Everyone complains about the weather, but no one does anything about it, Mark Twain once quipped.
That’s also partly true with COVID-19, at least the part about everyone complaining. The difference is, a lot of people are trying to do something about it, which brings us to coming earnings reports and conference calls from some of the key firms working on possible vaccines and treatments.
It’s been a confusing autumn so far as we survey the progress in this critical effort by health care companies, researchers, and governments. It seems lately like every step forward has been accompanied by a step back.
In the last few weeks, three companies working on vaccines or treatments have had to pause their trials for safety concerns. The AstraZeneca plc (NASDAQ: AZN) trial got back on track pretty quickly in Europe, but last week’s news of trial pauses from Johnson & Johnson (NYSE: JNJ) and Eli Lilly & Co (NYSE: LLY) mean lots of questions are likely on LLY’s earnings call next week.
Treatments and vaccines got a special spotlight earlier this month when President Trump was briefly hospitalized with COVID-19 and received an experimental antibody cocktail from Regeneron Pharmaceuticals Inc (NASDAQ: REGN). Trump touted it as a “cure,” but experts warned about jumping too quickly to conclusions.
On the treatment front, Gilead Sciences, Inc. (NASDAQ: GILD) has an antiviral product called remdesivir which is already being used against COVID-19.
One challenge for investors (and physicians) could be determining where to focus. As of early October, there were 317 treatments and 213 vaccines in development, according to analyst Kevin Huang of research firm CFRA. Let that sink in for a moment.
Phase 3 Vaccine Trial Data, Approval Submissions Up Next
As earnings season heats up, we’re getting close to possibly seeing early results from some of the large vaccine trials. PFE said last week it could file for emergency-use authorization of its COVID-19 vaccine by late November, assuming it receives positive efficacy and safety data from late-stage human trials.
MRNA said this week that the federal government could authorize emergency use of the company’s experimental COVID-19 vaccine in December, if the company gets positive interim results in November from a large clinical trial. If sufficient interim results from the study take longer to get, government authorization of the vaccine may not occur until early next year, the company told The Wall Street Journal.
In July, MRNA began a 30,000-person U.S. study to test whether the vaccine safely protects people from symptomatic COVID-19 disease, and enrollment is nearly complete.
The government’s “Operation Warp Speed” goal is to produce and deliver 300 million doses of safe and effective vaccines in the first half of 2021, with the initial doses available by January 2021.
“It seems optimistic,” Huang said. “You see how the testing effort has turned out. It took a while for the U.S. to really get on top of testing even when it was the most important priority. People were having to wait 10 days for test results, which is useless.”
Huang thinks a vaccine might be useful if it proves 50% effective or better in trials, so that could be one of the key data points investors should consider examining when companies put out their data. By comparison, the flu vaccine tends to be in the high-40% range in terms of efficacy. The government is requiring 50% efficacy for COVID-19 vaccine approval.
Before JNJ paused its trial, Huang said he thought their vaccine might have the best chance of widespread adoption because it’s a one-dose vaccine. That makes it far less logistically complicated to distribute and administer. However, JNJ got a later start than some of the other companies and is more likely to file for approval early next year, he said. That timing might change if this pause turns out to be more than a brief one.
It’s important not to get too anxious about trial pauses, by the way. Vaccines are complex to develop and test, and it’s very common for them to cause side effects. That doesn’t necessarily mean they can’t eventually be approved, or that they’re unsafe. Time will tell, of course, but the pauses so far seem par for the course, especially considering how quickly these vaccines and treatments were put together.
Huang isn’t sure any data we get from MRNA and PFE in coming weeks will be definitive, simply because of the complex and rapid process. “There might be caution initially,” he said. “The government is involved in all these initiatives, and they might want to prevent companies from releasing too much data too early on and create false confidence.”
Some companies are working on more traditional vaccines, and others, like Moderna and Pfizer (in a collaboration with BioNTech SE (NASDAQ: BNTX), are focusing on a messenger-Ribonucleic acid (mRNA) vaccine, which is much easier to manufacture.
With mRNA, the body essentially becomes its own weapon against the virus. This type of vaccine also can sometimes have quicker development timelines. The MRNA and PFE vaccines are pretty similar in profile and their method lowers the cost and complexity of manufacturing a vaccine because it doesn’t require growing proteins outside of the body, like a monoclonal vaccine. It also could mean less toxicity than traditional vaccines. Still, it’s a relatively young field of therapeutics, and this type of vaccine has never been approved before.
