Big Pharma's Vaccine Quest May Give Injection of Respect

This article was originally published in The Telegraph on 31 August, 2020.

Let’s start off with a statement of the obvious: those health-care firms involved in the search for a coronavirus vaccine are involved in an undertaking that is objectively good. And yet the pharmaceutical industry has historically scored poorly when it comes to both environmental, social and corporate governance (‘ESG’) ratings and public opinion, with a recent Harris poll ranking the industry above only tobacco and government when it comes to its reputation.

The question is, will coronavirus be a game-changer for the industry when it comes to ESG? And are the firms chasing a Covid-19 vaccine good investments, as well as doing good?

Since the onset of the pandemic, there has been a wave of retail money following institutional interest in pharmaceutical and biotech firms associated with the search for a vaccine. The four major biotech firms involved in vaccine development have enjoyed a substantial rally in their stock prices.

If investors are banking on a windfall from a Covid-19 vaccine alone, these investments may prove to be almost as short-sighted as the mass retail buying of airline and energy stocks in May. But this moment may still prove transformational when it comes to the industry’s reputational issues.

Such has been the impact of coronavirus on all of our lives – such the wave of money passing from governments to health-care companies, universities and others in search of a cure – that it naturally feels as though the firm that solves this existential conundrum ought to be able to name its price and reap significant financial rewards.

But the very seriousness of the current crisis may mean that the situation is not quite so clear cut, and that investors hoping for dramatic price action in the wake of a vaccine success are likely to be disappointed.

While finding a vaccine for the worst pandemic in a century will indeed be a significant victory for the firms that achieve it, they may find that the victory is more reputational than financial. We believe it will be difficult for companies to be seen to be profiting from a disease that has claimed so many lives, particularly when these lives have been lost in such a horrifyingly public fashion.

Already two of the major players in the search for a cure, AstraZeneca and Johnson & Johnson, have pledged to sell any vaccine at cost price – estimated at USD10 a dose – while the outbreak is still classed as a pandemic. And while Pfizer has not made such a concession, it has so far sold yet unproven vaccines to the US government at USD19 a dose. This is far below the potential USD50-60 price point which Goldman Sachs analysts believe could be achievable.

This highlights a key friction in ESG investment, suggesting initially that investors have to choose between doing good and making money. It’s a dichotomy that is particularly fraught for the pharmaceutical industry, which ought to score well when it comes to the social aspect of ESG – what could be more laudable than saving lives and treating diseases – but is too often marked down for its pricing policies and aggressive marketing practices (particularly in the US).

Never has the pharmaceutical industry had a poorer reputation: both Republican and Democratic Party candidates for November’s US presidential election have highlighted drug prices, knowing that a promise to reduce the egregious cost of medication is an easy win with voters.

Here, then, is where the real long-term rewards of the search for a coronavirus vaccine may accrue: not solely (or even at all) to the firm or firms that first crack the code of the disease, but rather to the industry more generally. Instead of looking to jump into what is an already overcrowded trade with an uncertain financial endgame, investors should instead look at the second-order ramifications of the role of the industry in dealing with the pandemic.

It felt as if until coronavirus came along, tighter regulation for pharmaceutical firms was merely a matter of time.

The PR win of a vaccine may persuade a sceptical public that the industry can be a force for good. It may also allow companies to maintain pricing levels for other drugs for longer than most analysts assume. The speed with which vaccines and treatments for coronavirus are being approved is permitting companies to test and prove a range of new technologies, particularly RNA modifications that have dramatically reduced the time from DNA sequencing to vaccine trial.

We estimate that Moderna, one of the firms involved in the hunt for the vaccine, will be around 25-30% further along in the several dozen other vaccines it is testing because of the advances made during work on coronavirus.

How do we think about all this within the framework of ESG investment? The answer is that, as so often, there is no one simple solution.

It is without doubt that companies involved in the search for a coronavirus vaccine are undertaking work that is objectively beneficial to humanity; it increasingly looks as though the company or companies that succeed in creating a vaccine will be selling it – at least initially – at cost or near-cost; the industry’s pricing model remains problematic and I understand why there is such widespread criticism of certain practices – particularly Big Pharma’s historical propensity to privilege treatments over cures.

All this said, we think the current period could see a dramatic re-evaluation of the industry’s place in society, as we recognise that drug companies have been an easy target for disquiet at a time when political discourse tended towards the extremes. When the pandemic recedes and life returns to something like normal, people may begin to acknowledge that we need our pharmaceutical companies to make a return on their investments, and that they can be a force for good in a world where the next public health crisis may be just around the corner.