COVID-19 Update: Vaccines, Treatments And Lockdowns, Investment Implications – Seeking Alpha

Posted: December 5, 2020 at 7:55 pm


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With a lot happening in relation to the COVID-19 pandemic, it seems worthwhile to review the current status. Vaccines are a hot topic and rollout is imminent. There is investment interest, especially in relation to BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA). Progress with treatments is less encouraging and the outlook for Gileads (NASDAQ:GILD) remdesivir is less promising. An emerging story is an increasingly tough winter for the COVID-19 pandemic in the northern hemisphere; vaccine developments are going to have little impact on this evolving crisis. Later next year things might improve, but beware of market correction if the pandemic isnt seriously addressed through government support.

The soap opera continues with a very recent announcement that the UK government has authorized the Pfizer (NYSE:PFE)/BioNTech COVID vaccine for emergency use on the recommendation of the UK Medicines and Healthcare products Regulatory Agency. Thus, the UK is the first country to authorise the Pfizer/BioNTech vaccine. No doubt this caused concern in the US with a meeting between the President and FDA Commissioner Stephen Hahn to address why the FDA has not yet approved the Pfizer vaccine. It is important to understand that moving at this speed has risks attached to it. Vaccines normally have a much deeper risk profile established before general release. Dr. Fauci has recently indicated that his view is that the UK rushed approval and this could put at risk public acceptance of vaccination, which is crucial. He has now apologised if his comment suggested that the UK was being sloppy.

There has been further clarification about the speed of approval from the UK in comparison with the US. Brexit has given the UK flexibility to make its own decisions outside of EU approvals. The FDA uses a more rigorous review of data as it goes back to the raw figures. This normally takes months, but in this case, FDA approval is expected very soon, with a meeting on 10 December scheduled; the EU will probably review its attitude on 29 December. The UK expects to receive very soon 10 million doses (enough for 5 million vaccinations) of its 40 million dose order. The early recipients will be healthcare workers, aged care residents, the elderly and clinically vulnerable.

Away from the politics, there is a still a lot to be sorted out with the vaccine candidates.

While the AstraZeneca (NYSE:AZN)/Oxford University vaccine has been a front runner, this situation changed when there was some controversy about its effectiveness and the best dosing for the first injection. This caused some indignation about how AstraZeneca has dealt with the vaccine, including a mistake in dosing that has given insight into what could become a more effective vaccine. This is just a pretty normal part of the discovery phase of a vaccine development. People make mistakes and sometimes these mistakes are revealing. This is why it takes a long time.

The AstraZeneca/Oxford University vaccine is attractive because it is cheaper to produce than the new generation mRNA-based vaccines, and the vaccine can be stored and shipped at refrigeration temperatures, as opposed to mRNA vaccines requiring freezing at -20C (Moderna) or -78C (Pfizer/BioNTech). Messenger RNA is unstable and easily degraded, which is why freezing temperatures are needed. The Moderna vaccine has the mRNA stabilised in fatty nanoparticles and this is the reason it just requires a normal freezer and not to be shipped on dry ice (-78C) as is needed for the Pfizer/BioNTech vaccine.

There is some evidence that the AstraZeneca vaccine might be particularly effective in the elderly.

Notwithstanding some controversy surrounding exactly what is going on with the AstraZeneca/Oxford Uni vaccine, there is evidence that an early requirement for an effective and safe vaccine has been met with the mRNA vaccines, which are now the most advanced in the path to release.

As mentioned above, the UK government is out of the blocks with the Pfizer/BioNTech vaccine. The UK government is feeling the pressure with a recent surge in cases and the death toll now above 60,000 deaths (and daily death toll of ~500). UK PM Boris Johnson is acknowledging a hard winter ahead before there will be a noticeable effect even of a highly successful vaccine release. The US will surely follow quickly with conditional approval for the Pfizer/BioNTech vaccine. Europe seems to be indicating that it will not rush the decision, but no doubt approval will not be delayed for long. Australia has signalled its acceptance of the Pfizer/BioNTech vaccine, which is expected to become available in Australia at the end of Q1 2021.

The pressure must be immense. It was interesting to read a report from Dr. Moncef Slaoui, President Trumps leader of Operation Warp Speed. Dr. Slaoui indicates that 10-15% of volunteers receiving the Pfizer/BioNTech vaccine experience significantly noticeable side effects which can last up to 1.5 days. The side effects include fever, chills, muscle aches and headaches. There are some concerns that even these mild effects might be enough to dissuade people from returning for the second (essential) dose of the vaccine. These physicians indicate that patients should be aware that they might experience symptoms like a mild case of COVID-19.

