Buying pharmaceutical and biotech stocks: This is what investors should know

Corona-Konjunkturpaket: Ma├čnahmen der Regierung

The pharmaceutical and biotech sector is booming – and this is reflected on the stock market. Currently, most of them are involved in research on a corona virus vaccine. But which companies are particularly promising and how can you as an investor profit from this?

PHARMACEUTICAL AND BIOTECH STOCKS – THE MOST IMPORTANT IN BRIEF

  • Pharmaceutical and biotech stocks are currently in the focus of investors. This is because the companies are competing for the development of a vaccine against Covid-19.
  • The previously relatively unknown companies BioNTech, Moderna and CureVac are already well advanced in their vaccine research.
  • However, investors’ eyes are also turning to big companies such as Johnson & Johnson: our biotech and pharmaceutical stocks.

PHARMACEUTICAL AND BIOTECH STOCKS – RECOMMENDATIONS & TIPS

  • Our recommendation: Moderna and BioNTech currently seem to be the companies that have progressed furthest in research for a corona vaccine – definitely worth a look for investors.
  • Important: Pharmaceutical shares currently offer great return opportunities. But there are also risks that you should be aware of before investing.
  • Tip: Spread your capital over several pharmaceutical shares. This is particularly easy with ETFs – for example on the MSCI World Health Care Index.

PHARMACEUTICAL AND BIOTECH INDUSTRY: WHICH SHARES TO BUY DURING CORONA PANDEMIC?

The pharmaceutical and biotech industry is one of the most important and at the same time most powerful in the world. The shares of the large pharmaceutical companies are a particularly attractive investment for investors, not only in times like the Corona pandemic. But since the Corona crisis, one thing in particular has changed: Previously unknown companies are increasingly becoming the focus of public attention – and of investors. For one thing is clear: the company that can contribute to the fight against the corona virus or even develop a rescue vaccine will emerge on the stock market as a beaming winner.

There are many candidates, but which of them are particularly promising? In the following we have taken a closer look at the companies that have already come a long way in developing a corona vaccine. Some of these promising pharmaceutical and biotech companies’ vaccine candidates are already in clinical phase 3.

FOUR CLINICAL PHASES OF VACCINE APPROVAL – DID YOU KNOW?
Phase 1: Clinical trials on very few subjects. This clinical phase helps physicians to determine the correct dose.
Phase 2: Vaccine testing on a larger group of less than 1,000 volunteers.
Phase 3: Here several thousand volunteers are tested and examined simultaneously.
Phase 4: The approval process begins if phases 1 to 3 are successfully completed.

PHARMACEUTICAL AND BIOTECH STOCKS: PROMISING CORONA VACCINE CANDIDATES
Biotech and pharmaceutical stocks such as Novartis or Johnson & Johnson are worth a look, especially for long-term investors. But also opportunity-oriented investors can currently hope for rising share prices with companies from the healthcare sector. This is mainly due to the corona pandemic and the increased competition surrounding the fight against SARS-CoV-2.

There are many big pharmaceutical and biotech companies worldwide that are listed on the stock exchange – including many that are currently involved in the research of a corona vaccine. Now in particular, it might be worthwhile to invest in the pharmaceutical industry. But which companies are currently researching corona vaccines?

The Association of Research-Based Pharmaceutical Companies (vfa) provides a particularly interesting overview. But which companies are really promising candidates in the development of a vaccine against Covid-19, the new coronavirus infection? We will tell you in a moment, but first we want to distinguish the pharmaceutical industry from the biotech sector.

PHARMACEUTICAL INDUSTRY? BIOPHARMACEUTICAL INDUSTRY? BIOTECH INDUSTRY?
All companies in these industries produce drugs. It has become relatively difficult to differentiate between the individual sectors. The reason is relatively simple: While a few decades ago, pharmaceutical companies produced their products exclusively chemically and biotech companies produced drugs biotechnologically (for example using living organisms such as bacteria), these development methods have now become mixed.

The pharmaceutical industry has broadened its “portfolio” by acquiring biotech companies and restructuring its own research and development. As a result, pharmaceutical companies such as Novartis, Pfizer, Roche and Sanofi are among the largest drug manufacturers in the world.

