In the past 2 days, we have been witnessing spectacular rallies for 2
pharmaceutical stocks, Pharma and DPharma. What prompted the rally was
an announcement on July 14 by the Science, Technology & Innovation
Minister, Khairy that Pharma and DPharma will do the "fill-and-finish"
process for the re-packing the Covid-19 vaccine when it becomes
available (here).
We know that the market is getting wary of glove stocks after the
spectacular rally, and many players are now looking for something else
to play. So the above story seems like just the right catalyst to shift
to new stocks that are (1) relatively inexpensive vis-a-vis the glove
stocks and (2) they can still be counted as pandemic stocks.
However, there are a few inconvenient questions which we must answer if
and when we want to get into Pharma and DPharma. They are:
1) When will the vaccine be available? Despite promising progress made,
the first vaccine will be at least 18 months from now. That's the
optimistic case!
2) Will the vaccine be produced in sufficient quantity to reach our
shore? This is a tough one. The answer is probably not for a few years
as demand will continue to outstrip supply, and America- the epicenter
of the pandemic- has shown that it is willing to use its enormous muscle
to buy up everything.
3) Can Pharma and DPharma handle the fill-and-finish process? While they
may have done similar process for other drugs or vaccines, the new
vaccine for Covid-19 will be novel and involve complex chemistry. They
may need special pharmaceutical-grade glass to be bottled in. This is
taken from an interview given by Bill Gates in the Vox magazine back in
April (here).
When asked by the interviewer, Ezra Klein about how much of a limiting
factor will the manufacturing supply chain capacity be, Bill Gates
replied:
For some of these vaccine constructs, it’s hard to scale up the manufacturing, partly because they are novel or just because the chemistry is very complex. And you’re in a new regime when you talk about making billions of a vaccine. We don’t make billions of any vaccine. We make hundreds of millions, but for those, we’ve had decades to work on their efficiency.
Even the fill finish at the very end where you put it in a glass bottle, that’s a special pharmaceutical-grade glass — the world doesn’t have enough of that. So we’re working to get that underway because all the vaccine approaches need to be put into a bottle at some point in time. I hope we get to the point where it’s the manufacturing piece because those investments are at most billions to save trillions.
4)
Where is the market for the end-product, the re-bottled vaccine? If it
is for the local market, then that market is too small for the time and
effort required to get into the business. I presume it would include
overseas market, such as Indonesia etc. I remember our pharmaceutical
companies needed a long time to apply for licenses to distribute
individual drugs in Indonesia. I think the same should continue now and
this will delay the business.
Chart 1: Pharma's weekly chart as at July 23, 2020_9.30am (Source: Malaysiastock.biz)
Chart 2: DPharma's weekly chart as at July 23, 2020_9.30am (Source: Malaysiastock.biz)
All in all, I think we have to temper our enthusiasm to get into Pharma and DPharma as well as other pharmaceutical stocks which have gone up substantially. The investment basis may be comparable in some way to glove stocks, since they are deemed to be pandemic stocks, but the case for pharmaceutical stocks is very weak, unlike glove stocks. Be careful!
http://nexttrade.blogspot.com/2020/07/pharma-dpharma-some-inconvenient_23.html
