Many investors who bought shares of vaccine stocks last year made a fortune. I'm thinking particularly of early believers in Moderna (MRNA -3.98%), Novavax (NVAX -4.68%), and BioNTech (BNTX -0.88%). But even companies lagging behind in the coronavirus vaccine race brought investors gains. For instance, Vaxart, a company working on an oral vaccine candidate, soared 1,500% in 2020. That potential product still is in clinical trials.
There was one thing that may have stopped some long-term investors from buying these shares, though: the concern the companies might generate revenue in the short term only. These days, however, it looks as if that scenario is less and less likely. In fact, here's some good news for vaccine stock investors.
Of course, it isn't good news that the pandemic is still going strong. Vaccine makers would have loved to see their products immediately put it to an end. But, considering the coronavirus likely will be around for the long term, here's what vaccine investors can be happy about: Countries understand that they must protect their citizens well into the future. And that's already resulting in more contracts for vaccines and boosters for vaccine makers.
For example, Canada recently signed a supply agreement with Moderna for the delivery of vaccine and booster doses through 2024. The contract is for as many as 105 million doses. Moderna also has signed deals to deliver doses to Israel and Switzerland through 2023. And so far for next year, Moderna has signed advance purchase agreements for $12 billion and options for $8 billion more. That already equals Moderna's expected level of vaccine revenue for this year: $20 billion.
As for Pfizer (PFE -0.12%) and partner BioNTech, they've signed a deal for the delivery of as many as 1.8 billion doses to the European Union through 2023.
Now, here's a very important point: No one knows when the pandemic will end. But many experts see it transitioning from pandemic to endemic. This is as vaccination and natural immunity bring case numbers down in some areas. That means it won't permanently be a major problem in every country -- but will continue to circulate here and there. Even with this in mind, countries are placing big orders into the next few years. That's positive. It shows they are interested in making the coronavirus vaccine part of their citizens' yearly routine -- whether we're facing a pandemic situation or not.
Billions in recurrent revenue
This is obviously great for vaccine makers, because it means they can count on generating billions of dollars in recurrent vaccine revenue.
So, what about the share prices? Biotech vaccine makers probably saw their biggest rapid gain last year. Investors rushed in to bet on which companies would make first it to the vaccine race finish line. Those who bet on Moderna won. The U.S. Food and Drug Administration authorized its vaccine -- and that of big pharma rival Pfizer -- in December.
Moderna, BioNTech, and Pfizer share prices are on the rise this year -- but so are the shares of companies that haven't yet won authorization of their vaccine candidates.
I'm expecting potential authorizations to lift shares of latecomers to the market. And today's leaders may climb as regulators expand use of their vaccines and authorize boosters. But gains probably won't be steep forever.
Risk has declined
I'm fine with slower and steadier increases from coronavirus vaccine stocks -- especially those that already have brought a product to market. Why? Because risk has declined quite a bit. We don't have to worry that the vaccine candidate will fail in clinical trials.
The new motor for share increases has to do with how long these companies can keep generating major revenue from their coronavirus vaccine products. So far, government commitments to contracts show us this is going to happen for at least the next three years.
And as I've said, I don't think it's going to end there. The length and depth of this pandemic will remain in the minds of world leaders for a long while. And that should spur them to take measures to halt any resurgence of the virus down the road. From what we can see so far, there's a strong chance governments -- and citizens -- will be proactive. As a result, the coronavirus vaccine just might follow in the footsteps of the flu shot and become an annual thing. That's good news for vaccine makers -- and their investors.