Last week – less than a year after Covid-19 coronavirus first emerged – biopharma companies Pfizer and BioNTech announced that their vaccine candidate for Covid-19 was more than 90 per cent effective in preventing the deadly disease in a late-stage clinical trial. On Monday, biotechnology company Moderna said its vaccine candidate was 94.5 per cent effective.
Although the data are preliminary, the results were better than expected and ignite new optimism about economic growth in 2021, a sentiment we increasingly share.
Pfizer’s was the first data readout of nearly a dozen large-scale clinical trials for Covid-19 vaccines, but the outcome was highly encouraging. Consensus expectations had forecast the efficacy rate for the vaccine, currently known as BNT162b2, at between 60 to 70 per cent. If the 90 per cent efficacy rate continues to hold for the remainder of the trial, it would put the drug’s effectiveness on par with the measles vaccine and well above that of flu shots (which are, on average, 50 per cent effective).
Pfizer and Moderna can both now apply for emergency-use authorisation from the US Food and Drug administration (FDA) after accumulating a median of two months of safety data, a goal that is on track to be reached by within weeks. With the FDA expecting a vaccine to have at least 50 per cent efficacy, we think both vaccines have now given themselves a comfortable margin for potential approval.
The vaccines are based on a novel approach to drug development called messenger ribonucleic acid (mRNA) technology, which essentially instructs the body to make proteins to fight disease. In the case of Covid-19, they carry the blueprints for building a protein spike that SARS-CoV-2 (the virus that causes Covid-19) uses to enter host cells, prompting an immune system response. Thus far, no mRNA-based therapies, including for other indications such as cancer, have been granted regulatory approval.
Should efforts by Pfizer/BioNTech and Moderna be successful, it would be remarkable not only for proving that the technology works, but also in light of the timeline: they will have been developed and approved for emergency use in less than a year, while historically vaccines have taken 10 years or longer to come to market.
Pfizer and BioNTech’s partnership has been a unique collaboration. BioNTech, a German biotech, designed the drug’s architecture but lacked the resources to execute a global clinical trial. Pfizer provided this and has also led the scale-up of manufacturing and distribution capabilities. MRNA therapy poses a unique challenge as it must be transported and stored at extremely low temperatures to remain viable. Investing billions of dollars, Pfizer devised shipping containers with reusable GPS temperature sensors and specialist freezers that can store vials for up to six months.
Based on current projections, Pfizer and BioNTech are on track to produce 50 million doses by the end of 2020 (covering 25 million people) and up to 1.3 billion doses in 2021 (covering 650 million people).
Plenty of unknowns remain about both vaccines’ ability to help end the global pandemic. The FDA, for one, must ensure the companies can manufacture vaccine doses safely and consistently. More research is needed to confirm the efficacy and durability of the treatments, particularly among different age groups.
Emergency-use authorisation would allow vaccines to be administered initially to critical populations, such as frontline health care workers, with the earliest vaccinations potentially starting by the end of the year. Meanwhile, the pandemic is accelerating, with deaths from the virus topping 1.3 million globally and many countries in Europe and the US reporting new daily cases hitting records.
Positive vaccine news comes at a critical time, with more than 55 million confirmed cases globally and the number of new cases across G7 countries accelerating rapidly.
Even so, equity markets soared after the trial results were announced, with the Dow Jones Industrial Average and S&P 500 Index hitting record highs, led by industries that have been hurt most by the pandemic, such as travel and energy.
Over the past week, the outlook for risk assets has turned markedly more positive, thanks not only to vaccine news but also the conclusion of the US presidential election. Both events could lead to improved economic growth in 2021, the return of investor confidence and positive net flows into risk assets.
Importantly, this could also result in the broadening of market gains. Throughout 2020, outperformance has been largely concentrated in companies with high growth rates that offered digital solutions for a socially distant world. Should a vaccine help restore “normalcy” to the global economy, we would expect that narrowness to finally widen out.
The approval of multiple vaccines is seen as critical to quickly and effectively protecting the world’s population, with important implications for the global economy.
What’s more, mRNA platforms, by their nature, could be readily modified to address new versions of the virus in the future, should that become necessary.
The typical market cycle (from the bottom of a bear market to the top of bull market) lasts roughly five years. The Covid-19 pandemic brought an abrupt end to the last bull market in March. The news about these vaccine breakthroughs could mark an important step on the path to a new one.
Andy Acker is portfolio manager at Janus Henderson Investors, a member of The Gulf Bond and Sukuk Association