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Brian E. Murphy

7 months ago

Big Pharma is Cool Again: The global search for a COVID-19 vaccine and how it affects financial markets

The COVID-19 pandemic crisis has rocked financial markets right across the world and economic activity in every country has been affected.

Some companies have contracted or gone to the wall and workers have been laid off in their droves. Hospitality-based industries have been hit hard. Business sectors that rely on proximity with people have been hurt badly by their customers’ self-isolating or social distancing, and there are no quick fixes on the horizon. But there are glimmers of hope, with pharmaceutical giants now rushing to bring vaccines to a market that is crying out for a cure.

US stock markets have been steadily climbing recently, with investors betting on new government spending to lift the economy. There is optimism in the air, as evidenced by the S&P 500—seen as a yardstick for US investor sentiment—approaching its all-time high.

Markets have also been boosted by reports that Airbnb, the short-term home rental company is getting close to an IPO that values the company at $35bn, but eager investors may be rushing in where angels fear to tread because until a vaccine is found, the specter of successive waves of infections and lockdowns is going to choke the resurgence of every economy in the world.

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The Race to Find a Vaccine
Pharmaceutical companies are falling over themselves to manufacture a vaccine, but it’s slow going. Around 140 vaccine projects are at the early stages, and clinical trials for about 20 are underway.

Early indicators from Oxford University in the UK seem promising. Their vaccine trial indicates that it can trigger an immune response, and they’ve signed a deal with AstraZeneca to supply 100 million doses in the UK alone.

In May, eight patients in a US trial all produced antibodies that could defeat the virus.
China has already made a vaccine available to its military, and Russia has made claims of success too, although commentators in the scientific immunity have raised questions about data coming from such autocratic regimes. Still, the general trend indicates a lot of work and some progress.

When will a coronavirus vaccine be ready?
Vaccines usually take years, and sometimes even decades, to develop, but researchers are working at breakneck speed to cram the whole process into just months.
The majority of experts are saying that a vaccine is likely to become widely available by mid-2021, which will be about 1 year or so after COVID-19 first appeared. In terms of technical difficulty this task is probably on a level with putting together a moon landing at short notice, and let’s not forget that the four coronaviruses that we think of as the common cold have been with us for a very long time already, and we don’t yet have vaccines for any of them.

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Big Pharma Potential
So, what should investors do? There’s no sense in being pessimistic because history has taught us that even in difficult times there are opportunities. Governments are willing to buy millions upon millions of doses of a vaccine, which has driven a lot of investors towards pharmaceutical companies.

In July, Wall Street shifted its betting towards big players in the vaccine race that could demonstrate solid manufacturing capabilities. Merck, Johnson & Johnson, Pfizer, and other big names have seen their share prices rise as investors get behind potential winners. Analysts think that investors aren’t just looking at those companies that can discover a vaccine. They also want to be sure that a winner can meet the demands of getting the product made, too, but smaller companies with promising research may still prove to be a good investment. They may not have the manufacturing capacity, but if you invest in the right stocks then you could be rewarded when a company has a breakthrough and is snapped up by a larger one.

Bernstein Research analyst Vincent Chen thinks COVID-19 vaccines could generate more than $10 billion in annual revenue, but a lot of investors are finding it hard to work out their value. That’s because the initial round of vaccines are going to be sold at cost or given away, which means there won’t be much profit there. However, if a COVID-19 vaccine turns into a regular treatment like the flu vaccine, then it could turn into a significant money-spinner.

Changing Economies
Meanwhile, economies all over the world are still struggling through the effects of the pandemic. Lives and livelihoods are intertwined and still at risk, as infections overwhelm hospital services, and put the brakes on economic activity at many levels. And even when it returns to ‘normal’ (whatever that turns out to be) there are still implications for long-term growth. It seems as if every consumer behavior has been modified by the pandemic, and companies are going to need to adapt to meet demand.

For instance, there’s been a surge in e-commerce and digital entertainment consumption, a shift in preference to trusted brands, a decline in discretionary spending, and a shift to using stores that are closer to home. People are more concerned about their health and hygiene. Tourist spending has reduced and domestic tourism has increased.

Unemployment has risen and working from home along with it. All these changes can guide investors towards certain industries (like digital entertainment providers) and away from others (like foreign travel operators). These are evolving signals that give us clues about the best places to invest our money in these uncertain times.

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