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What do Vaccines Mean for Markets?

Although 2020 was a turbulent and unsettling year for many of us, for the most part we have entered 2021 looking poised for some relief. In the latter months of 2020, Pfizer and BioNTech co-developed the COVID-19 mRNA vaccination, the first to announce more than 90% effectiveness in their phase 3 clinical trial which was tested on over 40,000 individuals. The rapid development of the COVID-19 vaccination was possible thanks to Pfizer and BioNTech’s collaborative research in 2018 on the development of a mRNA-based influenza vaccination. The two companies are working together to scale up their vaccination worldwide, apart from China, where BionNTech has a deal in place with the Chinese pharmaceutical, Fosun Pharmacy, to deploy the vaccination without Pfizer. Shortly after, Moderna, an American pharmaceutical, reported their vaccination to be 94.5% effective after testing on 30,000 individuals. However, by the end of 2020 there were many more vaccinations in development, many with different technologies, by the likes of Johnson & Johnson, AstraZeneca, Merk, Sanofi, GSK and over 100 others, all of which were, and still are, in various development stages. The breakthrough offered by these vaccinations has shown a glimpse of hope for the global economy and for businesses of all sizes, hinting at a recovery from both a financial and societal depression.

We are currently witnessing the most extensive vaccination campaign in history, with North America, Europe and the Middle East having cleared the Pfizer-BioNTech vaccination. Meanwhile, in the United Kingdom, 367 million doses have been approved, with AstraZeneca and the University of Oxford – who announced their collaboration in April 2020 – leading the charge with 100 million doses. This is likely due to their vaccine being cheaper, with the price of the AstraZeneca/Oxford vaccination solely covering its production costs, compared to its competitors which are charging more (cf. Figure 1). While AztraZeneca has the infrastructure necessary to scale up the manufacturing, the University of Oxford boasts a strong vaccinology unit; bringing these two forces together is set to drastically accelerate the development of their COVID-19 vaccination.

Figure 1: The Cost Per Jab of COVID-19 Vaccine (Statista)

The Challenges

Alongside the difficulties of developing and rolling out the vaccination, there are extreme distributional challenges and moral concerns. A key moral concern is profiteering and the overpricing of the vaccination, as both can aggravate the already profound inequality in the world: poorer countries will have more inherent difficulties in collecting finances alongside their extreme pre-existing health concerns, leading to unequal access to vaccines and a lack of efficiency. The vaccination prices demonstrated in Figure 1 identified the extensive costs of each jab, which for developing countries will be even harder to finance – of the 49 countries that have administered a COVID-19 vaccine, the majority are high-income developed countries.

Alongside this challenge to overcome financial inequalities, there is also the challenge of the long-term horizon of development, the risk of research and development failure, possible constraints on demand, logistical deployment and issues of a political economy. However, many developing countries have added immense political pressure on the World Health Organisation (WHO) by demanding that the COVID-19 vaccination is patent-free, to avoid the monopolisation of the vaccine. Consequently, the majority of the pharmaceutical companies have agreed not to enforce patents but are still charging high prices. However, AstraZeneca/Oxford are one of the few to offer the vaccine on a cost-only basis for a limited period.

Another main concern for the vaccinations is the temperatures at which they need storing, an influential characteristic which often dictates the price of each vaccine. For example, the ultra-low freezing temperatures of -70 degrees Celsius necessary for the Pfizer/BioNTech vaccine is both financially and logistically challenging, requiring an expensive state of the art infrastructure. However, other vaccines such as Moderna’s have a competitive advantage, requiring storage of only -20 degrees Celsius. Despite this, the price of Moderna’s vaccine per dose is almost double Pfizer’s.

The Market

More and more investors are looking to take advantage of the current healthcare landscape, where the successful deployment of vaccination by pharmaceuticals can provide investors with the opportunity of obtaining windfall profits. Although the vaccine storage temperatures are a significant challenge, segments of the distribution chain, such as the manufacturers of ultracold freezers, vials and disposable needles, as well as airlines, are set to see an increase in profits, with Morgan Stanley predicting an $8.5 billion sales opportunity for distributors and suppliers.

In the case of Pfizer and BioNTech, over 600,000 people have already had their vaccination, and a significant number of pre-orders have been placed, providing a considerable revenue for the two pharmaceuticals (cf. Figure 2). Meanwhile, in the US, where 5.8 million doses have currently been administered, the new Biden administration has confirmed the $1.9 billion deal made by the Trump administration in July 2020 for 100 million doses of any approved Pfizer/BioNTech vaccine, at $19.50 per shot (cf. Figure 1). Moreover, the President’s administration has assured that further orders with both Moderna and Pfizer will be made to meet growing demand and to secure second doses for the US population. Biden’s team has expressed certainty that manufacturers will be able to keep up with this large demand, as SVB Leerink estimated that pharmaceutical companies could be looking at a 60% to 80% profit at the prices demonstrated in Figure 1.

Figure 2: Vaccine Capacity and Pre-Orders (Nature)

Not only has the vaccination pushed the stock prices up for many of the larger pharmaceuticals, it has also impacted general optimism in the economy by hinting at a post-pandemic normality in 2021. While it may take a while for the FTSE100 to return to its pre-COVID-19 stature, it jumped 5% around the 9th November following the news of a COVID-19 vaccination (cf. Figure 3). While, the vaccination has provided a glimmer of hope and recovery for many UK businesses, the United Kingdom now faces a third lock-down, leaving the future of the UK economy largely in the hands of the government and their strategy vis-à-vis the deployment of the vaccination.

Figure 3: FTSE 100 jumps 5% after vaccine announcement (Yahoo)

The Prediction

Following the first lockdown in 2020 the UK economy saw a steep decline, followed by a rebound in May which now remains on track to surpass pre-pandemic GDP levels by the end of 2021, setting the stage for strong post-recovery growth in the coming year. On a global level, Morgan Stanley projects strong global GDP growth of 6.4% in 2021, led first by emerging markets, followed by the revival of economies in the U.S. and Europe (cf. Figure 4).

Figure 4: GDP % Growth Forecasts (Morgan Stanley)

Economists have identified that we are approaching a V-shaped recovery, suggesting that after a steep decline, economic activity will bounce back just as quickly and sharply. Morgan Stanley’s optimistic 6.4% GDP growth prediction contrasts their forecasts at the start of 2020 which ranged from 1.2% to 3.7%, averaging at 3.2%. Meanwhile, the consensus has predicted a lower 5.4% growth forecast amidst worries that the private sector’s risk appetite will have been impacted to a greater extent by the pandemic (cf. Figure 4). In terms of the United Kingdom’s economic landscape, Goldman Sachs has predicted that the UK economy will grow 7% in 2021, led by the coronavirus vaccine rollout and the Brexit trade deal. The investment bank has also estimated that by the end of 2021, the UK GDP will be at 11.7% below its pre-pandemic level, twice as much as Germany, France, and Italy.

It is undeniable that 2021 will continue to feel the effects of the pandemic and that economies will struggle to grow back to their former selves, however, the numerous global vaccinations have provided optimism and a hint of recovery. It will take time for financial indexes such as FTSE100 to return to their pre-pandemic levels, but with sound governmental strategies and reflationary policies by central banks, economic growth and stability may be regained as consumer spending and confidence returns.

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