4 reasons to be (still) optimistic about coronavirus vaccine stocks

Rumors of the disappearance of the coronavirus have unfortunately been greatly exaggerated. With the delta variant spreading around the world, it’s clear that the COVID-19 pandemic is not over.

So the bull run for inventories of coronavirus vaccine makers is probably not over, either. There are still a lot of advantages for companies like Modern (NASDAQ: mRNA), Pfizer, (NYSE: PFE), and Johnson & johnson (NYSE: JNJ), and a handful of new developments should make investors optimistic about their continued strong performance. Let’s take a closer look at four of these reasons for optimism.

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1. Boost shots and broader approvals are probably coming soon.

The main reason to be optimistic about coronavirus vaccine stocks is that they will eventually start recording new revenue from recall sales – once companies can prove that additional doses will be safe and beneficial, it ‘that is to say.

While US regulators have expressed hesitation over the merit of giving booster doses to vulnerable people, Moderna and Pfizer both said they believe boosters will be needed to preserve immunity. And health officials are still weighing the evidence in favor of boosters, so the story isn’t over yet.

Moreover, the United States is not the only vaccine market. Israel is already giving extra doses to vulnerable people. If more follow, it will mean even more revenue for vaccine makers.

Finally, regulators around the world are currently evaluating conditional approval of vaccines for younger age groups. Each expansion of the eligible population is an addressable total market growth, and new income will certainly come soon after.

2. Economies of scale in the manufacturing sector are just beginning

As vaccine manufacturing increases more and more, the cost of producing a single dose will decrease, thus increasing the margins.

For fiscal year 2021, Moderna could manufacture up to 1 billion doses. By the end of 2022, it forecasts that its production will reach up to 3 billion doses. That’s a lot of new manufacturing capacity that will need to be built, and that will allow significant savings in purchasing and production over time.

Bringing doses closer to where they are used is also another driver of margin growth, as it helps reduce distribution costs. Moderna announced on August 10 its intention to establish a manufacturing facility in Canada. If similar deals are announced in the next few months, they will be another sign that margins are on the rise.

3. The efficacy of the vaccine is maintained

Despite lingering concerns about the challenge posed by the delta variant, coronavirus vaccines still appear to be broadly effective in preventing hospitalizations and deaths. And while the jabs from Pfizer and Moderna are more protective than those produced by Johnson & Johnson and others, the bottom line is that having any vaccine is always better than nothing.

This is critical, because it means the market will remain white-hot, with demand for at least a year or two. After that, the competitive landscape may change to focus on efficiency or cost, but the demand won’t dry up anyway. In the meantime, competitors with less effective candidates will have plenty of time to reformulate and improve their products. And there is still a chance for latecomers like Novavax to be successful, assuming they can get regulatory approvals.

So, dominant as players like Moderna may seem, other vaccine stocks could also be profitable for shareholders, although their chances seem slim at the moment.

4. Logistics is getting easier and easier

Making lots of doses of the vaccine is not very helpful if they cannot be distributed before they spoil. This was a major problem when the vaccines were first approved for sale, as it appeared that several of the candidates would have to be transported and stored almost all the time in expensive, specialized ultra-cold freezers. Since then, companies have worked hard to develop new formulations and test new storage conditions to extend the shelf life and temperature tolerance of their vaccines.

Moderna, Pfizer and Johnson & Johnson vaccines are now allowed to be stored at refrigerator temperature for up to one month. Ultra-cold freezers are no longer needed to store doses, although they still allow longer storage times without spoilage. This is a huge, light logistical burden, and it means health systems with fewer resources are able to purchase and administer vaccines.

As a result, many other global healthcare markets are now accessible. This will pave the way for a higher sales volume than what investors might have expected when the vaccines were first approved. And as a bonus, it will also help reduce immunization inequalities around the world.