With the coronavirus pandemic gripping the world, governments everywhere are desperate to speed up the discovery of a vaccine. In the U.S., since May, this dire need has been addressed by a vaccine accelerator project called Operation Warp Speed (OWS), which subsidizes public and private companies to the tune of billions of dollars, to incentivize vaccine development at the fastest possible pace.
Given the high stakes and the formidable impact of the program's grants, savvy healthcare investors looking to create a portfolio of coronavirus stocks need to learn about Operation Warp Speed and its implications for the global vaccine race.
Ambitious timetables and meaty grants make OWS a potential equalizer for participants
According to the Department of Health and Human Services (HHS), which sponsors the program, Operation Warp Speed aims to "deliver 300 million doses of a safe, effective vaccine for COVID-19 by January 2021, as part of a broader strategy to accelerate the development, manufacturing, and distribution of COVID-19 vaccines, therapeutics, and diagnostics." HHS runs the accelerator with the help of the Biomedical Advanced Research and Development Authority (BARDA), a lesser-known government organization responsible for developing vaccines or therapies for novel epidemics and bioweapon attacks.
So far, it's thought that OWS has funded at least nine independent coronavirus vaccine efforts and a smattering of related projects, with awards split almost evenly between large pharmas and clinical-stage biotech companies. Most investors know big pharma participants like Pfizer (NYSE:PFE), AstraZeneca (NYSE:AZN), and Johnson & Johnson (NYSE:JNJ), whereas biotechs like Moderna (NASDAQ:MRNA), Novavax (NASDAQ:NVAX), and Vaxart (NASDAQ:VXRT) are newcomers to the limelight created by the program.
Most of the biotech companies funded by OWS have no products with regulatory approval for sale, but that hasn't stopped them from getting large infusions of cash. Moderna received $500 million from the program, and Novavax accepted a stunning $1.6 billion award. These OWS grants have been favorable for investors, with stocks skyrocketing on news of each company's selection for the program.
However, it's impossible to confirm exactly which projects are receiving funding, or how much funding is being disbursed in total, thanks to ongoing and opaque negotiations about commercialization between authorities and participants in the operation. Similarly, it's unclear which criteria OWS uses to pick vaccine candidates to accelerate, but positive preliminary results are likely a decisive factor. One thing is certain: The accelerator is only intended to aid American companies in producing vaccine doses for domestic use, and competitors from China are explicitly excluded.
Vaccine developers take on substantial risks when they opt to work at warp speed
Organizationally, the operation enables several changes to the vaccine development process that help companies produce candidates more rapidly. First, companies that accept the funding must allow the government to dictate how they demonstrate that their vaccine candidates are safe and effective, rather than setting their own benchmarks as they would normally. This ensures that efforts are easily comparable across the entire operation, making the most promising candidates easier to identify.
Second, participating in OWS allows companies to execute different segments of the pipeline simultaneously, thereby reducing the lead time between clinical trial stages and manufacturing as well as between manufacturing, regulatory approval, and commercialization. In short, if a company's early-phase clinical trials appear to be going well, that company is encouraged to start manufacturing its vaccine at scale, whereas under normal conditions it would be prohibited (as well as far too risky) for the manufacturer to do so. The idea is for the government to pay participants up front so that they'll be more willing to take major financial risks on their programs in progress. Then, if an effort falls through despite considerable investment in manufacturing facilities, its failure might not hurt the company's bottom line as badly.
At present, none of the OWS-funded companies have reported catastrophic failures that would discontinue their efforts, but it may only be a matter of time. It remains to be seen whether being funded by OWS will lessen losses for investors if a company's candidate fails. In the meantime, investors should keep an eye out for new companies receiving funds from the operation, as they may be compelling options for a speculative biotech portfolio.