The new year has already been packed with challenges -- new and old. Top of mind is that thousands of people are dying of coronavirus-related causes every day. We're lucky to have a few drugs that can prevent or treat COVID-19, and we'll need even more as we move forward. Vaccines from Moderna and the team of Pfizer and BioNTech, in particular, have brought a possible end to the pandemic into sight. Investors who bought stock in these businesses, and others making safe and efficacious medicines, are doubly lucky. But picking the right coronavirus stocks in 2021 is going to be a different ballgame, and a risky one at that.
There's still plenty of room for new competitors in the market for coronavirus drugs. But showing up to the market late or with a weak product might not to be enough to succeed. The companies I'll discuss today might grow alongside the wider market in 2021 -- after all, they're massive enterprises, and their coronavirus programs only constitute a small part of their potential revenue. Nonetheless, because of their recent stumbles, I don't think that they will outperform their competitors who have successful vaccines or therapies, so you should probably steer clear.
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1. Sanofi
One of Sanofi's (SNY 0.81%) coronavirus vaccine programs was thrown off the rails in early December when it reported less-than-satisfactory results from phase 2 clinical trials. In short, a manufacturing issue caused doses of the vaccine to not have enough of its active ingredient, the spike protein of the coronavirus. Subsequently, participants over age 60 were not protected as effectively. The company doesn't need to go all the way back to the drawing board, but it will need to reformulate the vaccine and show regulators that it has solved the issue.
Sanofi's vaccine may not get regulatory approval until the second half of the year, if it does at all. This means that rivals like Pfizer will have a solid head start when it comes to reporting vaccine revenue, making them preferable investments. It also means that Sanofi won't benefit nearly as much from hype-building clinical data updates during the development process. Of course, Sanofi has a plethora of non-coronavirus projects in the works, so its revenue will still likely grow this year. But, unless you were already interested in investing in the company for the expected revenue from these other programs, it's probably better to wait until its vaccine is back on track before investing.
2. Merck
The pharma giant Merck (MRK 0.15%) has been especially slow to stir throughout the pandemic. Its vaccine program only entered its first phase of clinical trials in September, when competitors were in the midst of phase 3 clinical trials. Merck's therapeutics projects are a bit further ahead of its vaccine effort. It acquired a small biotech company called OncoImmune in November for $425 million to get access to its drug MK-7110, which may be effective at reducing inflammation during severe coronavirus infections. MK-7110 is in phase 3 trials right now. Merck also has an antiviral called MK-4482 in phase 2 trials.
Preliminary findings show that MK-7110 could be effective at reducing the risk of death from COVID-19. That's extremely promising, but there's one problem: It will be competing with the cheap generics that are already being used for that purpose, including steroids like dexamethasone. If MK-7110 can't be used alongside these drugs in the same patient, or if it doesn't provide better results in a head-to-head comparison, there's little reason to believe that it will get much traction.
3. CSL Limited
CSL Limited's (CSL 1.27%) coronavirus vaccine program crashed and burned early in December. The problem with CSL's candidate was that it caused some of its clinical trial participants to falsely test positive for HIV. This finding wasn't entirely a surprise, as the vaccine used some components adapted from HIV. Nobody was at risk of actually getting HIV from the inoculation, but the fact that the vaccine interfered with accurate HIV testing made it unsuitable for widespread distribution and use in public health. So, CSL terminated clinical development, and major customers, like the government of Australia, canceled their preorders.
The company won't be benefiting whatsoever from its sunk costs. While it does have a couple of coronavirus therapeutics in clinical development, it's unclear how close these programs are to getting regulatory approval. In other words, CSL might not have any new revenue from its coronavirus efforts in 2021, and that makes it a tough sell to investors.