So far, more important adverse events (e.g. autoimmune symptoms) are not significantly more common in treated versus control patients.

But this isnt the end of it. Dr. Slaoui made clear that long-term safety is not understood at all because by definition there hasnt been time to evaluate this aspect.

At this stage, BioNTech seems to be the best opportunity for investors to benefit from the vaccine developments, although Moderna might come into the picture soon. BioNTech as the inventor of the Pfizer/BioNTech vaccine, and with a major partner to manufacture and distribute, is positioned to benefit in the short term, notwithstanding its share price already up 39% in the past month (and 454% year on year). Pfizer is up 12.6% in the past month, but its share price appears to be flattening. Sarel Oberholster has recently given the bullish case for BioNTech and this analysis preceded the UK approval.

The case for the Moderna vaccine seems similar to the Pfizer/BioNTech vaccine and Modernas share performance is even more bullish than that of BioNTech. Moderna is up 113% in the past month and 624% year on year. If it gets approval soon, expect a further share price increase. Moderna has recently sought emergency approval from the FDA and its case will be considered by the EU on 12 January.

Perhaps the biggest issue for the competitive position of the Pfizer/BioNTech vaccine is the need for -78C (dry ice) storage. While the AstraZeneca/Oxford University vaccine has some short-term hassles necessitating a further trial, its easier storage could make it more competitive in the longer term (assuming little difference in effectiveness and safety, although it is early days to have views on this). The Moderna vaccine is in the middle because it requires frozen storage, but at normal freezer temperature.

The bottom line for the vaccine developments is to understand that the huge number of shortcuts and absence of review before proceeding to the next step means that the COVID-19 vaccine developments maximise risk of something going wrong. It is too early for any of the vaccines to have a long-term safety profile. Nor is there information about the length of protection (beyond 90 days) for any of the vaccines.

And the big concern for the vaccine producers is public confidence and acceptance, because without this, no vaccine can be successful. We still dont know how this is going to play out.

It has not been clear for some time that Remdesivir has sufficient evidence of clinical effectiveness. Recently, the World Health Organization (WHO) has released the results of a large trial that fails to provide evidence of clinical effectiveness. This has led the WHO to conditionally recommend against the use of remdesivir in hospitalised patients, regardless of disease severity.

This week the prestigious New England Journal of Medicine published a summary of the basis for emergency approval by the FDA. Basically, this report concludes that while remdesivir doesnt affect mortality, there is some evidence of effect.

Whether measures to simplify treatment through nasal inhalation technology from TFF Pharmaceuticals (NASDAQ:TFFP) or increased permeability and reduced volume (Starpharma (OTCQX:SPHRY) (OTCQX:SPHRF)) will provide a new life for remdesivir remain to be seen. The question is whether remdesivir can be made more effective.

Regeneron (NASDAQ:REGN) and Eli Lilly (NYSE:LLY) are leading the rush to develop monoclonal antibodies as early stage treatments for COVID-19. In effect, the goal is to provide the body with a boost by mimicking what the immune system does with monoclonal antibodies that are known to be effective.

There are some caveats about this approach. Firstly, it isnt clear that giving this late in the infection process will be harmless.

Eli Lilly has succeeded in gaining Emergency Use Authorization for its monoclonal bamlanivimab, prior to hospitalisation, although its effectiveness seems less than overwhelming.

Regeneron has also succeeded in gaining FDA Emergency Use Authorization for its monoclonal antibody combination casirivimab and imdevimab for patients with mild to moderate COVID-19 and who are at risk of progressing to severe COVID-19. Regeneron is working with University of Pennsylvania researchers to see if their monoclonal antibody cocktail can be delivered through the nose via Adenovirus vectors.

So far, the monoclonal antibody treatments have limited evidence of success in treating early stage infection, and they are expensive drugs. One would expect that they need to be effective to obtain approval.

Ive written recently about Starpharmas Viraleze nasal spray as a preventative/early phase treatment.

The rate of infection and death from COVID-19 is very different in different countries. Currently, Europe and the US are in a critical phase of a second wave of infections, with accelerating cases and threats to the integrity of the health systems.

The question is how to avoid runaway infections, increasing deaths and healthcare systems in danger of being overrun (again).

Im sure Ive missed a number of countries in highlighting here just 3 examples where a second wave has been successfully curtailed, so apologies to a number of other successful cases. The three I mention here are China, Singapore and Victoria in Australia. China and Singapore are special because China is a country where the government can and does have absolute discretion and therefore is able to enforce a hard lockdown. Singapores outbreak was primarily amongst foreign workers and thus a very focused intervention was possible. Australia is relevant because it is like Europe and the US, any action to control the pandemic requires a mixture of bringing the community with you along with tough measures that are not going to be popular (until the pandemic has been suppressed). A recent article from Australia gives insight into the kind of expert needed to succeed and how complicated the role of the expert is when interacting with politicians who have all kinds of pressure on them.

