The most obvious way to make money out of this virus would be to accurately predict which company will create the first vaccine. However, trying to pick the company that is going to create the first Covid vaccine requires more of a “magic 8 ball” than I am comfortable with betting my money on. No one, I believe, really knows which team (if any) will be the first to produce the vaccine.
Some people would use this as an argument to invest in the most prominent players, but even that, I don’t believe would be a great bet because only one company can be first. If there are five major players in the race, people are betting on which one it will be, and therefore, when four companies don’t become first, their stocks will probably shoot down. They might even shoot down in totality more than the first place winner goes up.
Believing all of this as possible or probable, the best way to make money off of this is what my grandpa calls “The Apple Play.” My Grandpa was a pretty savvy investor, if I do say so myself. He worked for US Steel (and then CBS, where he met Walter Cronkite!) in the payroll/computer department back when computers weren’t a thing yet. His sons were actually some of the earliest distributors of computers in the tri-state area. The man was always on the cutting edge of technology. I have no idea where he got his ideas, but after he died and my father inherited some of his holdings, I was really impressed with his foresight in stock picking (it’s three years after his death and the majority of his picks are up ~100% total return).
Sitting at Grandpa John’s knee, I learned that “The Apple Play” is the idea of investing upstream and downstream to super successful companies. Most people have heard of Apple and know that it’s a good company and want to invest in it. Following crowds isn’t difficult. Taking an investment one and two steps further is how you beat the rest of the crowd.
Let’s say you’re still with me: In this case, instead of investing in ETFs that hold companies racing toward the vaccine, why don’t we look at the ETFs that hold the companies that will be manufacturing and distributing the vaccines; there have to be fewer of those than vaccine companies.
So who are the top players in the vaccine race, and whom do they use to manufacture and distribute vaccines:
There are currently 9 vaccines in Clinical Evaluation, and over 70 of which are on their way:
4 in China
3 in the US
2 in Europe
1 in Great Britain
**Unless otherwise hyperlinked, all data comes from Company specific websites linked in the first line of their list
1. Pfizer (partnered with BioNTech in Germany)
Official Announcement Here
Pfizer has started Phase 1 testing (testing on humans) on Tuesday May 4. Pfizer hopes to create a vaccine that triggers an immune response using 4 different coronavirus antigens, and “contains instructions on how to make viral proteins that trigger an immune response in coronavirus-infected patients”
a. Pfizer has 3 different US sites (MA, MI, MO), and one European site in Belgium (Puurs).
b. “In anticipation of a successful clinical development program, Pfizer and BioNTech are working to scale up production for global supply. Pfizer plans to activate its extensive manufacturing network and invest at risk in an effort to produce an approved COVID-19 vaccine as quickly as possible for those most in need around the world.”
c. BioNTech is providing current trial vaccines from 2 sites in Germany, and will help Pfizer manufacture more vaccines when successful. Read more about their deal here.
d. “The breadth of this program should allow production of millions of vaccine doses in 2020, increasing to hundreds of millions in 2021.”
2. Sanofi (partnered with GSK)
Official Announcement Here
Sanofi and GSK hope to produce a vaccine that uses a process proven to work with the Flu, a process that uses the DNA of the covid virus to target it for attack by the immune system. By including an adjuvant, Sanofi and GSK hope to make each dose stronger, so smaller doses are needed, and more vaccines can be produced.
a. Sanofi (France) is providing the vaccine parts predominantly, GSK (Great Britain) contributes INSANE manufacturing and distribution capability.
i. GSK also is contributing adjuvant technology, which helps trigger a stronger immune reaction, so each dose of vaccine is stronger. It’s like taking a packet of Emergen-C instead of drinking 10 glasses of orange juice
b. Combined they have the largest manufacturing capability in the world
c. They are behind the other companies, as they aren’t in trial yet, but hope to start trials in the second half of 2020.
d. GSK on it’s own produces and distributes almost 700 million vaccines every year. Sanofi produces over 1 billion vaccines every year. Neither company could fully convert all factories to make only covid vaccines, but they could produce and distribute more vaccines than any other company. Read more about projections here.
3. Inovio Pharmaceuticals(partnered with Richter-Helm)
Inovio has been in phase one trials, and is hoping to start phase 2/3 trials early summer. The vaccine takes a DNA approach and hopes to distinguish itself by using Inovio’s proprietary method to deliver the DNA solution directly into cells, which is not the common mechanism.
a. Their production capacity was basically non-existent relative to the larger players in the game, so they partnered with Richter-Helm in order to increase production, if their vaccine proves successful.
b. Despite investments from the US Government, CEGI, the Gates Foundation, and interviews on Jim Cramer with the CEO, Inovio will only have a million vaccines produced by the end of the year.
i. It is unclear whether Richter-Helm is bringing them to that 1 million, or if Richter-Helm will expand them past that. Richter Helm has 3 sites and 140 employees, so I don’t see them producing hundreds of millions of vaccines per year.
