Since the beginning of the COVID-19 pandemic, millions of people have been watching the race for a successful vaccine — including investors. As a result, some vaccine stocks like Moderna, Novavax, Vaxart and Regeneron have seen huge spikes in 2020 after positive news from clinical trials. But is it wise to invest in vaccine companies in the middle of a historic pandemic?
“The unfortunate truth is that if someone is investing in a given company solely based on a potential vaccine, that is speculation or gambling,” says Ryan Scribner, co-owner of Investing Simple. “Trying to pick the company that will eventually have an approved vaccine is nearly impossible unless you had some kind of insider knowledge, which would not be legal.”
That said, there are still good reasons to invest in biotech and pharma, provided it’s part of a thoughtful, well-rounded investment plan.
Here’s what you should know.
1. Vaccine stocks are very unpredictable
Biotech and pharma stocks such as Pfizer, AstraZeneca or Johnson & Johnson are fairly stable. They’ve been around for a long time, have good track records, large pipelines and diverse portfolios. But companies such as Moderna or Gilead Sciences? Not so much. Moderna has been working on an RNA vaccine using genetic material to encourage an antibody response to COVID-19. However, losing a patent case related to the vaccine’s development caused the company’s stock to drop.
Meanwhile, Gilead is spearheading research and clinical trials on remdesivir, a therapeutic drug. While remdesivir received emergency authorization for coronavirus treatment in early May, it has yet to receive Food and Drug Administration (FDA) approval.
“When it was announced that remdesivir was showing promising results in speeding up the healing time for COVID patients, Gilead saw a sharp spike in its stock price,” says James Jason, a financial analyst and currency trader with Mitrade. “However, investors had not realized that the drug had barely passed its phase one clinical test. Shortly after the FDA declined to approve its use, the stock fell back.”
Jason also points out that the biotech industry as a whole isn’t very stable right now, similar to the overall world economy. As a result, seasoned investors might not be going all-in on industry stock. “This means [investors] will not hesitate to pull out their funds in the slightest suspicion of further deterioration of the industry,” Jason says.
2. Vaccines take a long time to develop and manufacture at scale
Biotech companies don’t just send new vaccines straight to retail pharmacies where they can be purchased as over-the-counter drugs. The progression of getting a drug from concept to completion to market is an extended one involving various stages, including clinical trials, regulatory reviews and approval, and manufacturing and quality control. Even after this ongoing, years-long process, only about 6% of candidate vaccines are approved for commercial use.
Even if a pharmaceutical company is fortunate enough to get the necessary approvals and get the product to market, investors shouldn’t expect a quick payout. That company will use the first few years of sales and profits to recoup the huge costs spent developing, testing and manufacturing the vaccine.
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Hopes have been raised that a COVID-19 vaccine will move through the development and testing phases within 18 months, as opposed to the typical five or 10 years. But a year and a half isn’t short-term. The demand for the vaccine could be greatly reduced, the company might run out of money or approval might not be forthcoming. Therefore, it’s safe to assume that investments in biotech stocks should be for the long haul rather than for any perceived short-term gain.
3. Remain focused on realistic investment returns
Neither of the points above mean that biotech or pharma companies aren’t worthwhile investments, nor that investing in companies working on COVID-19 vaccines or cures is a bad strategy. The takeaway here is that investing in a firm targeted only because they’re working on COVID-19 vaccines isn’t a smart idea. Realism, research and caution should be a part of any investment decision. Don’t buy stocks based on hope, assumptions or media reports.
If you are genuinely interested in putting your money into the industry, Jason’s suggestion is to target companies that were performing well even before the pandemic. Meanwhile, companies whose stock prices took off amid the coronavirus should raise a red flag.
Additionally, it’s good to seek out companies with a strong and diverse product portfolio, versus those that are focused solely on the coronavirus vaccine. Jason adds that “if the stock had been doing well, and it appears stable at the moment, it might be worth watching, as any success in a vaccine, or cure for COVID-19, would propel it to interesting heights.”
From his point of view, Scribner notes there is nothing wrong with targeting a company involved with developing a COVID-19 vaccine, as long as that isn’t that company’s sole claim to fame. Johnson & Johnson is a leading company that also happens to be working on a vaccine. “Should you invest in [Johnson & Johnson] solely for this reason? No,” Scribner says. “However, when you consider the overall company, most experts would agree Johnson & Johnson is an excellent investment to make.”
Too long, didn’t read?
An investment in companies working on vaccines and cures for COVID-19 should not be considered a path to overnight riches with an immediate return. The volatile nature of biotech and pharma stocks, combined with the fact that the coronavirus drugs are still only in the testing phases, means that these investments — like all investments — should be a long-term strategy rather than a short-term hold.
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