Australia managed the first wave well and so case numbers were very small when Victoria had an outbreak associated with a breakdown in hotel quarantine for Australians returning home. In early June, new case numbers were less than 10 daily, but this rapidly grew to 100s of new cases daily in July and the number peaked at 700 new daily cases in early August.

The rate of increase in Victoria was worse than that being experienced by the UK, but Victoria introduced a hard lockdown to aggressively address the problem. The UK delayed. To show how critical a delay in response becomes, the UK currently has around 15,000 new cases daily and around 500 daily deaths. The Victorian lockdown has controlled the outbreak and currently the new case load in the whole of Australia is around 10 new cases daily with negligible deaths.

The takeaway from Australias recent trauma is that to get the economy moving back towards normality requires the pandemic to be controlled, because if it isnt, one gets runaway infections (as the US is seeing now, with more than 200,000 new cases daily and more than 2,500 daily deaths) and threat to the stability of the entire health system.

Investors need to think about this in deciding about where countries sit in terms of economic recovery.

It is a surreal time in the US as the control of the country switches from President Trump who has overseen one of the worst outcomes of any country, with a fatalistic it happens approach. This means that the death toll is likely to approach 400,000 by January 20th, 2021 when President Biden assumes control. President-elect Biden has made clear that the COVID pandemic is his most urgent and immediate crisis; and he will address it as a crisis. What isnt clear is to what extent President Biden will be able to implement key issues (masks, lockdowns) given that these issues are now highly politicised. The rollout of a vaccine will help, but if the pandemic is still out of control at the end of January (which seems likely), it is hard to foresee how economic recovery will be possible in the short term, even if President Biden gets tax increases, stimulus and a major climate package through the Senate (unlikely unless the Democrats win the two senate seats in Georgia in January).

The above assessment of the situation in the US makes me pessimistic that at least a temporary market correction will be difficult to avoid.

The response to the COVID-19 pandemic has been extraordinary at all levels and the progress nothing short of amazing in 2020. However, the pandemic isnt over and major challenges remain before the global economy can reset. And the reset will be different from the time before COVID. Markets are not accustomed to these kinds of highly technical challenges, and so after the initial sharp decline, the response has been patchy. No doubt some have made money investing with the ebbs and the flows of COVID news, along with news of vaccines and treatments for COVID-19. The bottom line is that there are still a lot of unknowns and enough is known about the highly infectious nature of the SARS-CoV-2 virus to expect a dramatic effect on the economies of different countries, depending on how they are managing the pandemic

We live in a global village so the travails of some reflect on the travails of others. However, there are some green shoots and glimmers of return to some form of normality. Three countries (China, Singapore and Australia) in particular have had success in controlling a second outbreak, while at the same time much of Europe, the Americas (both North and South) and Japan (from a low base) are experiencing harrowing times, which threaten economic recovery. The point is that while cases are accelerating, it is only a matter of time before action must be taken or the health system gets overrun. With the very large number of cases in Europe and the US in particular, the means to get the pandemic under control is through testing. Isolation and contact tracing are pretty ineffective when there is a significant number of new cases. President-elect Biden is considering seeking a 100-day mandatory mask wearing mandate to begin to address the US COVID-19 challenges. Dr. Fauci says, This is not a hoax.

Regarding the US economy, which has a major influence on global markets, for the reasons given above, uncertainty and possible economic setbacks seem likely to have a negative impact on the market. My suggestion is to be ready for a correction, which might prove to be an interesting buy opportunity. And if you are looking for a shorting opportunity, cruise ships (e.g. Carnival (NYSE:CCL), up 56% in the past month) have to be on the radar.

As regards to COVID-related investments, the treatment landscape remains uncertain, so I dont see clear opportunities yet. Ive indicated here that vaccine companies BioNTech and Moderna do seem to have some potential for short-term upside, although there is still a way to go to see exactly how the vaccine programs will play out.

I am not a financial advisor, but I have followed the COVID-19 pandemic closely, based on my scientific background and involvement in the biotech industry. If my commentary helps you and your financial advisor to think about investment in this space, please consider following me.

Disclosure: I am/we are long SPHRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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COVID-19 Update: Vaccines, Treatments And Lockdowns, Investment Implications - Seeking Alpha

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December 5th, 2020 at 7:55 pm

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