Tuesday 4 May 2021 11:43 am Schroders Talk

Who’s making money from Covid-19 vaccines?

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John Bowler is a Fund Manager, Global Healthcare at Schroders.

The distribution of Covid-19 vaccines is picking up pace globally. US President Joe Biden last month set a new target of 200 million vaccination doses to be delivered in his first 100 days in office. The original target of 100 million was achieved before his sixtieth day in office.

The speed at which drugmakers were able to discover successful vaccines, undertake the necessary clinical trials, and then bring them to market in large volumes is testament to the ingenuity and innovation within the pharmaceutical and biotechnology industries.

It shows what can be achieved when all participants – governments as well as companies – work together.

How have share prices reacted?

For investors, a key question is whether the vaccines will make money for the companies who invented them, and for their shareholders. So far, the stellar success of the vaccines from a public health point of view hasn’t been reflected in the share price performance of the companies involved.

The chart below shows how Moderna enjoyed a share price spike alongside the announcement of its successful vaccine in November. BioNTech experienced a similar boost although the shares of its Covid vaccine partner Pfizer made smaller gains. Meanwhile, AstraZeneca shares have lost value over the last six months.

Supply problems and concerns over potential blood clots may have influenced these share prices moves, in addition to factors unrelated to the vaccines.

However, in part, some of the differences between the four companies’ share price performance may be down to the technology behind the vaccines.

BioNTech and Moderna are specialist biotechnology firms. The success of their vaccines vindicates the investment these firms have made in the novel mRNA technology. The value of this technology is shown by the speed at which the Covid vaccine candidates were produced, simply by using the genetic code of the virus. This mRNA technology will have many other applications aside from Covid.

One interpretation, therefore, is that the share price gains enjoyed by Moderna and BioNTech reflect the future potential of the mRNA technology, rather than the discovery of the Covid vaccines specifically.

Another consideration is that the companies behind the vaccines have the public good, rather than profits, at the forefront of their considerations. 

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Putting the public before profits

As investors, we need to distinguish between the companies that have developed the vaccines, and those who are part of the vaccine production supply chain.

The developers – such as Pfizer, Moderna and AstraZeneca – have largely viewed this first phase of the vaccine drive as an act of public service. It’s part of the social contract such companies have: they want to show the value that an innovative biotechnology industry brings to society and to demonstrate how they can use their expertise to tackle a public health emergency like this.

AstraZeneca is the most obvious example as it is explicitly producing its vaccine on a not-for-profit basis. However, even Pfizer/BioNTech and Moderna are not charging real commercial prices for their vaccines, and so are not making substantial profits in this first wave.

This is in contrast to the companies involved in the vaccine production process. They are participating on a much more commercial level and pricing their products – glass vials, etc – accordingly. They will therefore see greater financial benefit from this current ‘emergency’ phase of the vaccine roll-out.

Pfizer and BioNTech are charging c.$39 for their two-dose vaccine in the US. AstraZeneca is charging $4.30-$10 for its two-dose vaccine.

Vaccine developers have also agreed to provide doses to COVAX at a not-for-profit price. COVAX is a global initiative to ensure low income countries have access to Covid-19 vaccines. Pfizer and BioNTech, for example, have agreed to provide 40 million doses this year to COVAX while AstraZeneca is providing at least 170 million doses.

Will investors see greater rewards?

However, the current cohort of available vaccines is unlikely to be the last. A number of Covid-19 variants have emerged and the efficacy of current vaccines needs to be tested against these.

Further variants may well emerge in future as a greater proportion of the world population is vaccinated, forcing the virus to mutate if it is to spread further. That could lead to a new phase in the production and distribution of vaccines.

Clinical trials are already starting on next generation Covid vaccines to tackle emerging variants.

Ultimately, we could see the Covid vaccines become part of the existing winter season vaccination programme. It may well be that a combined flu/Covid one-shot vaccine becomes available; companies are already working on that.

It’s that next phase when the developers like Pfizer/BioNTech and AstraZeneca will start thinking about these vaccines in more commercial terms, just as the producers of flu vaccines do. That will then provide more enduring, long-term value to these companies. And the companies in the supply chain will continue to benefit too, along with the developers.

Any company references are for illustrative purposes only and are not a recommendation to buy and/or sell, or an opinion as to the value of that company’s shares.

The article is not intended to provide, and should not be relied on, for investment advice or research.

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