells to generate an immune response.

“More diversity with respect to vaccine technologies is clearly better,” said David Pinniger, a fund manager at Polar Capital who holds Valneva. “While the clinical trials success of the mRNA vaccines was astonishing, these first-generation vaccines do have limitations.”

So-called mRNA shots cost more and must kept frozen at very low temperatures. Valneva’s vaccine can be kept in a regular refrigerator, making them more suitable to rollout in developing countries.

Valneva expects data from a clinical trial in April, followed by a late-stage study and regulatory approval in the fourth quarter if all goes well. In September the company signed a deal worth as much as 1.4 billion pounds with the U.K. to supply doses of its shot between 2021 and 2025. Shares of the biotech were propelled higher this month when the U.K. exercised an option to add 40 million doses to its initial order of 60 million.

Read our Covid-19 vaccine tracker to see where shots are being administered

While Valneva shares have underperformed another would-be vaccine maker, Novavax Inc., this year, its gains have picked up and analysts have struggled to keep up. Their average target price of about 11.50 euros is about 3.5% below the market price, despite the stock having pulled back from a peak this month. Oddo BHF cut the stock to neutral last week, while the other seven analysts who follow it all recommend buying.

The big risk to the rally: Studies could show that the vaccine isn’t effective enough, or at all. Merck & Co. last month ended its effort to develop an inoculation for just that reason. “There is always a possibility that a trial fails, either for efficacy or for safety, as we just do not have the data yet,” said Suzanne van Voorthuizen, an analyst at Kempen.

Even so, there may be further upside ahead. Britain could still buy 90 million more doses under its deal and -- while discussions have been held -- the EU has yet to sign a contract with the company. The 27-nation bloc is in talks to buy 30 million doses, with an option for another 30 million.

“A contract with the EU could be a meaningful addition to our valuation,” van Voorthuizen said, noting that the firm’s price target of 8.50 euros doesn’t include Covid-19 vaccine contracts beyond the one with the U.K.

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