Opportunities Beyond Pharma in the COVID-19 Vaccine Race

For the past few months, vaccine news and COVID-19 cases have driven returns in the financial markets. In fact, the U.S. stock market seems to react more to such news than to the election and fiscal stimulus talks. After a year-long sprint, COVID-19 vaccines are just around the corner. Head of the World Health Organization (WHO), Dr. Tedros Adhanom Ghebreyesus praised the promising results from vaccine trials, asserting that “the light at the end of this long, dark tunnel is growing brighter.” When Pfizer and Moderna released preliminary results indicating the effectiveness of their COVID-19 vaccines, the S&P 500 shot up to a record high and the two companies’ stock prices surged 8% and 9.6%, respectively. However, while the individual pharmaceutical and biotech companies involved with developing the vaccines are all over the news, there are other industries within the healthcare space that will benefit through a ripple effect. More specifically, two predominant subsectors are set to face tailwinds: logistical and distribution companies, and contract development and manufacturing organizations (CDMOs).

The mass immunization task essentially has two components: the first is successfully manufacturing and obtaining approval from regulators for a safe and effective COVID-19 vaccine, which seems to be on track, and the second is delivering the vaccine to the mass population. Pfizer and Moderna, two of the leading candidates to obtain an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA), require their vaccines to be stored at ultralow temperatures. Other candidates include AstraZeneca, who has just announced successful results from its phase 3 trial, as well as Johnson and Johnson, both of which do not have such stringent storage requirements for its vaccines. Pfizer’s vaccine needs to be stored at negative 70 degrees Celsius (-70°C), and Moderna’s needs to be stored at negative 20 degrees Celsius (-20°C). This poses the extremely difficult challenge of shipping the vaccines in freezer units and subsequently storing them in ultracold temperatures after being thawed. Furthermore, refrigeration life ranges from as low as 5 days for Pfizer’s vaccine to 30 days for Moderna’s vaccine, which underscores the importance of having freezer units not only during delivery, but also at the point of vaccination. This logistical problem presents an attractive opportunity for global veterans in the delivery space such as UPS, DHL, and FedEx. All of these companies have secured contracts with big pharmaceutical players for producing freezer units in order to smoothen the distribution process. While the delivery component of the vaccine race may be a lower margin business, it poses a lower risk as these logistical companies will benefit regardless of which company develops a vaccine. 

The second class of companies expected to benefit from a vaccine’s approval are CDMOs. These organizations provide vaccine sterile filling work, clinical supplies to aid in the trial process, and consulting services to navigate through the FDA approval procedure. Since the H1N1 pandemic in 2009, numerous pharmaceutical companies have been outsourcing vaccine manufacturing to these CDMOs. This is mainly due to cost savings and production efficiencies, two particularly critical facets now given that billions of doses need to be manufactured within the span of several months. Within this space, Catalent, Lonza Group, and Emergent BioSolutions have secured contracts with multiple vaccine candidates, including front-runner Moderna and phase 3 candidates AstraZeneca and Johnson and Johnson. 

With market optimism regarding vaccines driving valuations to record highs, making a bet on which pharmaceutical company will benefit from vaccine sales is a gamble. This is particularly true for pureplay biotech companies, such as Vaxart and Inovio, who do not have any FDA approved products in their pipeline and are solely relying on the success of their COVID-19 vaccines. Accordingly, now may be a good time to look into such industries that will benefit regardless of which company will breast the tape in the vaccine race. This will not only diversify the risk, but also mean that one can invest in a fundamentally sound company that will accelerate its growth due to COVID-19 and continue to flourish afterwards.