Should You Invest in Vaccines?
Posted on January 28, 2021
This past year has seen the rapid development and testing of many COVID-19 vaccine candidates. But are vaccines solid investments? Is it worth purchasing the stocks of companies whose vaccines are in development? On the face of it, one can’t ignore the rollout of a product that will be demanded by eight billion people. But there’s always more to the story. We caution investors against thinking that the rollout of a safe and effective vaccine for COVID-19 automatically leads to an outperforming stock. Several factors need to be considered.
There will likely be more than one approved vaccine. At the time of publication, there has been one vaccine approved by the Food & Drug Administration (FDA), namely Pfizer-BioNTech’s version. However, it is very likely that other vaccines will soon win approval. Moderna has already applied to the FDA for emergency approval, and we could expect additional applications to the FDA from Johnson & Johnson and AstraZeneca-The University of Oxford early in 2021 as they gather data from their Phase 3 trials.
Competition will put downward pressure on prices and profit margins. A recent analysis showed that Pfizer-BioNTech are pricing their two-dose treatment for $39, and it costs about $15 to manufacture it. However, there are additional costs that need to be considered such as distribution, which can be quite challenging given the -95 degrees F storage requirements. Furthermore, not every hospital or medical center has the infrastructure in place to receive their vaccine, which reduces the potential market size for Pfizer-BioNTech.
When vaccine developers appeared before Congress earlier this year, many of them pledged to keep the prices of their approved vaccines relatively low. Pfizer stated they would keep their price lower during the pandemic. Johnson & Johnson stated they would sell their vaccine on a not-for-profit basis during the pandemic while AstraZeneca would sell their vaccine at cost to developing countries. Notably, Merck and Moderna stated they would price their vaccine above cost.
We remain uncertain about the duration of a vaccine’s immunization effects. We must certainly acknowledge the amazing speed with which multiple pharmaceutical companies have developed and tested vaccine candidates. However, the long-term effectiveness of these vaccines can’t yet be known. Initial studies show promising results, but we do not know if continued vaccinations will be required (booster shots) or if the initial shots will provide lifetime immunization. If the latter, revenues from COVID-19 vaccinations will drop precipitously after enough of the global population has been immunized.
Why would companies invest so much capital and research if the vaccine may not be a huge moneymaker? There are a few possible reasons. First, it is in their own self-interest to help develop a vaccine that could end the pandemic and allow the global economy to normalize. Many pharmaceutical companies have been financially hindered by the pandemic as some patients have avoided seeing their doctors. Second, some of the vaccines that are being developed use a novel approach with messenger-RNA. However, the potential success of this approach could lead to new innovations in the development of future vaccines. Finally, many pharmaceutical companies have been in Congress’ crosshairs for the perceived unfairness of drug pricing in the U.S. and may try to gain some goodwill and political capital to help dilute significant changes to drug pricing.
Ultimately, we think investors will benefit from the continued broad recovery in stocks as the pandemic is ended and the global economy is able to normalize. A well-diversified investment strategy will likely help you achieve your long-term financial goals better than guessing who the winners will be vaccinating the globe.
Andrew Vanderhorst, CFA, CAIA, CFP®
Senior Portfolio Manager
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