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Stock moves for COVID-19 vaccine developers show where stakes are highest

Equity prices for biopharmaceutical companies developing vaccines for the novel coronavirus have followed a trajectory showing caution on the side of investors, largely due to the unpredictable nature of the current pandemic.

For the larger companies in the arena — including giants like Johnson & Johnson, Novartis AG, Pfizer Inc., AstraZeneca PLC, Sanofi and GlaxoSmithKline PLC — share prices have reflected outside market forces rather than their respective COVID-19 vaccine efforts. These companies have deep pharmaceutical pipelines, and the success and failure of one such project, even one of this nature, is only part of the bigger picture, Fitch Ratings Director of Corporate Healthcare Bob Kirby told S&P Global Market Intelligence in an interview.

One factor that keeps investors and ratings organizations from putting too much stock in vaccine development is the question of cost for the vaccine and the level of profitability available, Kirby said.

"We're not sure what the level of profitability will be — they're talking about such a large level of doses in terms of billions and that they want to try to make them affordable," Kirby said. "Whatever the price point will be for each marketplace, they're going to be very mindful of the cost to society."

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Another factor affecting profitability is the understanding of the coronavirus and how patients might react to potential vaccines, Kirby said.

"We're not sure if we're going to face another outbreak of this particular virus later on, and so there might not be much commercial opportunity for them after this initial year or two," Kirby said.

Fitch Ratings' outlook for Pfizer, for instance, has not changed on the basis of the coronavirus vaccine the company is developing, Kirby said.

Some vaccines have become hugely profitable in the past, such as Pfizer's Prevnar 13 for pneumococcal infections and Merck & Co. Inc.'s Gardasil for human papillomavirus, but Kirby said vaccine dynamics can be unpredictable.

"Larger companies like J&J, Pfizer, Merck, Sanofi, AstraZeneca — they're in the business of developing vaccines normally, whether it be for viruses or bacterial infections or the like," Kirby said. "In that regard, this is part and parcel of their mission."

Pfizer has predicted it will put $500 million into research and development for COVID-19 in 2020 despite giving no outlook on the price of the vaccine and expected profit — like other companies of its size pursuing pandemic interventions.

Smaller company, bigger bump

Smaller companies, on the other hand, have attracted equity more readily — vaccine-makers like Moderna Inc., Inovio Pharmaceuticals Inc., BioNTech SE and Novavax Inc. have risen on clinical trial enrollment and partnership announcements.

Shares of Moderna, one of the first to throw its hat in the ring through a partnership with the U.S. National Institutes of Health, rose more than 300% from the beginning of 2020 to July 1 with a peak in mid-May when shares were up about 450% year-to-date.

Shares of Inovio rose more than 860% from the beginning of the year to the end of June, although the stock dipped in July, leaving its gain for the year just below 500% and demonstrating smaller companies' volatility based on clinical trial readouts.

These companies have a much bigger risk-reward gap in the success or failure of a single vaccine than pharmaceutical giants with deep pockets and pipelines.

"If you think about it mathematically, for a smaller firm to have a huge vaccine and have this big bounce, it would definitely impact them more disproportionally than, say, J&J," Kirby said.

Newer technologies like an mRNA vaccine from Moderna, a DNA vaccine from Inovio or a protein subunit from Novavax could benefit from a compressed timeline, cutting development time from years to just months, Cantor Fitzgerald analyst Charles Duncan said in a June 26 note.

"[Vaccine makers] are now in an environment in which human studies can be conducted in a fast-paced manner due to the pandemic and viral attack rate," Duncan said. "It is also an environment in which there are plenty of volunteers willing to participate and in which there is notably reignited interest in the science and medicine of vaccines and viral diseases."

Day-to-day evaluation

With what is still unknown about the coronavirus and potential immune responses, investors are especially attuned to the ongoing clinical trials being performed to determine the effectiveness of the vaccines.

Inovio released interim results June 30 from its vaccine study showing a high rate of immune response among participants — but the company's stock sank that morning due to unanswered questions about antibody levels.

In contrast, a study from Pfizer and partner BioNTech showed July 1 that antibody levels were higher among people who had received their vaccine candidate, sending the stock for both companies up in morning trading.

"As always, something that goes without saying: Will these things be safe and effective?" Kirby said. "That is the mission of drug companies and that's usually the biggest risk for them."

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