Is the Coronavirus Vaccine Market Oversaturated?

Stocks of coronavirus vaccine candidate developers have been on fire this year. If you invested in a balanced portfolio consisting of the five most prominent COVID-19 vaccine developers in the beginning of March, your total holdings would be up 164.68% as of Oct. 9. These include Pfizer (PFE -0.19%), Moderna (MRNA 0.89%), Sanofi (SNY -2.27%), Novavax (NVAX -0.95%), and AstraZeneca (AZN 0.49%). That means a moderate investment of $10,000 would have grown to $26,468 in just seven months, far outperforming the S&P 500's 20% in the same period.

In the last leg of the coronavirus vaccine race, investors now face the question of whether there's enough room for all of the players to succeed. Investors should keep in mind that a coronavirus vaccine can be deemed safe and effective by the U.S. Food and Drug Administration (FDA) and still perform poorly in commercialization. Let's examine the significant risks faced by all the participants in the COVID-19 vaccine race and find out the best way to invest in this young sector.

Image source: Getty Images.

Is there too much supply? 

Assuming the top nine large-cap and mid-cap biotechs bring their COVID-19 vaccine candidates through clinical trials and earn regularly approval, they will have a combined annual production capacity of up to 8.7 billion doses by the end of next year. Right now, we need between 7.8 billion and 15.6 billion doses of a vaccine (depending on single or double dose requirements) to immunize everyone on the planet against the coronavirus.

Data source: Company press releases. Chart by author.

Like the seasonal flu vaccine, the ideal public health scenario of coronavirus vaccines is that immunized individuals would not require another shot for some extended period of time. If the vaccines roll out en masse and according to schedule, we could achieve herd immunity on a global level by 2023 with the current supply capacity alone. As a result, the whole coronavirus vaccine race would likely become a short-term revenue scenario for developers, as they generate tens of billions of dollars in sales in the first couple of years of distribution, then see revenues dramatically decline as massive numbers of people become immunized. However, questions still remain about the virus' ability to mutate and recur in people who have already been infected. Whether a one-time vaccine will be sufficient or if we will need to be immunized on a recurring basis -- similarly as to how we are annually vaccinated against the seasonal flu -- could be make-or-break for vaccine manufacturers.

Challenges to vaccine demand and distribution

When the measles, mumps, and rubella (MMR) vaccine became widely adopted in the 1960s, it was universally regarded as a superb medical innovation. The diseases were essentially eliminated in a matter of years, despite older and less sophisticated distribution technology. However, a study by the AP-NORC Center for Public Affairs Research recently found that only 49% of Americans plan on getting the SARS-CoV-2 vaccine if and when it comes out.

Vaccine skepticism and conspiracies aside, there are valid reasons why some Americans may not want to get a COVID-19 vaccine. The Centers for Disease Control and Prevention (CDC) estimates that the number of Americans actually infected with the novel coronavirus is 10 times larger than official figures, stemming from those who contract the virus but experience mild or no symptoms, and do not get tested. At current infection rates, it's estimated that more than 25% of Americans may have already developed antibodies against the SARS-CoV-2 and do not require vaccines that would deliver the same coronavirus antibodies they already have. 

Another challenge to vaccine demand is the fact that a significant number of developing countries around the world may not even be able to afford COVID-19 vaccines, even at a low price of $20 per dose. Furthermore, AstraZeneca announced it would give away 400 million doses of its COVID-19 vaccine to the E.U. upon approval at no profit. Similarly, GlaxoSmithKline expects to produce 1 billion doses of its vaccine as a profitless venture. The presence of non-profit vaccine makers puts significant pricing pressure on future orders from for-profit sector players.

Data source: Company press releases. Chart by author.

The leading coronavirus developers have already secured billions of orders from governments worldwide. However, that doesn't mean every company will be successful when it comes to delivery. Pfizer, BioNTech, and Moderna's vaccines, for example, require -94°F freezing temperature during transportation. Missing these critical details can be devastating in terms of investment outcomes. The World Health Organization (WHO) estimates that 50% of all vaccines go to waste due to improper temperature control during transport and other logistical issues. Investors may find the companies they hold facing larger-than-expected bills when the cost of deliveries comes into frame.

Takeaways for investors

Looking at companies in terms of their price-to-sales and price-to-earnings ratios, most large-cap biotechs with reliable commercialized products and clinical pipelines remain fairly valued or undervalued compared to their potential revenues from COVID-19 vaccines. However, mid-cap and small-cap vaccine players with no product revenue or earnings have the most significant risk of climbing high and falling hard.

Data source: YCharts.com. P/E = price-to-earnings; P/S = price-to-sales. Chart by author.

Right now, the economics of COVID-19 vaccines do not look favorable. There are simply too many competitors in a limited market with an uncertain future. Top players have already booked COVID-19 vaccine demand in the U.S. and E.U., meaning companies that are behind in their clinical testing may need to look elsewhere to sell their vaccines if approved.

If investors made substantial profits on coronavirus stocks this year, they should consider taking them now and hold onto them tightly. As coronavirus vaccines roll out over the next couple of years, history may repeat itself for these hyped-up stocks, but the long-term coronavirus vaccine gains are anything but guaranteed.