The world is waiting for a Covid-19 vaccine or more evidence that other treatments can be effective against coronavirus. But recent setbacks in trials have made investors nervous.
That’s why some drug stock experts say people shouldn’t be betting on vaccine winners and losers.
Big Pharma giant (and Dow component) Johnson & Johnson (JNJ) recently announced it had to pause trials for its vaccine after a volunteer got sick. British multinational drug company AstraZeneca (AZN) was forced to halt its trials last month as well and there are lingering questions from regulators.
And just this week, Eli Lilly (LLY), the maker of an antibody cocktail touted by President Trump after he was diagnosed with and treated for coronavirus, said it was pausing a clinical trial, too.
Shares of Eli Lilly and Regeneron (REGN), which makes another treatment that Trump received while he was hospitalized at Walter Reed, had surged following the President’s endorsement.
Both companies have also filed for emergency-use approval for their treatments with the Food and Drug Administration.
Drugmakers and biotechs are understandably working feverishly to try to come up with a vaccine or treatment from Covid-19.
Pfizer (PFE), BioNTech (BNTX), GlaxoSmithKline (GSK), Novavax (NVAX) and Moderna (MRNA) are some of the other leading companies working on a vaccine. All of them have received funding from the US government’s Operation Warp Speed program as well.
But investors probably shouldn’t rush into these stocks on hopes that one of them will be the first to come up with a successful vaccine.
Vaccines may not be all that profitable for Big Pharma and biotechs
For Big Phrama firms, a vaccine is unlikely to move the financial needle, so to speak.
“Larger companies like Pfizer and J&J are not looking to make a ton of money from a vaccine,” said Kyle Dennis, founder of the Biotech Tader at RagingBull trading site.
Dennis noted that most of the vaccine makers will wind up having government-negotiated contracts. So a vaccine is probably not going to be a big revenue or profit generator.
Investors should also be wary of the Covid-19 vaccine and treatment stocks simply because many of them have already surged on hope and hype.
Regeneron is up more than 60% this year. Moderna and another small biotech named Inovio are each up about 300% in 2020.
And Novavax (NVAX) has skyrocketed a whopping 2,840% — from about $4 at the start of 2020 to a current price of $117.
“I’m skeptical of the so-called Covid plays. I’d personally avoid all of them. They’re all overvalued. Even the companies that succeed could be overvalued,” said Brad Loncar, a biotech investing expert who runs The Cancer Immunotherapy ETF (CNCR) and The China BioPharma ETF (CHNA).
“There are a lot of people who aren’t traditional biotech investors that are throwing money at headlines but not doing the homework to figure out the math of what any financial gains will be,” Loncar added.
Loncar agreed with Dennis that few, if any, health care firms will generate significant long-term revenue or earnings from a vaccine or treatment.
He also said that a vaccine is ultimately more important than drugs that may alleviate Covid-19 symptoms.
“We have to have a vaccine. It’s our ticket out of this. We’re not going to fill football stadiums with 80,000 people until there is a vaccine,” Loncar said.
But hopes of having at least one (if not more) vaccines ready in the next few months might be overly ambitious. Dennis noted that because biotechs and Big Pharma firms are moving so quickly to develop a coronavirus vaccine, there probably will be more setbacks in clinical trials.
“This is an aggressive schedule so that is a bit of a concern. Looking at these time tables, we’ve never produced a vaccine this quickly. So there are risks,” Dennis said.
Cancer treatments are more lucrative than Covid-19
Investors need to focus more on other diseases, too, Loncar said.
For example, Loncar owns Moderna and BioNTech because of their pipeline of cancer drugs as opposed to coronavirus vaccines. He also owns shares of Gilead Sciences (GILD), whose remdesivir drug has also been used to treat Covid-19.
But Loncar noted that he’s mainly bullish on Gilead because of its cancer drug portfolio. The company announced last month it was buying oncology biotech Immunomedics (IMMU) for $21 billion.
“The Gilead deal shows it is planning for post-Covid times,” Loncar said.
Dennis also said investors should focus more on cancer and other severe illnesses than Covid. He recommends biotechs TG Therapeutics (TGTX) and Karyopharm Therapeutics (KPTI). Dennis also likes Global Blood Therapeutics (GBT), which he told CNN Business he owns.
