That multiple COVID-19 vaccines are rolling out globally has sparked widespread hope—and pharma fever among investors. Snap up vaccine-maker shares now, the thinking goes, and you’ll catch a slice of the riches these moonshots promise. But beware. Lightning-quick COVID immunizations are undeniably great news and a testament to human beings’ indomitable ingenuity. But they’re unlikely to inject their creators with profits that markets haven’t already pre-priced—making vaccine-driven stock price surges unpredictable and short-lived. Here’s why.
The boundlessness of human innovation is a key stock market driver—always has been, always will be. New technologies drive efficiencies and profits and even create new industries. Think how many products and companies emerged from the microchip’s creation. Health Care is home to cutting-edge, world-changing innovation. Recent breakthroughs abound. Researchers now employ artificial intelligence to expand datasets vastly beyond clinical trials. They’ve connected pacemakers to smartphone apps, giving patients and physicians crucial instant monitoring. Gene therapy has had success reversing diseases like sickle cell anemia, while implanted electronic stimulation devices offer paralyzed patients real hope of walking again. New drugs, therapies and devices bring relief for patients—and profits for Health Care firms and their investors. They partly explain why global Health Care stocks have gained 254% over the past decade, trouncing world stocks’ overall 156% gain.
But while COVID vaccines promise massive societal benefits, they’re unlikely to boost vaccine makers’ profits—at least, not long enough to merit huge share price gains. Government and public pressure to keep a lid on prices has vaccine firms treading carefully. Some contracted to provide major governments huge vaccine quantities at cut-rate prices. Several with vaccines nearing approval say they won’t pursue COVID vaccine profits at all during the “pandemic phase” of distribution. Pfizer and partner BioNTech say they will, but at prices typical of other vaccines with discounts possible initially. Wall Street expects about $11 billion in COVID vaccine revenue for Pfizer in 2021 and gross profit margins of about 50%—well below the firm’s overall 70% margins. That would boost revenue just 6.3% above pre-pandemic 2019 levels. Profits? Just 1.0% higher than 2019. Sniffle sniffle; cough cough!
Projections are murky for 2021. After that, uncertainty renders them near-useless. How long will immunity last before repeat injections are required? Will governments continue pressuring prices post-pandemic—particularly for vaccines they bankrolled? How will a landscape jammed with competitors shake out? Early clinical trial successes steal headlines, but multiple firms aren’t far behind. Some tout more logistical flexibility than the early winners, which feature multiple doses of mRNA requiring sub-Arctic storage temperatures. Companies crossing the finish line first may fall from favor quickly, making share surges short lived.
Beyond all this, stock markets are pretty darned efficient discounters of widely known information—more so now than ever, given data’s near-instantaneous availability. COVID’s massive global impact makes vaccine development one of the most scrutinized processes in memory. Forecasts, rumors, approvals and everything in between are priced into shares nearly instantly—a process playing out for months.
Take Moderna. It’s sales aren’t huge—just $60 million in 2019—so a vaccine could stoke profit growth far more than big, diversified Pharma firms’. But since vaccine optimism surged on Pfizer’s November 9 Phase 3 results announcement, Moderna is up 111%. Investors were pre-pricing big growth even earlier: Since January 13, when it and the National Institutes of Health finalized their vaccine sequencing, Moderna shares are up 653%.
Pfizer’s shares, meanwhile, gained 17.0% since its Phase 3 results announcement—a big jump considering its vaccine’s mild expected effect on overall profits. Short term, sentiment-driven vaccine-maker boomlets are surely possible. But profiting from them requires preternatural timing. Few possess it. I know I don’t. Do you?
Longer term, hopes for more big, sustained gains for vaccine makers don’t simply rest on final approvals and reaching the market—they require the firms to fare far better than myriad observers and analysts already expect. Moreover, to profit hugely from a vaccine maker or any single stock, you need to take a significant position in your portfolio. What if you’re wrong? Big bets on individual stocks always massively increase risk. Investing isn’t a get-rich-quick scheme. It’s a long journey, with growth compounding over time.
None of this means you should avoid COVID vaccine makers. Those with longer-term prospects for innovating above and beyond COVID are worth your attention. When it comes to their COVID solutions, celebrate these firms for their remarkable ingenuity—but don’t expect huge returns from hugely watched and heavily pre-priced events.