Prepare to lose on stocks boosted by vaccine
For investors, there is no safety in betting on vaccine candidates
A Covid-19 vaccine success could boost economic output by trillions of dollars. Those trading vaccine stocks shouldn’t expect to share much in the benefits.
Encouraging signs of progress in the fight against the pandemic are popping up. An earlystage clinical trial for an experimental vaccine candidate developed by Oxford University and AstraZeneca had an acceptable safety profile and showed possible signs of efficacy, according to results published on Monday. Other companies such as Pfizer, Moderna and CanSino Biologics also have published successful preliminary results.
The progress is undeniably encouraging, but investors are already giving companies credit for finishing the job. Despite a sharp selloff on Monday, Moderna shares have tripled since March and are up 30% over the past month, while megacaps Pfizer and AstraZeneca have each rallied about 10% in the past month. At those prices, investors are assuming success in the clinic and billions of dollars in sales in the near future—Pfizer has added nearly $20 billion in market value in the latest rally.
While such an outcome is possible, significant roadblocks suggest the odds aren’t in investors’ favor. For starters, these are early-stage trial results that have mostly avoided populations that are most susceptible to Covid-19, such as the elderly. Key questions, including whether these vaccines are effective and whether the side effects are tolerable, won’t be answered until data from much larger trials are available sometime this fall. In drug development, it is hardly uncommon for problems that stayed hidden in early trials to emerge later on.
Spreading vaccine investing bets across a few players might seem like a better option, but that is easier said than done: there are more than100 vaccine candidates in development world-wide, and not all of them are owned by publicly traded companies.
And even if an investor bets on the correct horse, sales and profits might not flow as much as hoped. The drug industry has managed to avoid heavy scrutiny over its pricing practices as a U.S. presidential election approaches, and insiders would prefer to keep it that way by pricing a vaccine modestly.
It is also possible that the pandemic will be conquered without a vaccine. Many therapeutics to treat the disease also are under development, and it is possible for viruses to fade away on their own. In those scenarios, investors also would likely enjoy a sharp marketwide rally, but the vaccine makers wouldn’t come along for the ride.
Caution is always warranted when betting on drug development, especially in the face of hopeful developments and euphoric trading.