Vaccine stocks scored big wins for many investors during the earlier stages of the pandemic. But so far this year, they've done just the opposite. Leaders Moderna (MRNA 3.28%), Pfizer (PFE 0.23%), and BioNTech (BNTX 0.55%) all have dropped by percentages in the double digits. And Novavax (NVAX 2.95%) -- which surged the most back in 2020, but which was late past the regulatory finish line -- has declined 75% year to date.
At the same time, the pandemic continues, and these companies are all guiding for billions of dollars in revenues this year. So for investors, the question is: Are vaccine stocks a buy at these levels?
Why vaccine stocks dropped
First, it's important to understand why vaccine stocks fell. It doesn't have anything to do with the effectiveness of the companies' vaccines, the revenue they've reported so far -- or even this year's sales forecasts.
Instead, investors are worrying about the long term. In areas such as the U.S. and Europe, most of those who wanted to be vaccinated have already received their primary doses. Given that, there's an assumption that their COVID-vaccine-related revenues may significantly decline in the countries where those companies are charging the most for the shots. With that in mind, some traders who bet on vaccine makers at the start of the crisis have sold, locked in their gains, and moved on.
And so far this year, vaccine stocks have been in the doldrums.
It's true that demand for vaccines likely won't be as high again as it was when the first became available. But that doesn't mean revenue is over for these companies. The pandemic is expected to evolve into an endemic situation that rises and falls in waves much like the flu.
Also, the efficacy of the primary vaccine series has declined over time. That means that people -- particularly those who are most at risk of severe disease -- should consider getting annual booster shots, just as many people get annual flu shots. Last year, about half of the U.S. population went for a flu shot. So, it's reasonable to expect a similar degree of interest in coronavirus boosters.
Strain-specific boosters
Moderna and the Pfizer-BioNTech team recently requested Food and Drug Administration authorization for their latest variant-specific vaccine boosters. These shots are designed to protect people against the original coronavirus and the omicron variants. Both companies have signed billion-dollar-plus supply agreements with the U.S. for doses.
Novavax is still working on its omicron-specific option. Phase 3 clinical trial data is expected at the end of the third quarter. Meanwhile, Novavax has asked for the authorization of its vaccine to be used as a booster. As a latecomer, Novavax is unlikely to jump into the lead. But it may eventually carve out a small share of the market. Considering the coronavirus vaccine is Novavax's first commercialized product, this is a positive step.
For all of these companies, it's fair to say demand probably will decline from its early highs. But demand for those COVID-19 vaccines may settle at a perfectly acceptable level -- and translate into steady streams of annual revenue.
Speaking of revenue, let's take a look at what may change in the coming years. Today, governments are buying coronavirus vaccines from companies. They're buying in big quantities. But companies have kept the cost per dose down.
Eventually, the vaccine makers will go back to the traditional route and sell their shots directly to distributors. At that point, they'll probably increase the prices they are charging for them. For example, Moderna is selling its vaccine to the U.S. for about $26 a dose today. It predicts a price of about $60 when the shift to a private market happens, so the pharmaceutical companies may somewhat compensate for a decline in demand through higher margins.
Time to get back in?
So considering the way these stocks have declined this year, should they be avoided? Or is now a good time to open (or reopen) positions in these innovators?
I don't expect vaccine stocks to soar like they did in 2020 and 2021. Their movements then were based on excitement about potential products that could halt a major health crisis. But I do think they have what it takes to move higher over time as they bring in recurring revenue from their vaccines -- and eventually other products.
Now could be an interesting time to buy. All of these players are trading for less than 8 times forward earnings estimates.
MRNA PE Ratio (Forward) data by YCharts
Anyone who invests in them now should hold on for the long term -- by which I mean at least five years. This will give the companies time to show they can generate recurring revenue, and advance their pipelines in indications beyond the coronavirus.
That said, these vaccine stocks remain risky. It's impossible to predict when sentiment regarding these stocks will turn around. So investors uncomfortable with risk should hold off or take only a small position in one of these players.
Overall, though, there's reason to be optimistic about these stocks. They probably won't surge like they did in the past. But they could slowly but surely reward investors over time.
