November has been a big month for the stock market. We've watched the residents of five states pass cannabis legalization initiatives or amendments, and elected the 46th President of the United States, Democrat Joe Biden.
Wall Street cheers initial vaccine efficacy data
But the real buzz is how we began the week, with Pfizer (PFE 0.89%) and BioNTech (BNTX 3.85%) announcing the first interim analysis of their phase 3 study of BNT162b2 as a treatment for the SARS-CoV-2 virus, which is responsible for the coronavirus disease 2019 (COVID-19). The U.S. has tallied more than 10 million COVID-19 cases, which have led to 238,000 deaths, as of Nov. 9.
Well before the opening bell rang in New York's financial district, Pfizer and BioNTech announced that their more than 43,000-participant global study had reached its first interim analysis of 94 evaluable cases of COVID-19 infection. With the independent data monitoring committee (DMC) evaluating instances of COVID-19 from both the placebo and BNT162b2 groups, it was determined that the initial vaccine efficacy of BNT162b2 is above 90% at seven days after the second dose. The DMC also reported no serious safety concerns with the study, which'll complete when 164 confirmed COVID-19 cases have occurred.
The ramifications of this data are obviously exciting. Leading researchers have not been counting on a vaccine efficacy (VE) of more than 50% to 60%, so an initial readout at 90% would imply a real chance to stamp out the pandemic potential of the coronavirus. It also suggests that life could soon get back to normal, assuming this VE holds in a final analysis. Pfizer and BioNTech have the ability to distribute up to 1.3 billion vaccines in 2021, if their vaccine is approved.
Wall Street responded in a big way to this data, with the iconic Dow Jones Industrial Average nearly hitting 30,000 on an intraday basis, while safe-haven asset gold plunged almost $100 an ounce in midday trading on Monday.
Buying COVID-19 vaccine stocks may not be wise
But what if I told you that chasing COVID-19 vaccine stocks wasn't a prudent idea, even after the stunning data Pfizer and BioNTech released on Monday? Here are five reasons investors should be particularly skeptical of COVID-19-focused vaccine stocks going forward.
1. This trial data is still incomplete
To begin with, investors should avoid taking Pfizer's and BioNTech's initial analysis at face value. Although the headline number of a VE that's greater than 90% is fantastic, it's not telling us how long their COVID-19 vaccine is going to last/protect the patient, nor is it giving a clear indication of how the vaccine performed in at-risk groups of patients. With this illness being particularly worrisome for the elderly and those with chronic health conditions, it's the VE for these groups that matters most. We don't know this data yet, and it'll probably be months before we get it, which makes this celebration a bit premature.
2. Not everyone wants a vaccine
Another reason to be skeptical of COVID-19 vaccine stocks is their potential patient pool. There are obviously a lot of people in the U.S. and around the world that would benefit from an approved and effective coronavirus vaccine. However, this doesn't mean every eligible individual wants a vaccine.
In early August, national pollster Gallup asked more than 7,600 adults around the country if they would take a coronavirus vaccine today if it were approved by the U.S. Food and Drug Administration (FDA) and free of cost. Just 65% of the respondents were willing to get the vaccine under such a scenario. In another context, 35% of the country has no interest in receiving a COVID-19 vaccine, including 30% of people aged 65 and older, which is the core target of vaccine development.
The prospective patient pool for a COVID-19 vaccine may not be as large or as lucrative as you might think.
3. This is a highly competitive indication
Pfizer and BioNTech had the luxury of being the first out of the gate with their interim analysis data, but they're not going to be the last. There are around two dozen COVID-19 vaccines currently being developed, which makes it unlikely than any one or two developers will be able to gobble up significant market share.
While far from a complete list, Pfizer and BioNTech are competing against the likes of:
- Moderna (MRNA 1.55%), whose experimental messenger RNA vaccine (mRNA-1273) led to neutralizing antibodies in 100% of evaluated participants in the company's phase 1 study.
- AstraZeneca (AZN -0.34%), which has partnered with Oxford University to develop AZD1222. An early stage study showed a fourfold increase in SARS-Cov-2 antibody production one month after injection.
- Johnson & Johnson (JNJ 1.57%), whose vaccine JNJ-78436735/Ad26 (rolls off the tongue, doesn't it?) produced neutralizing antibodies in 98% of phase 1/2a trial participants.
4. Not all vaccine developers will be successful
Fourthly, it's important that investors understand the odds of a company successfully developing a COVID-19 vaccine aren't that good.
In May, the Harvard Data Science Review published an analysis on the probability of success for vaccine development programs. After analyzing more than 2,500 vaccine programs and 6,800 nonvaccine programs targeting infectious diseases between Jan. 1, 2000 and Jan. 7, 2020, the researchers found a probability of success for an industry-sponsored vaccine of just 39.6%, and only 16.3% for an industry-sponsored anti-infective therapeutic.
In English, this means a majority of the clinical trials focused on developing a COVID-19 vaccine aren't likely to succeed. Although it's possible we could see vaccine developers outpace historical data, the numbers just aren't on investors' side.
5. Good news is already baked into COVID-19 vaccine stocks' valuations
Finally, it's fair to suggest that good news has already been baked into the valuations of COVID-19 vaccine developers.
Moderna, which was the first vaccine developer to begin human trials, currently supports a $31 billion market cap despite being an entirely clinical-stage company. According to Wall Street, Moderna's COVID-19 vaccine candidate would have annual sales potential of around $4 billion, which would place the company at a multiple of 7 to 8 times the peak sales of mRNA-1273. Most biotech stocks are valued at a multiple of 3 to 6 times their peak sales, which makes Moderna quite pricey.
Another good example is Inovio Pharmaceuticals (INO 1.21%). Even though Inovio has lost approximately three-quarters of its value since hitting its 2020 high, it's also more than tripled from its 52-week low. Inovio's late-stage vaccine is currently on a partial clinical hold, with the FDA wanting additional data on INO-4800 and its Cellectra delivery device. Ultimately, this is a company that hasn't produced a clinically approved therapy in four decades.
I'd love to see a vaccine or five approved like everyone else, but chasing COVID-19 vaccine stocks is a bad idea.