21 October 2020

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The excitement around the developers of the COVID-19 vaccine


The world is waiting for a COVID-19 vaccine or the emergence of effective treatments for coronavirus. Recent failures in vaccine trials have made investors nervous.

Some pharmaceutical market experts believe that investors should not bet on winners and losers in the race to develop a coronavirus vaccine.

Johnson & Johnson, a major pharmaceutical giant included in the Dow Jones index, recently announced the suspension of clinical trials of its coronavirus vaccine due to an unexplained illness in a study participant. The British multinational pharmaceutical company AstraZeneca was forced to suspend its clinical trials of the vaccine in September 2020, and regulators are asking long overdue questions.

Eli Lilly, which is developing a treatment using a so-called cocktail of antiviral antibodies, also said it was suspending clinical trials. A similar method of treatment was praised by US President Donald Trump, after he himself was cured of coronavirus.

Shares of Eli Lilly and Regeneron companies rose sharply after the approval from the US president. Regeneron is developing a treatment method based on a cocktail of antibodies that was prescribed to Donald Trump.

Both of the aforementioned companies have submitted a request to the FDA for permission to use the treatment methods they are developing in emergency cases.

Pharmaceutical and biotech companies, for obvious reasons, are working feverishly to create a vaccine or a treatment method for COVID-19.

BioNTech, Pfizer, GlaxoSmithKline, Novavax and Moderna are the leading companies developing the COVID-19 vaccine, in addition to the companies listed above. All these companies also received funding under the US government's “Operation Warp Speed" program.

But investors probably should not rush to buy shares of these companies in the hope that one of them will be the first to develop an effective vaccine against coronavirus.

Vaccines are not such a profitable business for large pharmaceutical and biotech companies

It is unlikely that the vaccine will improve the financial situation, if we talk about large pharmaceutical companies.

"Big companies like Pfizer and Johnson & Johnson aren't looking to make a ton of money on a vaccine," says Biotech Tader founder Kyle Dennis.

Dennis noted that most vaccine manufacturers will eventually enter into contracts with the government. So the vaccine probably won't generate much revenue or profit for the company.

Investors should also be wary of stocks of companies specializing in the development of vaccines and treatments for COVID-19, for the simple reason that many of the stocks have already risen amid hopes and hype.

Regeneron's shares have risen by more than 60% this year. According to forecasts, the shares of Moderna and another small biotech company Inovio will grow by about 300% in 2020.

And Novavax shares soared by as much as 2840% and reached a record price of $117. For comparison, at the beginning of 2020, the shares were worth only $4.

"I am skeptical about the so-called Covid games. Personally, I would not participate in them. The shares are overvalued. Even companies that succeed may be overvalued," said biotech investment expert Brad Loncar.

"The bulk of investors, whose trading is not related to shares of biotech companies, invest in stocks after reading the headlines, but without calculating what the financial benefit will be as a result," Lonkar added.

Loncar shares Dennis' opinion and also believes that few, if any, healthcare companies will be able to make significant profits on a long-term basis or income from a vaccine or treatment method.

In addition to the above, Loncar believes that the vaccine will ultimately be more important than drugs, since they will only be able to alleviate the symptoms of Covid-19.

"We need a vaccine. This is our chance. Football stadiums will not be filled with 80 thousand spectators until there is a vaccine," Lonkar said.

But the hopes that at least one (if not more) vaccines will be ready in the next few months are extremely ambitious. According to Dennis, due to the fact that biotech and large pharmaceutical companies are developing a coronavirus vaccine at such a rapid pace, we are likely to see further failures in clinical trials.

"It is a little worrying that the vaccine is being developed in a short time. A vaccine has never been developed so quickly before. There are certain risks," Dennis said.

Cancer Treatment is more profitable than COVID-19

According to Lonkar, investors should pay more attention to other diseases as well.

Moderna and BioNTech, for example, own shares in Loncar because of their line of cancer drugs, not coronavirus vaccines. Loncar also owns shares in Gilead Sciences, whose drug Remdesivir was also used to treat COVID-19.

But Locar makes optimistic predictions about Gilead because of its line of cancer drugs. In September 2020, the company announced that it would pay $21 billion for biotech Immunomedics Inc, a manufacturer of anti–cancer drugs.

"The Gilead deal is planned for the post-coronavirus period," Lonkar says.

Dennis also noted that investors should pay more attention to cancer and other serious diseases, rather than coronavirus. He recommends buying shares of biotech companies TG Therapeutics and Karyopharm Therapeutics. Dennis is also impressed by Global Blood Therapeutics, whose shares he has already added to his investment portfolio.

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