By Carl O’Donnell and Sujata Rao
(Reuters) – Wall Street is shifting some bets on the COVID-19 vaccines to large pharmaceutical companies with solid manufacturing capabilities, indicating that a love affair with small biotech companies could be ending after the industry’s best quarter at nearly 20 years.
The first signs of the change came on Wednesday, when positive data from one of Pfizer Inc’s COVID-19 vaccine candidates sent more than 3% to the shares of the major US pharmaceutical company. The actions of its partner in the vaccine, BioNTech SE of Germany, have been flat in the data.
Although the news had little effect on the actions of Pfizer’s biggest rivals in the vaccine race, the smaller pairs Moderna Inc and Inovio Pharmaceuticals Inc, which have previously shown promising COVID-19 data, ended at more than 4% and 25%, respectively. Inovio partially recovered on Thursday.
For the week so far, the actions of the biggest players in the vaccination race, such as Johnson & Johnson and Merck, have also surpassed Inovio and Moderna.
Some of the sales were likely driven by profit taking at the end of the quarter, blocking dizzying gains in a turbulent market. Moderna and Inovio shares have risen nearly 200 percent and 540 percent in the year to date, respectively, largely overshadowing the profits of the large pharmaceutical companies.
Analysts say investors are shifting their strategy to focus on companies that can manufacture, as well as discover, a vaccine, and that the risk reward profile for some biotechnologies is less favorable after their impressive gains so far this year. .
“I would certainly say that the success of Pfizer, AstraZeneca or Johnson & Johnson could make it more difficult for smaller companies given the size, scale and manufacturing capacity,” said Vamil Divan, a biotech analyst at Mizuho.
Small biotech companies with promising COVID-19 vaccines represent a special challenge for investors, said Justin Onuekwusi, portfolio manager at Legal & General Group Plc.
Due to their limited manufacturing capabilities, investors in those stocks are effectively betting that the company or its drug will be bought by larger companies, he said.
“In smaller-cap stocks like biotechnology, everything tends to be quite binary, so fundamental or detailed analysis doesn’t always work,” Onuekwusi said.
Drug makers have never faced a challenge like producing a global COVID-19 vaccine.
Companies like Pfizer and Johnson & Johnson have each said they aim to produce up to a billion doses by the end of 2021.
There are more than 17 human-tested candidate vaccines in a frantic global race to end a pandemic that has infected 10 million people and killed more than half a million. Drug makers have released early-stage human trial data for five vaccine candidates so far.
Bernstein Research analyst Vincent Chen said COVID-19 vaccines could generate more than $ 10 billion in annual revenue, but many investors are struggling to determine their value.
“In the short term, they are not going to make a lot of money on vaccines,” said Evan Seigerman, analyst at Credit Suisse. “The initial round of vaccines will be given away or sold at cost. Where people start making money is if the COVID-19 vaccine becomes something like the flu shot and people need to constantly protect themselves against it.”
(Report by Carl O’Donnell; Aurora Ellis Edition)
