Pharma Market Update: H1 2021 in Review

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Vaccination efforts are driving up interest in pharmaceutical investments, with drug makers delivering strong results in the first half of 2021.

The ongoing effects of the COVID-19 pandemic have affected every single industry in the world, and pharmaceutical development is no exception.

At the same time, the focus on key vaccines from publicly traded drug makers, alongside the side opportunities for solutions to confront challenges from the pandemic, have created a drive of momentum for the space.

Pharma market update: COVID-19 vaccines and investment

While the effective development of vaccines against the serious effects of COVID-19 is a victory for the industry, the conversation around the status of these vaccines as exclusive products for its makers has affected the potential sentiment of investors.

“In addition, with mass vaccinations, the pharmaceutical companies are growing their bottom line as investors appreciate the value of the IP that created the vaccines under emergency approvals from various governments around the world,” a monthly commentary note from Nine Point Partners said.

In May, a Reuters report indicated governments around the world were debating the potential of removing the patent protections around COVID-19 shots, significantly affecting the plans of drug makers like Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA).

The two drug makers have a combined estimate of US$45 billion in sales for 2021, according to the report.

“This measure is a potential risk to the long-term tail for the vaccine players – though we remind investors that the Street and share prices were already skeptical on the longer-term sustainability of these businesses,” analysts from Barclays (NYSE:BCS) wrote in a research note, the report said.

The concern of patent protection lies in the desire for the drug makers with existing COVID-19 shots to remain exclusive. However, analysts and companies also noted a lack of exclusivity wouldn’t necessarily mean a decrease of interest for current shots.

The need for COVID-19 shots is set to increase as the US government will be issuing a third “booster” shot for those who have already been vaccinated in response to the increasing variants of the virus.

“The increasing likelihood of the need for booster shots driven by growth in COVID-19 variants bodes well for PFE’s revenue outlook,” a commentary note from Nine Point Partners indicated on the financials of Pfizer.

A CNN report indicated Pfizer expects to see $15 billion from COVID-19 vaccines by the end of the year, representing a profit margin of 30 percent.

“It would have been a terrible business if the vaccine had failed. It would have been a write off,” Seamus Fernandez, senior managing director at Guggenheim Securities, told CNN. “Obviously for Pfizer and Moderna and Johnson & Johnson (NYSE:JNJ), it succeeded pretty spectacularly.”

Pharma market update: Fund performances in 2021

Documents from the VanEck Vectors Pharmaceutical ETF (NASDAQ:PPH) released at the end of March, one of several pharmaceutical funds highlighted recently, showed the fund has maintained a focus on US-based pharmaceutical companies.

The following names represent those the fund made its biggest investment so far:

• Pfizer
• Bristol-Myers Squibb (NYSE:BMY)
• Johnson & Johnson
• Merck (NYSE:MRK)
• McKesson (NYSE:MCK)

The largest holder among the fund in percentage of net assets is the pharmaceutical Moderna.

Over a year-to-date performance at the end of the first half of 2021, here’s how some of notable pharma ETFs have performed:

• iShares U.S. Pharmaceuticals ETF (NYSEARCA:IHE) +4.23 US$185.75
• Invesco Dynamic Pharmaceuticals ETF (NYSEARCA:PJP) +12.33 US$80.46
• Direxion Daily Pharmaceutical & Medical Bl 3X Shares ETF (NYSEARCA:PILL) -3.78 US$23.66

While expectations have shown a top end rise in performance for the biggest names in pharma thanks to the pandemic, one expert explained how COVID-19 has created a straining effect as well.

According to a report on CNBC analysts Aditya Khemka, fund manager at InCred Financial Services, and Anmol Ganjoo, pharmaceuticals research analyst at JM Financial Institutional Securities, said pharma and hospital companies have suffered losses through the pandemic.

“We believe that pharma and hospitals are equally a COVID recovery play too. We don’t believe the best is behind us, we believe the best is ahead of us,” Khemka said.

The two spoke after evaluating the results from the pharma sector on the Q1 2022 fiscal year results.

Ganjoo added the difficulties from the pandemic on the financials do offer a reset of expectations for the industry, which he sees as a plus.

“These are more normal and easy to surprise on the up and in the days to come we should be able to get a fairly attractive price point on various stocks,” the analyst said.

Pharma market update: Investor takeaway

Pharmaceutical investments are known as a steady market with long-term outlooks. In 2021 it has been anything but, as the market contends with the changing landscape of COVID-19 and its impact.

Besides the gains and losses of the pharmaceutical industry, this sector is facing a renovated conversation surrounding the trust issues it has seen beforehand.

Ray Moynihan, assistant professor at Bond University’s Institute for Evidence-Based Healthcare and adjunct associate professor at the University of Sydney, argued a reputation change for the industry based on the critical role of vaccines against COVID-19, would still require “meaningful reform.”

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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