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Investing In A Cure For Covid19

There are a bunch of listed companies with prospective Covid19 vaccines that are quite popular investments at the moment. I just wanted to take the opportunity to warn investors of the risks of such an investment.

Pharmaceutical investment is a curious business. Costs are massively high in this industry and companies often run for many, many years with no results. Once (if) the company successfully researches a cure for something (and it gets past all the necessary hurdles), there’s big money to be made. Especially so if it’s a vaccine for something that everybody in the world needs to buy.

Because of the nature of this industry and the way Capital Raising (CR) works, this can create traps for investors.

As the cost of research is high, pharmaceuticals often need to raise money. In order to entice people to invest, they need to sell the story. This means taking every little positive thing and singing about it as loudly as possible. As the subject is highly technical, investors are usually in the dark about the significance of such announcements and are often led to believe that things are further along than they really are.

For example, a company researching covid19 might announce that they have found a substance that successfully attaches to the virus and not human cells. This might be a significant discovery but not necessarily get the company any closer to a vaccine.

The other problem with such CRs is that they dilute existing shareholders and directors. Therefore a company would want to increase the value of the shares before they announce a CR. They might time CRs after small (but not necessarily significant) technical wins or be deceptive about timelines (without lying) to investors.

For example they might say things like “we are now moving to human testing”. This could mean that they are on the brink of a cure, or it could be part of the normal process of testing multiple candidate drugs as part of normal research, or it could be referring to the testing of the efficacy of a delivery system to be used when they discover a cure.

Of course the above examples are bad, but my point is that they can truthfully and correctly use words that make it seem like they’re on the edge of greatness, but actually miles from success. This typically happens through scientific (or industry) jargon or process that is presented in a way to deliberately mislead potential investors in order to pump up the share price prior to a CR and get investor interest.

Of course I’m not saying that you shouldn’t invest in companies searching for a covid19 vaccine, but just warning that there are pitfalls to consider when investing in, or basing your investment decisions on a covid19 cure.

For this investor, I find this sort of investing too much like gambling. That said, I think that such an investment would be great for a trader or an ethical investor who doesn’t mind a gamble.

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