Are Covid Vaccine Stocks Worth Investing In?

by Trefis Team
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The coronavirus pandemic has been good news for investors in pharma companies racing to develop a Covid-19 vaccine. Stock prices for many of the competing companies are trading around record highs. Some examples: Moderna’s (NASDAQ:MRNA) value has jumped 4x from about $8 billion at the beginning of this year to about $32 billion as of the end of July, Novavax (NASDAQ:NVAX) value has soared from less than $300 million to over $8 billion, while German biotech company BioNTech’s market cap has doubled to about $20 billion. 

Investors are betting the urgent market need to resolve what has become a healthcare and economic crisis that is costing the global economy trillions of dollars will translate into windfall profits for companies that successfully develop and deploy a vaccine.  That said, it’s reasonable to ask whether those expectations are realistic. That’s because the very same urgent health and economic crisis fueling market interest could prevent the companies from cashing in. Several scenarios are possible, with the potential for compounding impact. 

The biggest risk is that the U.S. and other governments will intervene to limit vaccine prices and profits. This is already an established practice in many countries, and the idea has recently gained traction in the U.S., where government pricing involvement has traditionally been limited. The potential for U.S. government pricing intervention is magnified, given the billions of dollars in federal aid already provided to pharma companies in support of the accelerated R&D effort. For example, Moderna has received over $950 million in federal aid, while Novavax has received about $1.6 billion.

Some early cues on pricing have also been less than encouraging from the standpoint of investors. Pfizer, which is working with BioNTech, has signed a $1.95 billion deal to supply 100 million doses of its vaccine candidate to the Federal government – translating into an average price per dose of less than $20. Assuming two doses per person, that’s under $40 per course of the vaccine. Johnson & Johnson has talked of a price as low as about $10 per dose, noting that it does not intend to profit from its vaccine candidate. A related consideration is how pricing will vary for government versus private pay, and the related mix of volume. In the U.S., government vaccine prices are typically well below private pay costs, with a broad discount range of 35-50%. As the number of government-paid doses increases, the lower the average prices will be.

Implicit in the pricing discussion is determining the vaccine’s bottom-line profit margin. Vaccines traditionally have lower profitability versus prescription drugs – providing a likely starting point or ceiling. Combined with the large public interest in facilitating vaccine access, and the government R&D budget contribution, these margins may face even more downward pressure.  

As one more wildcard, it’s unlikely that a single company will capture anywhere near the full market opportunity. First, with so many companies competing to develop a vaccine, it’s very likely that more than one will be successful. Second, given the large scale dosage requirements, all companies will likely be involved in vaccine production with margins split under some type of royalty arrangement with their manufacturing partners.

As a bottom line, there is a wide range of potential value for what a Covid-19 vaccine could be worth. Depending on your assumptions, the current pharma stock values might be too high, too low, or right on target. Want to explore more? Try this Trefis interactive model that calculates the earnings potential for Moderna’s Covid-19 vaccine. For more details on the performance of the key U.S. listed vaccine players, see our analysis Trefis Theme: Covid-19 Vaccine Stocks.

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