4. Moderna (partnered with Lonza)
Official Announcement Here
Moderna has been somewhat of a leader in the field. Phase 1 started on March 16, and on April 27 Moderna submitted an application to start Phase 2 Clinical Trials. Moderna hopes that a commercially available vaccine could be ready as soon as Fall 2020 (if emergency use is approved by the government). Moderna’s vaccine also looks at proteins associated with the virus, but uses mRNA to make infected cells create a protein the body will attack.
a. Moderna has already ramped up production to making “millions of doses per month”
b. On April 16, Moderna received $483 million from the US government to fund increased large-scale production and hire 150 new employees.
c. On May 1, Moderna partnered with Lonza, an expert in manufacturing and distribution
d. Lonza has facilities in the US and Switzerland, and projects that they could produce 1 billion vaccines per year together
e. Moderna projects phase 2 will begin in Q2 2020
5. Johnson & Johnson (partnered with Catalent & Emergent)
Official Announcement Here
Johnson & Johnson is a bit behind the curve in that they project Phase 1 trials by September 2020. That said, they are in a similar situation to Pfizer in that once they are approved, they will be ready to produce. Interestingly, descriptions of any of the 3 vaccines’ mechanisms are not readily available
a. Johnson & Johnson hopes to have vaccines starting to produce by early 2021, but only if they are granted emergency approval
i. This doesn’t necessarily mean Emergent and Catalent can’t make a profit
c. Johnson & Johnson is using a technology in the development of the vaccine that lends to super easy mass production
d. If all else fails, JNJ “has 2 backup COVID-19 vaccines”
6. Oxford University(partnered with AstraZeneca)
Official Announcement Here
The vaccine coming out of Oxford University’s Jenner Institute is interesting because it is the furthest along the process, having tested a vaccine last year for an earlier version of a coronavirus (you read that correctly). The Oxford Vaccine hopes to hijack a similar virus and coerce it to act like covid (but without any of the dangerous effects). When the body encounters the similar but harmless virus, it builds up antibodies, hopefully protecting the body if the real virus is ever introduced.
a. Oxford University only has capacity to produce 1000 vaccines.
c. Oxford, which has partnered with AstraZeneca believes that they could have a couple million doses by September
d. The virus was tested in 6 Rhesus monkeys, which are the most similar organisms to humans, and proved to be effective and harmless
Curevac is a German company, and hopes to have clinical trials by early June. They are hoping for an accelerated approval process. The mechanism of this vaccine is also an mRNA vaccine, which hopes to trigger a very specific immune response. Learn more in this video.
a. CureVac can currently produce several hundred million vaccines per year
i. CureVac is in the process of building a fourth production facility, which would allow them to make 1 billion vaccines in one manufacturing run, however the fourth facility won’t be done for 2 years.
b. CureVac received $80 million from the EU in support of the manufacturing and distribution of their vaccine.
The 4 Chinese Companies in Trial
More Arguments for Looking Upstream and Downstream
Reading some of the Regulations and Laws that May Apply During a Pandemic from the CDC website reveals yet another piece of information that discourages betting on a single company: Even if a company is the first to create a vaccine, they might have their exclusive rights to patent and sell the drug revoked. From a profitability standpoint, nothing would stink more than picking the correct company, only to have it’s bottom line suffer because all companies will have licenses to produce and distribute the vaccine.
Also, there are companies (like Johnson & Johnson) that have explicitly stated they will not sell the drug at a profit. However, this doesn’t apply to their partners, which makes the further argument that investors should be looking upstream and downstream.
So which ETFs hold the highest concentrations of the stocks most likely to benefit as manufacturers and distributors of vaccines?:
PPH appears to be the ETF that has exposure to most of the stocks on the list. Some of the stocks were difficult to find exposure to, as they are relatively smaller companies or they are private. Let’s take a further look at the ETFs:
As seen above, if we are looking for an ETF that invests in all of the suppliers and manufacturers, we would be hard pressed to find the perfect solution.
I can’t know for sure which ETF(s) my Grandpa would pick, but remembering his foresight when it comes to information-age developments, I truly believe he’d be impressed with a selection protocol such as the PortfolioWise Power Ranks. Given that all of the ETFs are Bullish or better, I was most swayed by the ability of Sanofi and GSK to produce on a mass scale, and therefore, my first pick would probably go for PPH, since PPH holds both of those names, as well as many of the other names I am looking for. Since JNJ has stated that they don’t plan to profit from the drug, I also hesitate to focus on any of the ETFs where JNJ is a significant holding, which pushes me toward CNCR. CNCR also has the benefit of riding under cover, as it is marketed as a cancer immunotherapy ETF. Most people wouldn’t look there for a Covid Vaccine interest.
Hopefully in the future, my grandchildren will speak of my investing prowess the way I do regarding my Grandpa!
Karina Kovalcik brings a fresh perspective to investing, having been in the industry for two years. After graduating in 2017 with a degree in economics from Yale, she joined the Chaikin Analytics team as a Quant and really enjoys crunching the numbers. Follow her on twitter @FinancialyBlond (1 L, no E, and no she doesn’t struggle with spelling).