While action movies show heroes saving humanity from natural disasters and fictional villains, real-life heroes are working behind the scenes in search of solutions to the most deadly diseases facing mankind.
From the massive pharmaceutical companies that produce well-known treatments for common illnesses to the start-up biotechs developing cures for cancer, heart disease, diabetes, etc., these organizations are quietly attempting to eradicate the true threats to health and happiness.
Pharmaceutical research and development requires large amounts of capital. Some analysts predict that $180 billion will go into this area of the industry through 2022.
This presents opportunities for investors interested in ridding the world of debilitating diseases. Of course, the road to success is full of obstacles. Trials fail, treatments don’t work, and the dangers of promising new drugs can outweigh the benefits when tested on real people.
The large pharmaceutical companies can absorb failures, so shareholders continue to see returns on their investment. Smaller companies don’t have the same luxury.
The truth is that the chances of turning a profit with a small biotech firm are slim, but investors who are willing to take this risk may enjoy massive rewards. After all, scientists are sure to find the answers they are looking for eventually. Investors who select the right stocks at the right time could see exponential returns if those successes materialize.
Pros and Cons of Buying Pharmaceutical Stocks
Pharmaceutical stocks are found in most well-balanced portfolios for good reason. More than 3.5 million Americans are hitting retirement age every year – a trend that will continue for at least another ten years.
That means more people are approaching an age where they face higher healthcare expenses, making it a profitable time to be in the business of developing and producing critical drug therapies.
Medications made up ten percent of healthcare spending in 2016, and growth is expected at a rate of 6.3 percent through 2025.
Growth isn’t the only factor that makes pharmaceutical stocks attractive. Many consider these stocks virtually recession-proof. When the economy sours and people stop making discretionary purchases, they still fill their prescriptions to ensure continued good health.
Despite these advantages in pharmaceutical investing, there is some downside to buying stock in a single company. Producers of popular treatments for common medical conditions don’t keep their exclusive right to market drugs forever.
Eventually, all drugs can be produced under generic names, which causes a decline in profits for organizations that don’t have new formulas in the pipeline.
On the research and development side, the risks are even higher. A huge number of drugs never make it to market, despite early promise.
Small biotech companies are often unable to recover when their primary project must be scuttled, and even the larger companies experience financial setbacks when failed trials remove a contender from consideration.
The competition between Novavax [NASDAQ: NVAX] and Inovio Pharmaceuticals, two biotech companies in the clinical trial phase of drug development, perfectly illustrates the ups and downs that investors face.
For a period, Novavax’s market cap was double that of Inovio Pharmaceuticals [NASDAQ: INO]. However, bad news regarding Novavax’s most exciting drug caused share prices to drop more than 80 percent in just two weeks.
Today, Inovio Pharmaceuticals [NASDAQ: INO] is twice the size of Novavax, showing how quickly fortunes can change in the pharmaceutical industry.
Is Novavax Stock a Buy?
RSV, a lower respiratory tract infection that affects infants, can be extremely dangerous – if not deadly.
Novavax [NASDAQ: NVAX] is deep into development of a vaccine to prevent the infection.
The vaccine, ResVax, looked quite promising through phase one and phase two clinical studies, but in February 2019, the company announced that its phase three clinical study was not successful.
While there is a possibility that ResVax could still have a future, it may not be the miracle many physicians were hoping for.
Novavax [NASDAQ: NVAX] does have a second project in the pipeline – NanoFlu, which is a new type of flu vaccine.
Unlike the flu vaccines currently available, this drug may solve for the constant issue of a mismatch between vaccine protections and circulating strains of flu.
NanoFlu has successfully passed the phase two trial stage, and the company is planning its approach to phase three studies. Should this new vaccine prove effective, it may be recommended for a vast portion of the population – children, elderly patients, and anyone with a compromised immune system. That could mean solid profits for investors.
Should You Invest in Inovio Pharmaceuticals?
Inovio Pharmaceuticals [NASDAQ: INO] is working on solutions for other types of conditions, and it currently has one drug in the late stages of clinical trials.
Known as VGX-3100, this therapy is intended for use in treating high-grade squamous intraepithelial lesions (HSIL). Such lesions are caused by human papillomavirus (HPV), which is extremely common.
More than 79 million Americans are currently infected with a strain of HPV, and there are 30 strains that can affect the genitals. Of these 30 strains, 14 can lead to cervical cancer. HSIL is an indicator that pre-cancerous cells are present, so VGX-3100 could be an important measure for preventing cancer.
If all goes well, Inovio will file for approval of VGX-3100 in the United States as early as 2021.
While this is the only drug so close to market, Inovio Pharmaceuticals [NASDAQ: INO] has a number of projects in phase two trials that – if successful – could dramatically change the face of cancer treatment.
One of the most interesting is an immunotherapy technique that would link cancer-fighting T-cells with cancerous tumors. Should any of the drugs in development prove effective, Inovio investors will see handsome returns.
Novavax vs. Inovio Pharmaceuticals: The Bottom Line
The bottom line is that investing in a single pharmaceutical company can be extremely risky.
Both Novavax [NASDAQ: NVAX] and Inovio Pharmaceuticals [NASDAQ: INO] have taken investors on a roller coaster ride, and it’s impossible to know whether either company will be successful in their current ventures long-term.
If they are, investors will realize substantial returns on their investments, but it is not inconceivable that entire investments could be lost overnight.
Investors who want to get into the industry without taking on substantial risk may be better off passing on individual stocks altogether.
Instead, there are funds that expose you to a cross-section of the most promising companies. While it’s true that you might not make a fortune overnight if one company announces a massive win, you won’t face the more likely scenario of losing your entire investment when a promising drug fails in real-world trials.