Pharma Market Update: H1 2021 in Review

Pharmaceutical Investing
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2021 has offered a number of challenges for the pharmaceutical industry. Here’s a quick recap of the year so far.

Click here to read the previous pharma market update.

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

The ongoing effects of COVID-19 have touched every single industry in the world, and for pharmaceutical development the impact has been monumental as companies respond to the pandemic.

Here’s a look at the challenges and opportunities faced by the pharma sector in H1 of this year.

Pharma market update: COVID-19 vaccines and investment

The development of COVID-19 vaccines has been a victory for the pharma industry, but conversations around these vaccines as exclusive products for drug makers have affected investor sentiment.

“(W)ith mass vaccinations, the pharmaceutical companies are growing their bottom line as investors appreciate the value of the (intellectual property) that created the vaccines under emergency approvals from various governments around the world,” a monthly note from Ninepoint Partners states.

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

The two have a combined 2021 sales estimate of US$45 billion, 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,” the report quotes analysts from Barclays (NYSE:BCS) as saying in a research note.

Drug makers with existing COVID-19 shots are eager for patent protection so that their vaccines can remain exclusive. However, analysts and companies have noted that a lack of exclusivity wouldn’t necessarily mean a decrease in interest for current shots.

Demand 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 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,” Ninepoint Partners said about Pfizer’s financials.

A CNN report indicates that Pfizer expects to see US$15 billion in COVID-19 vaccine sales 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 the news outlet. “Obviously for Pfizer and Moderna and Johnson & Johnson (NYSE:JNJ), it succeeded pretty spectacularly.”

Pharma market update: Fund performances in 2021

Exchange-traded funds (ETFs) are a popular way to get broad sector exposure, and the pharma market is no different. The top pharma ETFs by total assets under management trade like stocks on an exchange, giving investors easy access to the sector while reducing their risk.

Pharma ETFs can also provide a broad look at how the sector itself is performing. Here’s a quick overview of how five notable pharma ETFs have performed year-to-date in 2021:

  • Invesco Dynamic Pharmaceuticals ETF (ARCA:PJP) — +14.37 percent
  • iShares US Pharmaceuticals ETF (ARCA:IHE) — +9.61 percent
  • VanEck Vectors Pharmaceutical ETF (NASDAQ:PPH) — +14.94 percent
  • SPDR S&P Pharmaceuticals ETF (ARCA:XPH) — -5.11 percent
  • KraneShares MSCI All China Health Care Index ETF (ARCA:KURE) — -6.29 percent

Interestingly, while there’s been a rise in performance for some of the biggest names in pharma thanks to the pandemic, experts have explained how COVID-19 has created a straining effect as well.

Analysts Aditya Khemka, fund manager at InCred Financial Services, and Anmol Ganjoo, pharmaceutical research analyst at JM Financial Institutional Securities, said some pharma and hospital companies have suffered losses through the pandemic, as per a CNBC report.

“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 pharma sector results from Q1 of the 2022 fiscal year.

Ganjoo added that financial difficulties caused by the pandemic do offer a reset in terms of industry expectations, 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

The pharmaceutical market is typically known as a steady space, but in 2021 it has been anything but as the industry contends with the changing landscape of COVID-19 and its impact.

And besides the coronavirus-related gains and losses seen so far, the pharma sector is facing a renewed conversation about  the trust problems it has seen previously related to drug pricing and other issues.

Ray Moynihan, assistant professor at Bond University’s Institute for Evidence-based Healthcare and adjunct associate professor at the University of Sydney, argued recently that COVID-19 could spark a reputation change for the industry, easing the sting of past scandals.

But, he said, any rejuvenation of trust 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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