Vaccine opportunity depends on govt role, price

Investors are advised to favour incumbent pharma players ahead of upstarts as the vaccine race is rife with uncertainties

by NUR HANANI AZMAN / pic by BLOOMBERG

THE news of US President Donald Trump being infected with Covid-19 and surge in infection numbers globally is set to reignite investors’ interest in local companies undertaking deals for a potential Covid-19 vaccine.

Analysts, however, advise investors to favour incumbent pharma players ahead of upstarts as the vaccine race is rife with uncertainties and early indications suggest pricing will be kept “affordable”.

iFAST Capital Sdn Bhd fixed income analyst Ganageaswaran Arumugam said the growing infections globally present a large market opportunity for companies to capture.

“We have yet to know the efficacy of the various vaccines being developed now, but billions of people would likely need to be vaccinated to stop the pandemic.

“With such an opportunity being present, we are not surprised many companies are trying to hop onto the bandwagon of the vaccine supply chain,” he told The Malaysian Reserve (TMR).

He opined that the potential beneficiaries would involve companies that are incumbents in the afore-mentioned niche business within the biotech sector rather than new entrants into the sector.

There is little clarity on the Covid-19 vaccine end-product at the moment with multiple companies around the globe still in the middle of researching, testing and obtaining relevant approvals.

“Given the complexity in developing a vaccine, the opportunity set of a localised partnership would be limited to incumbents in the pharma industry,” Ganageaswaran said.

At the current juncture, it is very much at a speculative stage as there is no real clarity on how the distribution end would take place given the end-product has yet to be produced.

“Our base case suggests the following: Pricing to remain modest regardless of method of distribution (government to deliver vaccine for free/at a subsidised rate/private purchase) given the magnitude of the impact due to the coronavirus which will ultimately weigh on the public perception of the pharma businesses,” he said.

Ganageaswaran said early disclosures from major pharma companies such as AstraZeneca plc suggest they would price vaccines at cost, while other companies expect to price their products to include a modest profit.

While the pandemic has positively impacted the equity prices of many healthcare-related companies on Bursa Malaysia, he advised investors to look at well-managed companies in the retail sector that would stand to benefit from the spillover effect in the event a vaccine is found.

Sunway University Business School economist Prof Dr Yeah Kim Leng said given the high demand expected for a proven vaccine will likely prevail for the first few years, firms that are able to participate in the supply and production chain will enjoy strong revenue growth.

As an attractive foreign direct investment destination, he said Malaysia is well positioned to be a regional production hub and more joint-venture partnerships are therefore likely.

Yeah opined that once a safe and effective vaccine is found, making it available to the world will be the next global challenge in controlling the pandemic from taking more lives and causing further damage to the global economy.

“Companies that are able to procure the technology and licensing to produce the vaccine will attract interest of private investors, as well as governments seeking early access to the vaccine.

“The lucrativeness of supplying the vaccine will depend on the licensing requirements, investment cost and pricing since demand is expected to be high,” he told TMR.

He stressed that affordability will be an issue for low-income countries, but the first movers will be able to reap above normal profits as governments compete to procure the vaccine in the open market and bear the full costs or subsidies.

“The financial returns to the suppliers will depend on their bargaining power with the government,” he said.

Although the Malaysian government has voiced its preference to work with local established pharma players like Pharmaniaga Bhd and Duopharma Biotech Bhd to bottle and distribute the vaccine, companies like Bintai Kinden Corp Bhd and Ho Wah Genting Bhd have sought to tap the market as well with their own potential cures.

Bintai Kinden, for example, has entered into a licensing agreement with US-based firm Generex Biotechnology Corp for Covid-19 vaccine compounds in Malaysia.

The group will pay US$2 million (RM8.32 million) for Intellectual Property Assignment Rights using its internal working capital and/or funding from strategic partners.

Generex submitted Pre-Investigational New Drug submission to US Food and Drug Administration (FDA) on July 15, 2020. The current status is that Generex is currently performing all clinical trials Phase 1, 2 and 3 as required by the FDA.

JF Apex Securities Bhd head of research Lee Chung Cheng believes most of the local companies that have shown interest in Covid-19 vaccine market will be on the distribution channels and not upstream activities like research and development.

“Whether the vaccine is free or not here depends on where the source is coming from. If the government gets it from foreign pharma companies, it may limit the role for the private companies,” he told TMR.