Operation Warp Speed

3103Operation Warp Speed

Jeffrey Viksjo CFA

The program sounds like something from a James Bond movie.  Instead, Operation Warp Speed (OWS) is a newly created government program that gives billions of dollars to pharmaceutical companies in the hopes of accelerating development of a COVID-19 vaccine by year-end or shortly thereafter. This is an extremely aggressive timeline with no assurance it can be met.

 

For the pharmaceutical companies, OWS represents membership into an exclusive club, reserved for the front runners in vaccine and drug development (Johnson & Johnson, Moderna & AstraZeneca to name a few). Wall Street has taken notice. Companies announcing funding from OWS (including several smaller firms without any approved products) have seen their stock prices soar on the news.

 

Where does that leave investors? Should we be chasing the OWS chosen few?

 

The executives at these firms have largely answered that question for us.

 

According to the NY Times, top executives at 11 pharmaceutical companies sold more than $1 billion in stock immediately after announcing positive news on COVID-19 vaccine or drug development. In other words, executives are “cashing in” even as their vaccines have yet to be proven effective, or sell a single dose.

 

The Times summed up this market fervor very well. “The sudden windfalls highlight the powerful financial incentives for company officials to generate positive headlines in the race for coronavirus vaccines and treatments, even if the drugs might never pan out.”

 

This sounds like a good deal for pharmaceutical executives, but a bad deal for individual investors. We’re staying away. While we continue to like the health care space, we see much more attractive valuations in medical devices, which retain a core position in our U.S. stock portfolio.

 

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