Nowadays, companies that exclusively develop and produce biological pharmaceuticals are called biopharmaceutical companies. Companies that produce chemically and biologically developed drugs are among the classic pharmaceutical companies. The biotech sector includes companies that work biotechnologically, but not pharmaceutically.

But how can you as an investor differentiate between these two? Dividend payments are often an indication. While pharmaceutical companies usually pay profit-sharing, they are (still) the exception for biopharmaceutical companies.

JOHNSON & JOHNSON

Johnson & Johnson is a US pharmaceutical manufacturer with a market capitalization of almost 370 billion US dollars (as of July 2020). It is regarded as one of the most valuable companies worldwide. The largest shareholder is the Vanguard Group. It has around 130,000 employees in 60 countries – including almost 4,000 in Germany. Johnson & Johnson consists of three major divisions: pharmaceuticals (51.4 percent), medical products and devices (31.6 percent) and consumer products (17 percent). There is hardly a person who has not used the company’s products. Major brands such as the care product Bebe or Neutrogena, which everyone knows from the drugstore, but also Dolormin or Olynth from the pharmacy, are products from Johnson & Johnson.

Johnson & Johnson is particularly interesting for investors during the corona pandemic: The company plans to make a corona vaccine available as early as January 2021. The US government has already ordered vaccines for a total of 456 million US dollars. However, the vaccine is not yet ready and the first clinical trials are scheduled to start in September. If successful, Johnson & Johnson could deliver the first vaccine in early 2021.

The mere information that a vaccine against the coronavirus could be developed caused Johnson & Johnson’s share price to shoot up: by almost 18 percent in just one week. If everything goes well and the delivery of the vaccine begins, the increase in value will probably be even greater.

BIONTECH: MAINZ COMPANY WORKS ON CORONA VACCINE
Before the Corona pandemic, BioNTech was probably quite unknown to most investors. However, since it became known that the Mainz-based company is working on a corona vaccine and is apparently making great progress, its shares, which are listed on the US technology exchange NASDAQ, shot up. Initial tests with the corona vaccine in mid-April 2020 were successful. This vaccine is based on so-called messenger RNA and is intended to stimulate human cells to produce special proteins that can fight the pathogen. In the first half of 2020 alone, BioNTech shares climbed 65 percent. Should the pharmaceutical company actually develop an effective vaccine against the coronavirus, the outlook for investors is rosy.

CUREVAC: CORONA HOPE OF SAP FOUNDER DIETMAR HOPP
CureVac – this is a name that people have probably heard and read more than once in the last few weeks. The Swabian pharmaceutical company shot up from nowhere in the Corona pandemic. The reason: CureVac, which is largely owned by SAP founder Dietmar Hopp, is developing its own vaccine against the corona virus, as is BioNTech. However, in contrast to BioNTech, investors cannot participate in CureVac’s success. This is because it is not yet a publicly-listed company – mind you.

CureVac is scheduled to be listed on the NASDAQ in New York in July. For this reason, even the German government is investing 300 million euros in CureVac – securing 23 percent of the shares in Dietmar Hopp’s company and thus preventing someone else from becoming the majority shareholder and CureVac from migrating abroad. The company enjoys great attention abroad: Even Tesla boss Elon Musk supports CureVac and is building RNA minifactories for the production of vaccines.

Important: Like BioNTech, CureVac also has good prospects on the stock exchange, should this happen in the near future. Should the corona vaccine prove ineffective, the stock would come under pressure.

MODERNA: AHEAD IN THE CORONA VACCINE
The company is the US hope in the global race for the corona vaccine and competes with promising candidates such as CureVac, BioNTech and Johnson & Johnson. Moderna is traded on the stock exchange at just over 21 billion. Like the German researchers, the biotech company also focuses on the formation of messenger RNA. Anyone who invested in Moderna before the corona pandemic or relatively at the beginning could look forward to a threefold increase in value in 2020 alone. At the end of May, the share price was at an absolute high – until it suddenly plummeted again by seven percent after it was reported that there would be delays in vaccine development. According to the US health news portal Stat, there is not enough critical data to prove the effectiveness of the vaccine.

