Backing a Winner in the Vaccine Race

Charlotte Looker
August 25, 2020

How long does it take to produce a vaccine?

10 to 15 years is the average development time for any new vaccine. Inoculation against COVID-19 could however be possible as early as January 2021, just one year after the initial outbreak.

There is a set process of research and testing that any vaccine must go through before it is approved for use on the general population. The initial research and development stage is often the easier part; it’s getting through the painstaking three-phased clinical trials that proves difficult. With each phase usually taking around two years to complete, the race to release a Coronavirus vaccine has seen companies progress at record speeds, passing through multiple phases in the space of a few months.

Who’s in the running?

Currently, there are 6 vaccines in the third and final stage of testing, including one from the UK (AstraZeneca); three vaccines from China (two from Sinopharm and one from Sinovac Biotech); and two from the US (Pfizer and Moderna).

The common belief seems to be that whichever company ends up winning the vaccine race will see profits soar overnight, with investors making their way to Monaco on their mega-yachts. The race, however, is unlikely to conclude in this way and investors should act with caution.

Backing a winner

All the wishful thinking in the world won’t change the fact that vaccine development is difficult, and failure highly likely.

A pharmaceutical firm may think they have found the answer, but the numerous stages of rigorous testing that follow could send research teams back to the drawing board at any point.

Not even the experts know who to back. There are too many variables and unpredictable aspects which make investment at this stage risky. It might seem like there’s a clear front-runner, but even the odds-on favourite can fall at the final hurdle, by which point a firm will have spent millions on research but have absolutely nothing to show for it. This type of scenario could prove very damaging to a contender’s share price, with investors seeing a sharp drop in value.

Vaccines are expensive and not necessarily profitable

The costs associated with developing and mass-producing a vaccine are huge, and recouping those costs can be difficult. Investors shouldn’t expect an immediate win if their vaccine of choice is the first approved. It will take a while to recover the cost of development, and manufacturing capacity may prove problematic. It may also happen that the race is won, but a second, more effective and much cheaper vaccine is approved soon after, resulting in only short-lived glory for the first vaccine over the line.

Another possibility is that no profit is made by vaccine developers. In a deal with Europe’s Inclusive Vaccine Alliance, AstraZeneca, for example, have committed to delivering 400 million doses at no profit, with other companies making similar promises.

Inflated and fluctuating prices

Currently sitting amongst investment app Robinhood’s 100 most-traded stocks are Moderna Therapeutics (NASDAQ:MRNA) and Inovio Pharmaceuticals (NASDAQ:INO.

While the two American firms have proven popular with investors, neither have any approved products on the market and their inconsistent financial track records are certainly nothing to write home about. Earnings for both firms have in fact diminished over time with Moderna’s trailing 12-month revenues down by over 40% for the past three years and Inovio’s down by over 90%.

Speculation seems to be driving price movements at the moment. American firm Novavax for example has never before managed to develop an effective vaccine, yet their share price has seen a 3,161% increase since January this year. Similarly, after reports of side-effects during a clinical trial, Moderna’s share price fell by almost 11% in just one day.

To invest on a whim or a slight glimmer of hope is a huge gamble, yet investors seem to be ignoring prior financial performance and paying astronomical prices that may not properly reflect a company’s true worth.

The pharmaceutical businesses that remain in the running sit both simultaneously on the precipice of innovation and failure, with only time telling who will win the vaccine race.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

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