The long-term solution to ending the coronavirus pandemic and returning to normal life is an effective vaccine. Companies and researchers across the globe have accepted the challenge of trying to develop one as quickly as possible. Investors expect the stocks of companies that successfully deliver a vaccine to gain in value.
According to BioCentury, a healthcare industry news publisher, 12 coronavirus vaccines are in human trials. Another 77 vaccine programs are in preclinical development. How can someone hoping to invest in a developer of a potential coronavirus vaccine figure out where to begin?
Look to the big pharmaceutical companies and the companies collaborating with them. This means starting with Johnson & Johnson (JNJ -1.41%), Pfizer (PFE -2.63%), GlaxoSmithKline (GSK 0.97%), and Sanofi (SNY -0.30%). Sure, these may not be sexy biotech names, but these relatively stable firms have all posted stock increases of roughly 25% since lows in March.
Estimates vary wildly, but most do not expect a viable vaccine until 2021. And late in the year at that. Dividend-paying big pharma companies allow investors to get paid while waiting for that day to arrive. Further, the companies provide diversification across an entire portfolio of therapies. Expect the stocks to move on the news of a vaccine's success, not on the actual monetary return.
Any successful developer of a coronavirus vaccine will need to manufacture and distribute the medication across the world. That's assuming the vaccine gets the go-ahead from regulatory authorities in each country. Multinational pharma companies have the necessary experience in getting approvals globally and have manufacturing and distribution capabilities in a variety of geographies.
Many doses of the vaccine will need to be manufactured. Individual companies have announced plans for producing hundreds of millions to billions of vaccine doses. Small companies simply lack the capital to scale up manufacturing and distribution the way a global pharma can. Johnson & Johnson has already started scaling manufacturing efforts around the globe to be ready for a possible vaccine in 2021. This is such a large undertaking even giants Sanofi and GlaxoSmithKline opted to work together rather than compete.
Two of the most advanced vaccines hail from Chinese companies CanSino Biologics and Sinovac Biotech (SVA). In the U.S., Moderna (MRNA 0.99%) took an early lead in clinical testing of its vaccine. With a $19 billion market cap, Moderna has access to $2.4 billion, including $483 million in government funding, to fuel its ambitious efforts. The company also teamed up with global chemical manufacturer Lonza (LZAGY -0.92%) to scale up global production.
Another smaller investment idea is BioNTech (BNTX -1.80%), a German biotech that IPO'd last October. Like Moderna, BioNTech is pursuing mRNA-based vaccines. Pfizer saw promise in the company's coronavirus vaccine approach and forged a co-development deal in March. To me, this signals Biontech's approach has a reasonable shot. The first human testing started this month.
Smaller biotechs Inovio Pharmaceuticals (INO 2.83%) and Novavax (NVAX 1.85%) have embarked on the COVID-19 vaccine journey but offer investors added risk. Inovio's track record of trying to capitalize on the 2009 swine flu and 2013 avian flu may raise eyebrows. Efforts were full steam ahead until they seemed to vanish a few years later.
Using its proprietary technology platform, Novavax has announced it plans to start its coronavirus vaccine trial in mid-May. The company simply has too little capital -- $82.2 million as of Dec. 31, 2019 – to aggressively compete. Yes, it received $4 million from the government to get the vaccine into a clinical trial and it says additional funding conversations with Coalition for Epidemic Preparedness Innovations are ongoing to address costs through phase 1 trials. It's also working with Emergent BioSolutions (EBS -6.49%) on the manufacturing side, but Novavax will likely need to attract a global partner to expedite and expand the scale of its program.
Tread with caution
The stocks of many micro-cap companies have popped upon news of entering the COVID-19 fray. Many of these companies use the jump in stock price to raise additional capital to fund operations. Unfortunately, the majority of these will likely never get a program off the ground and into a definitive efficacy trial. The simple reasons: lack of capital, bandwidth, and will. Small companies do not typically have enough money and personnel to quickly add in another program without it impeding prior R&D activities. For those that do, it will likely be at too slow a pace to be meaningful.
Healthcare investors wanting to invest in the COVID-19 vaccine space should seek those companies with the greatest odds of success. For me, that means bigger companies with global testing, regulatory, and manufacturing capabilities. Since no one knows which vaccine will succeed, a portfolio approach of a few pharma alongside the most advanced biotechs Moderna, BioNTech, and Sinovac give ample exposure. Let's keep our fingers crossed that one or more of these companies succeed.