However, Phase 3 is still scheduled to start in July with 30,000 volunteers. This will also be decisive for the further development of the share price. It remains to be seen whether Moderna’s corona vaccine “mRNA-1273” will enter Phase 4.

CANSINO BIOLOGICS: CORONA VACCINE ALREADY TESTED SINCE MARCH 2020
The Hong Kong biotech company seemed to be the hope for a vaccine at the beginning of the Corona pandemic. In mid-March, a clinical trial with the Covid-19 vaccine started in Wuhan, the starting point of the pandemic. The first tests developed positively: the active substance was not only well tolerated, but also showed the desired immune reactions in the test persons. In China, CanSino Biologics’ vaccine reached Phase 2 at the end of June, and approval is expected soon in Canada as well.

It is believed to be the most advanced vaccine against the coronavirus. However, there is also much criticism: the vaccine is based on the adenovirus “Ad5”, which serves as a carrier. Tests with this basis to other active substances did not have particularly good results. The criticism does not harm CanSino Biologics. In the last six months alone, the share price has increased by almost 300 percent – the outcome is open.

BUYING PHARMA AND BIOTECH STOCKS: THE RISKS
Of course, investments on the stock exchange are always riskier than leaving your savings in a call money account. However, if you don’t speculate, shares can also bring significantly higher returns – in return investors accept a certain amount of risk. But what risks should you pay particular attention to in the pharmaceutical and biotech sector?

Regulatory risk: Even if the company you want to invest in has just achieved a breakthrough, it can take as long as 10 years to get a drug approved. This means that it can fall during this time. If in the end the drug is not approved, the price will collapse.

Price risk: Who pays for the drug in the end? Since many new drugs are very expensive, it can often happen that health insurance companies refuse to pay for them – or limit their use. As a result, the planned turnover of the pharmaceutical companies drops sharply.

BUYING PHARMA-ETF: WHICH ONES ARE WORTHWHILE?
The research for individual stocks is complex and requires some knowledge. If you want to save yourself the trouble, you can invest directly in an ETF (Exchange Traded Fund), as with other shares – for example in the NASDAQ. Here you have the advantage of spreading your money broadly across the pharmaceutical and biotech industry and are not dependent on the results of a single company. But which ETFs are particularly interesting during the Corona pandemic? We will tell you here:

BIOTECH-ETF: ISHARES NASDAQ BIOTECH

The iShares ETF tracks the US technology exchange NASDAQ with a focus on biotechnology and pharmaceuticals. This means that you not only invest in pharmaceutical and biotech companies that are currently researching a corona vaccine, but also in leading companies that may have nothing to do with the corona virus. The ETF also includes the US company Moderna – and if CureVac also makes its debut, you will automatically have this company in the ETF.

The reinvesting ETF with ISIN IE00BYXG2H39 has a TER of 0.35 percent and a fund size of around EUR 196 million. Within the last year, this fund has, by the way, achieved an increase in value of over 27 percent.

XTRACKERS MSCI WORLD HEALTH CARE UCITS ETF
Xtrackers’ ETF replicates the MSCI World Health Care, which contains companies from various industrialised countries in the healthcare sector. This way you also invest simultaneously in several companies in the same sector and minimise the risk through broad diversification – among others, shares of the US giant Johnson & Johnson are included. The Xtrackers MSCI World Health Care UCITS ETF has a fund size of EUR 832 million and a TER of 0.30 percent.

CONCLUSION: PHARMACEUTICAL AND BIOTECH SHARES WITH A FOCUS ON CORONA
In times of a corona pandemic, almost every pharmaceutical company seems to be working on the vaccine. As an investor, you can also benefit from this – if you follow the news regularly and invest wisely. But of course any investment, however well thought out, entails risks. For example, a promising candidate could turn out to be a zero number if the tests for the corona vaccine turn out negative.

If you don’t want to put all your eggs in one basket, you can invest directly in an index that tracks the pharmaceutical and biotech sector and thus minimise the risk. This means that you not only have companies in your portfolio that are only researching the corona vaccine, but also established large companies that continue their normal day-to-day business.

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