Over the past several months, investors have gotten a few reminders that experimental vaccines can pose risks to trial participants. In turn, unexpected side effects and delays in the clinical trial process can punish stock prices. AstraZeneca's (AZN 0.83%) coronavirus vaccine trial is still on hold in the U.S. after a clinical trial participant experienced rare, severe, and potentially permanent side effects. Healthcare giant Johnson & Johnson (JNJ -0.47%) also paused its vaccine trial earlier this month. Both monster stocks dipped by around 2% during trading after their respective announcements.

Even after a vaccine gets the green light for widespread distribution and sale, our current accelerated development effort may mean that unpleasant surprises in the form of side effects or supply chain difficulties are more likely to occur. Given this reality, investors need to understand how problems with a new coronavirus vaccine may affect their investments so that they can plan accordingly.

A doctor administers a vaccine to a child; both are wearing face masks.

Image source: Getty Images.

Do government programs protect consumers?

A set of government programs and laws protect vaccine makers from the risk of vaccine side effects. The National Vaccine Injury Compensation Program (NVICP) allows people who were harmed by vaccines to get paid by the U.S. government directly rather than after a lawsuit brought against the product's manufacturer. Informally known as vaccine court, the NVICP is ultimately favorable for pharmaceutical companies. Unfortunately, injuries from a coronavirus vaccine probably won't be eligible for payments from the program.

Though it has a slightly different focus, the Countermeasures Injury Compensation Program (CICP) also covers injuries from "countermeasures" to public health threats. As part of the Public Readiness and Emergency Preparedness (PREP) Act of 2005, when the government declares that there is a pandemic, countermeasure manufacturers enjoy broad protection from injury lawsuits -- and even wrongful death suits. The CICP recognizes that problems arising from vaccinations against COVID-19 could qualify for compensation. This program is funded by allocations from the Department of Health and Human Services (HHS), meaning that its funds can be easily depleted and require subsequent political action to refill. It's possible that such political action might stipulate an excise tax on individual vaccine sales, like the NVICP currently has.

What does this mean for investors?

Outside the U.S., AstraZeneca has forged agreements to limit its liability in a majority of the markets where it plans to sell its vaccine amid ongoing difficulty in restarting its clinical trials, and Pfizer (PFE 0.88%) plans to do the same. It's also important to note that not all side effects will be relevant for stock prices. For example, both Moderna (MRNA -0.15%) and Pfizer reported that patients in their clinical trials had experienced side effects, but because these side effects were mild and transient, the trials continued unimpeded and their stocks were largely undisturbed.

In the unlikely event that a coronavirus vaccine causes harm to some people, most of the fallout to vaccine manufacturers will come from the negative news headlines rather than financial damage from lawsuits. The impact to shareholders may be relatively short-term, and it probably won't interfere with a company's ability to invest in future growth opportunities. Furthermore, investors can count on vaccine manufacturers to be transparent with regulatory authorities during the development process, reducing the chance of unexpected injuries.

Risks still abound, but manufacturers are working to reduce them

In summary, consumers aren't totally protected against coronavirus vaccine risks, but pharmaceutical companies should be largely insulated. While it's true that vaccine manufacturers won't need to pay out to injured consumers, they also won't be able to control the flow of negative news from victims making claims to the CICP, which could harm their share prices. Companies are incentivized to work hand-in-hand with regulatory authorities to ensure that their vaccines are as safe as possible before distributing them to the public.

To this end, a group of major coronavirus prophylactic developers signed a statement indicating that they would pursue vaccine development with the highest level of scientific and medical rigor. Pfizer, AstraZeneca, Johnson & Johnson, and Moderna are signatories, as are several other companies. Investors should constrain their coronavirus stock purchases to these manufacturers, as they are emphasizing transparency of results and due diligence rather than speed of development, minimizing the risks involved for everyone.