Government Money and Pharma

Macro Perspectives: Tue 15 Dec 2020

State electoral votes were being cast yesterday and the Pfizer vaccine is being distributed.

Yet stocks finish down on the day, Pfizer, finishing down almost 5%. But for Pfizer shareholders, this must just be profit taking, right?

Not exactly. If you were a Pfizer shareholder in late January, before it was known that latest coronavirus would become a global pandemic, you’ve made next to nothing on your investment by the close of business yesterday, despite having held shares in the first company in the world to inject a vaccine into the arm of a patient.

On that note, if you bought Gilead at the close on April 29, the day Fauci called Giliead's new drug Remdesivir the new "standard of care" for treating covid, you would be down 28% on your investment.

So, despite winning the race, the shareholders of these giant drugmakers weren't winners. The real winners in the vaccine race were the tiny biotech companies that received 10-figure gifts from the federal government to pursue a vaccine.

This is what happens to a stock when you inject $1.6 billion dollars into an $18 million revenue company. The market cap of NVAX has gone from $700 million to almost $8 billion...

Moderna did $60 million in revenue in 2019. The government gave them a billion dollars. The market cap has gone from $6 billion to $61 billion.

The lesson: When government money is being deployed in stimulus or emergency aid, the big winners are the smaller early-stage companies. This was also clear in the Great Financial Crisis (ex. Tesla).