The race for the anti Covid vaccine generates a frenzy in investors, among many risks. What the Gilead case teaches
Researchers around the world are racing to develop the Covid-19 vaccine, and investors have a fit of madness to seek profit. The financial side of this matter is likely to cause a lot of trouble.
Promising news continues to come in the vaccine hunt. Several companies have revealed encouraging data in clinical trials, albeit preliminary, and the US government has opened the portfolio to cover research and manufacturing expenses. GlaxoSmithKline and Sanofi said on Friday 31 that the US government will pay up to $ 2.1 billion to develop and produce a Covid-19 vaccine. Other companies such as Moderna and AstraZeneca have received similar contracts. These agreements include the advance purchase of hundreds of millions of doses if the experiments are successful. Heavyweight companies like Merck & Co. and Johnson & Johnson also have drug candidates in development.
While it won't be clear whether a drug candidate will be successful until at least next fall, investors don't wait. A broad index of biotech stocks has risen 65% since March. Within this group, the manufacturers of the Covid-19 vaccine have led the way, both large and small. The stock market gains for these companies since last spring correspond to the total value of some large drug manufacturers that generate about $ 20 billion in annual revenues.
There are ample reasons to be cautious, despite the clearly positive news. To begin with, most drug candidates in development do not reach the market. Even the huge investments in research will not change this reality.
And, even if successful, the reflection on stock prices may not be as strong as investors hope. The first set of doses has already been paid for and is already reflected in the value of the shares. Pfizer and its partner BioNTech, which has not taken any government research funding, have a contract to deliver 100 million doses for a total of $ 1.95 billion. The result is about $ 39 for each two-dose treatment.
Companies hoping to charge more in the long run for this treatment will have to adhere to very high levels of safety and efficacy, especially those that have taken public funds early. Although the price of drugs has not attracted much attention in this election campaign, it is a recurring theme in American politics, with important consequences for shareholders. This dynamic arguably makes cascading profit visions more like a dream than a reality.
Of course, risk-taking is always necessary to make money in the biotech industry. And the industry's historic stocks know a way to maintain their momentum, when hopes for the future are still intact, particularly in today's euphoric investment environment.
But investors shouldn't forget that drug stocks in the spotlight can suddenly plummet even if things go according to plan. Shares of Gilead Sciences rose nearly 25% from March to April on anticipations built on its anti-Covid antiviral treatment Remdesivir, but since then the stock has lost almost everything it earned, despite a string of successes: The drug it was cleared for emergency use, and Gilead began selling it this summer after donating the initial supply. Last week, the company raised the midpoint of its adjusted profit forecast for 2020 to $ 6.95 per share, from $ 6.25.
The possibility that Gilead's descent will repeat itself on a much larger and more stinging scale should not be ruled out.
(Extract from an article by Milanofinanza.it; here the full version )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/corsa-vaccino-coronavirus-gilead/ on Sun, 09 Aug 2020 03:30:53 +0000.