The Covid-19 vaccine race appears to be entering the home stretch. For biotech investors, the trouble could be just beginning.



Despite a recent pullback, biotech investors are pricing in multiple Covid-19 vaccine breakthroughs in the near future. Pfizer and its partner BioNTech could have late-stage clinical data as soon as the end of October, while data from Moderna is expected soon after. Johnson & Johnson and Novavax have also recently begun their own late-stage trials and could have data within a few months.

Optimism abounds: Moderna’s shares have more than tripled so far this year, while Novavax stock has surged more than twentyfold. The so-called “vaccine trade" has become very popular with retail investors. After all, the federal government has opened its checkbook to companies trying to develop vaccines. What’s more, the total addressable market includes all of humanity, at least in theory.

That euphoria belies the volatile nature of drug development: The vast majority of drug candidates never reach the market. Those that do often suffer unpredictable bumps in the road. Potential safety or efficacy issues can emerge at any point in the development process.

For the vaccine trade, this isn’t just a theoretical risk: Inovio Pharmaceuticals on Monday said a planned vaccine trial would be delayed due to questions from regulators. Earlier this month, AstraZeneca paused its vaccine trials after a patient became ill, though it has since resumed some of them. Such snags are commonplace, but can be very painful: Inovio shares fell 28% on Monday and have lost about two-thirds of their value in three months.

The risks to investors don’t necessarily evaporate even with successful results. The massive vaccine funding effort, which has been a boon for the sector, could become less advantageous for individual stocks as competition comes into focus. Differentiation among vaccine candidates has yet to harm stock prices, but investors should look for that dynamic to change. Without late-stage data to evaluate, it is impossible to say who is winning or losing the race.

A drug that is sufficiently safe and effective to receive emergency authorization from the Food and Drug Administration won’t necessarily be widely distributed if a competitor has superior data. Then there are important drug delivery issues to consider: for instance, both the Moderna and the Pfizer and BioNTech vaccine require a booster shot, but the Johnson & Johnson treatment doesn’t

The risks don’t vanish even for the winner of the race, should one emerge. While the federal government will control any vaccine distribution effort at first, it is unclear how many people will actually take the vaccine once it’s available for average consumers. It will be incumbent on any manufacturer to persuade the public that the shot is worth getting.

Spreading bets around could help, but that strategy also has limits. Some smaller developers have no product sales and would benefit greatly from a blockbuster sales opportunity. But for larger companies, that benefit is more modest. Pfizer booked nearly $12 billion in sales in the second quarter alone, for instance. Even a true blockbuster candidate will have a muted impact on total profits.

Don’t be surprised if this shot ends up stinging.