Recently, Covid19 vaccine production companies like Moderna, Pfizer and AstraZeneca have released their clinical trial report which shows up to 90% (or more) efficacy rate in their vaccine. In our local stock market, the hype over Covid19 vaccine related counters are so great that every now and then you heard new companies jumping on the vaccine related business bandwagon. Most of these vaccine related counters are having some other nature of business which is not pharmaceutical related. Does it sound familiar to you? Yes, this scenario sort of reminded me of the whole mania we had seen in the glove industry back then with companies like MahSing, Inix, and AT Systematization joining the glove business. It got me to wonder whether these vaccine related counters are enjoying the same kind of future earning prospect and supply shortage phenomenon like the glove industry? Let’s find out.
Below is a list of vaccine related counters that have announced to venture into vaccine related business:
Year to date, all of the vaccine related companies have gained so much in share price even before the actual vaccine distribution takes place. Some of them even performed better than the glove companies in a shorter period of time. Although the returns are lucrative, but are they really a good choice of investment? Personally I do not think so, this is why:
As you can see from the table above, all these vaccine related counters are actually partnering with different vaccine production companies to distribute their vaccine in Malaysia. With so many vaccines that are on 3rd Phase trial and even more vaccines that did not make it to this phase, it is hard for us to know which vaccine will eventually be used to vaccinate everybody. Furthermore, our local government itself has been dealing with vaccine production companies to secure the vaccine for our country. They have publicly mentioned that they are not working with any independent companies that are dealing with other vaccine production companies on their own. If the government is the one to secure and distribute vaccine for everyone, what will then happen to these vaccine related counters and their vaccines?
2. Profitability / Cost of Production
At the point of writing this article, we have not seen any commercialization data regarding vaccine that have been released to the public (let me know if I’ve missed out). Commercial data such as the cost of production, purchase price and the cost of storage & distribution of vaccine are not available. As such, we do not know whether this whole vaccine distribution business is profitable or not. As all the above companies do not have prior experience in handling vaccine storage and distribution, it is hard to evaluate the business.
3. Government Support
Vaccine lasts in human body for a very long time. A vaccine that is not created through a very strict and proper procedure might have a lot of nasty side effects which could be deadly. This is why to have a vaccine that can be distributed to the mass public is not a simple task. It requires a lot of clinical tests, approvals, and processes. A task of such intensity is usually done and monitored by the government as they must get involved to ensure the mass public safety. Since our government is already handling this task, it is very likely that the vaccine from other independent companies will not be in demand unless the vaccine quantity secured by the government is not enough to cover the whole Malaysia’s population. Ask yourself, will you get vaccinated from a source by the government or an independent company? I believe majority of people will choose to trust the vaccine by the government.
4. Earning Sustainability
Based on the few potential covid19 vaccines that we currently know, every person will only require 1 to 2 doses of the vaccine for protection against covid19. Malaysia has a population of around 32.7 million which gives a maximum amount of 65.4 million doses of vaccine distribution. Let’s assume all the vaccine distributors get a piece of pie on the table, the 65.4million doses of vaccine distribution will then be shared among the abovementioned companies and our government. I believe a big portion of the pie will go to the government. Each company will then compete with each other to supply to those people who are not covered by our government. Therefore, this business has limited market share and does not have a recurring income stream.
Personally I do not like to invest in businesses that are full of uncertainties. Besides that, from my point of view the vaccine distribution business is a one-off gain deal. I don’t see any potential earnings growth which are sustainable to justify its expensive share price now. On top of that, most of these vaccine related counters are actually making losses in their core business. If the vaccine distribution really takes place, I foresee some of these vaccine related counters to resort to fund raising activities in order to fund its capex.
No doubt it is really tempting to invest in these vaccine related counters after witnessing the way their share prices have performed recently. Please take note, if a stock price went up too fast without solid fundamental as its support, the stock price will plummet even faster especially when its future earnings are below expectation.
If you really believe in the whole vaccine story and insisting to invest even after reading this post, I strongly advise you to be extremely careful in your trade. Its better to keep your trade short term with a clear sense of cut loss point and profit taking point. Manage your risk well because at this point of time, a lot could go wrong.