COVID-19 vaccine stocks have easily been the hottest niche across the entire market since March. Developmental-stage companies like Inovio Pharmaceuticals (NASDAQ:INO), Moderna (NASDAQ:MRNA), Novavax (NASDAQ:NVAX), Vaxart (NASDAQ:VXRT), and Heat Biologics (NASDAQ:HTBX) all saw their shares rise at a dizzying pace in 2020, thanks to their coronavirus vaccine candidates.

What's more, pharma giants such as AstraZeneca (NASDAQ:AZN) and Pfizer (NYSE:PFE) have even gotten in on the act. Pfizer, for instance, tacked on over $33 billion in market capitalization at one point this year solely because of its promising mRNA vaccine platform for coronavirus, which is being co-developed with German partner BioNTech (NASDAQ:BNTX).   

A hand about to prick a bubble containing a money sign with a needle.

Image Source: Getty Images.

A funding bonanza

This sudden and dramatic appreciation in COVID-19 vaccine stocks wasn't without reason, however. Far from it. AstraZeneca, GlaxoSmithKline (NYSE:GSK) and partner Sanofi (NASDAQ:SNY), Johnson & Johnson (NYSE:JNJ), Moderna, Novavax, and the Pfizer/BioNTech pairing hauled in roughly $11 billion from the U.S. government's Operation Warp Speed program this year.

And if Congress ever passes a second relief bill, this COVID-19 vaccine research and development effort might land another multi-billion dollar infusion of cash. Topping it off, the Coalition for Epidemic Preparedness Innovations (CEPI), a nonprofit organization, has kicked in significant sums of grant money to accelerate the development of a COVID-19 vaccine as well.

An abrupt change in sentiment

COVID-19 vaccine stocks, though, have run into a rough patch in August. Shares of Heat Biologics, Inovio Pharmaceuticals, Moderna, Novavax, and Vaxart have essentially crashed this month (see the chart below). And even bigger players like AstraZeneca, GlaxoSmithKline, Pfizer, and Sanofi have all pulled back significantly fromt their 52-week highs over the past four weeks.

VXRT Chart

VXRT data by YCharts

What sparked this abrupt exodus out of COVID-19 vaccine stocks? Several headwinds rattled coronavirus vaccine stocks this month. The five most important developments were the following: 

  1. On Aug. 11, Russian President Vladimir Putin announced the approval of the world's first COVID-19 vaccine dubbed Sputnik V. 
  2. The political gridlock in Washington D.C. has stalled the second tranche of funding for vaccine research at the federal level. 
  3. AstraZeneca, Johnson & Johnson, and Pfizer may all have a vaccine on the market in record time. Investors, in turn, appear to be concerned that smaller players like Heat Biologics, Inovio Pharmaceuticals, Novavax, and Vaxart might get left out in the cold from a market share standpoint.   
  4. On Aug. 23, President Trump, together with the Food and Drug Administration, announced the emergency use authorization of convalescent plasma therapy for hospitalized COVID-19 patients. This news seemed to trigger a migration of cash into convalescent plasma therapy stocks at the expense of vaccine-oriented biotechs.   
  5. On Aug. 26, Abbott Laboratories got a green light from regulators for its $5 COVID-19 test, which can yield results in as little as 15 mins. This ultra-cheap and super fast diagnostic might dramatically curtail the spread of COVID-19 -- perhaps lowering the long-term commercial opportunity for vaccine companies.  

Has the moment passed for vaccine stocks?

The most important issue to understand is that multiple vaccines are probably going to be required to truly slow the spread of COVID-19. There will be no one-size-fits-all vaccine; a fact which might leave the door open for companies like Heat Biologics and Vaxart who are developing vaccines with novel patient populations in mind. That being said, the rising tide phenomenon among COVID-19 vaccine stocks appears to have run its course based on this month's dreadful price action.

Now, there is still plenty of money to be made within this group of equities, despite this rather swift, niche-wide regression to the mean in August. Biotech investors, though, will arguably need to take a long-term view of the COVID-19 vaccine landscape in order to separate the wheat from the chaff. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.