Pfizer (ticker: PFE) and German biotech BioNTech ( BNTX) announced arguably the best news yet in the global fight against the pandemic. The late-stage vaccine candidate the two companies are working on is at least 90% effective, the companies said.
That number far exceeded what investors and others in the medical community had been expecting from the first viable vaccine candidate. The U.S. Food and Drug Administration had said it would approve a COVID-19 vaccine with as little as 50% efficacy if it were safe.
“A vaccine that is 90% effective against COVID-19 over time would put it in the same ranks as the chickenpox and measles vaccines,” says Andrew Peterson, assistant professor in bioethics at George Mason University.
The news sent shares of megacap drug company Pfizer up more than 7% on Monday alone, while shares of the much smaller BioNTech jumped 14% Monday and another 7% Tuesday. The wider market also rose on Monday; the S&P 500 added 1.2% as the prospects for an extremely effective vaccine buoyed investor confidence in the pace of a global economic recovery.
It’s fine for hedge funds to make a flurry of bets instantly based on this recent news, but how should individual investors be thinking about the Pfizer/BioNTech vaccine news in the context of their portfolios? Are markets already counting their chickens?
Hurdles and Risks to Large-Scale Vaccines
Yes, the economic impact of an approved and widely utilized vaccine would be huge, and the economic value created would be orders of magnitude larger than any profits Pfizer and BioNTech reap for themselves.
Pfizer’s news is encouraging, but investors shouldn’t go snapping up stocks or ” broad market” exchange-traded funds based on estimates for a theoretical windfall. Plenty of hurdles still remain, including detailed data. There are still a lot of unknowns. Thus far, the preliminary numbers available to the public on this all come from a joint press release issued by the two companies behind the vaccine candidate.
“Information from the Pfizer vaccine trial needs to be readily available to the scientific community to promote transparency and peer review,” Peterson says.
Exactly what type of immunity is provided — and how long that immunity lasts — is still an open question.
“We also don’t know if the vaccine provides sterilizing immunity, which prevents people from catching the virus and stops replication and transmission, or if it provides more partial immunity that can protect from the symptoms of infection but still allows the virus to replicate and transmit at a subclinical level,” says Michael Haydock, senior director, Datamonitor Healthcare at Informa Pharma Intelligence.
There’s always some risk that the FDA doesn’t approve this vaccine; although, if the companies’ press release is an honest assessment, that seems unlikely. In this case, the first doses of the vaccine could be administered by the end of 2020.
“Based on current projections we expect to produce globally up to 50 million vaccine doses in 2020 and up to 1.3 billion doses in 2021,” according to Pfizer’s Nov. 9 press release. Since the vaccine requires two shots, this breaks down to supply for 25 million people in 2020 and 650 million people in 2021.
This global pandemic can’t fully be dealt with by 2022 without more vaccines being discovered and approved or without another big-time partner to help fund, produce and distribute the latest vaccine from Pfizer and BioNTech.
It’s in the government’s best interest to make a safe and effective vaccine widely available to the U.S. public as quickly as possible. Thankfully, Uncle Sam already has a purchase agreement for an initial order of 100 million doses of the vaccine and an option to buy 500 million more. Early indications are that the government will subsidize the shots to make them free to patients, meaning that at some level the duration of the pandemic may come down to the public’s willingness to take the vaccine.
The Economic Implications
In general, vaccines aren’t a blockbuster business for the health care industry. They usually take many years to research and develop — and unfortunately, solving health problems in richer countries takes priority over poorer countries, which may be more ravaged by preventable diseases but are less able to foot the bill to actually prevent them.
In the case of Pfizer and BioNTech, there will certainly be economic rewards if this candidate is approved. The Trump administration inked a $1.95 billion deal in July for 100 million doses of any approved PFE/BNTX vaccine, which comes out to $19.50 per shot.
SVB Leerink analyst Geoffrey Porges estimated in a note at the time that the companies could be looking at a 60% to 80% profit at those prices. This is nice, but no game-changer, for the $208 billion Pfizer, which reported full-year profits of $16.3 billion in 2019.
For Germany’s BioNTech, it’s a different story. Even after shares have roughly tripled in 2020, BioNTech is “only” worth about $25 billion. It’s never been profitable, and lost around $200 million in 2019, so BNTX should be vaulted into profitability with an approved vaccine here.
There’s still a chance for other potential vaccines to make bottom-line impacts for shareholders, too, with roughly a dozen late-stage trials in the works. Still, despite the clear economic and societal value that any vaccine would bring to the world, this won’t move the needle for the biggest health care companies — only the smaller ones could see their fortunes changed.
Another issue is that price gouging on a must-have vaccine is a bad look no matter how you spin it.
“Given other developers like AstraZeneca ( AZN), Johnson & Johnson ( JNJ) and Sanofi ( SNY) have committed to not-for-profit pricing, at least initially, there really isn’t much scope for profiteering here, and it would be political suicide for a company to do so,” Haydock says.
For the megacap companies pursuing a vaccine, the consumer and political goodwill from any successful vaccine is worth something in itself.
The vaccine race isn’t over, and the mRNA-based approach used by Pfizer and BioNTech is good news for the $34 billion Moderna ( MRNA) and its own late-stage mRNA-based candidate. Other, larger players with promising vaccines in the works like AstraZeneca also have the scale and resource advantages that will be needed to vaccinate a large percentage of the world as quickly as possible.
The recent news from Pfizer and BioNTech is unequivocally positive. It represents the dawn of a new phase of humanity’s battle with the virus — one where the rapid mobilization of the scientific community begins to beat back an unexpected foe that stopped life in its tracks all across the world.
But with issues like long-term safety, the duration and type of immunity provided, health effects on different age groups and public trust still up in the air, cautious investors should consider that the pandemic is still a worsening problem without a surefire imminent solution.
Smaller health care stocks like Moderna and Novavax ( NVAX) arguably have the most upside potential from their own vaccine efforts, although investors have also bid shares higher in 2020 due to that potential, giving stocks like these much higher risk profiles as well.
For now, investors looking to benefit from upcoming coronavirus vaccines should be patient and wait for more information on both the science and the economics of specific candidates.
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