Typically, a vaccine takes 10–15 years to reach the market. With COVID-19 a clear and present danger, timelines have sped up.
One question investors have is whether any of these companies can profit from COVID-19 vaccines. The answer is possibly yes on MRNA.
“Moderna is one of the few companies that has made it clear they expect to profit from their vaccine initially,” Huang said. “They have no commercialized products, and they’ve said they owe it to their stakeholders to make a profit.”
The answer might be murkier with a huge company like JNJ, which possibly could afford to take a loss with a vaccine for covid. JNJ announced non-profit pricing during the pandemic phase, suggesting that they may increase the price after things normalize.
MRNA shares skyrocketed earlier this year in anticipation, but the stock’s gone into a holding pattern recently.
“People are waiting for data to come out and waiting to see what the competition is like,” Huang said. “People are trying to assign the probability of success. The current stock price doesn’t reflect full approval, but if fully approved the stock could shoot up more. If it doesn’t get approved, shares could collapse.”
Treatments Also Eyed
Remdesivir isn’t seen as necessarily a game-changing drug, possibly because some hospitals are seeing a decline in need for it and treatments like REGN’s antibody treatment could begin replacing it.
Another blow to remdesivir came last week when World Health Organization (WHO) officials announced that the drug has “little or no effect on mortality” for patients hospitalized with COVID-19. The agency says this is “conclusive evidence” about the drug. Earlier this year, a large controlled study of remdesivir in the US found that it shortens recovery time by about one-third in severely ill, hospitalized adults with COVID-19.
GILD pushed back on the WHO announcement.
“The emerging data appear inconsistent with more robust evidence from multiple randomized, controlled studies published in peer-reviewed journals validating the clinical benefit of Veklury (remdesivir),” GILD said in a statement. “We are concerned that the data from this open-label global trial have not undergone the rigorous review required to allow for constructive scientific discussion.”
LLY’s drugs belong to a class of biotech medicines called monoclonal antibodies widely used to treat cancer, rheumatoid arthritis and many other conditions. A monoclonal antibody drug developed against COVID-19 is likely to be more effective than repurposed medicines currently being tested against the virus, some analysts say. The LLY trial that paused earlier this month was of a monoclonal antibody treatment in combination with remdesivir.
Many analysts say a vaccine would likely be the gold standard to let society get back toward more normalcy. But treatments that make it easier and quicker to recover from COVID-19 also have the chance to help ease the path back toward normalcy.
Ahead of earnings from two of the most closely watched biotechs—MRNA and GILD—one thing seems pretty certain: Investors are likely to care much less than normal about Q3 financial numbers from either. What they say about their COVID-19 vaccine and treatment probably carries more weight.
FIGURE 1: BIOTECH STORMS AHEAD. Amid lots of excitement about COVID-19 vaccines and mergers and acquisition (M&A) activity, the Nasdaq Biotech Index (NBI—purple line) is outpacing the broader S&P 500 Health Care sector (IXV—candlestick) on a year-to-date chart. Data sources: Nasdaq, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Beyond COVID: Big Test Ahead for ACA
With a Supreme Court nomination drawing lots of attention ahead of the election, the Affordable Care Act, colloquially known as “Obamacare,” might be on Health Care investors’ minds as earning season moves along. On Nov. 10, the Supreme Court will hear oral arguments in California v. Texas, a case in which the Trump Administration and a group of Attorneys General are challenging the constitutionality of the ACA.
Health sector experts say if the Supreme Court strikes down the entire ACA, it could mean 20 million Americans losing their health insurance. Health system stocks like HCA Healthcare Inc (NYSE: HCA) and Tenet Healthcare Corp (NYSE: THC) could be sensitive to the Supreme Court outcome. Investors in this particular part of the health arena might want to listen closely on Q3 earnings calls to find out their leaders’ perspective on any potential changes to the law and potential impact on revenue.
The Supreme Court typically takes months to rule on cases, so it might be awhile before we find out their decision. Still, anyone invested heavily in the health arena might want to follow media coverage of the Supreme Court’s hearing on the case, because sometimes the questions and comments justices make during an argument can help us get a sense of what they might ultimately decide.
It’s hard to say what will happen to the ACA, research firm Briefing.com said. However, the firm is generally bullish on Health Care as a sector thanks to U.S. demographics. Strong demand for pharmaceuticals, medical devices, and hospital care is likely to continue as a large chunk of the population ages, whatever the outcome on policy, Briefing.com said.
The election, depending on how it turns out, could raise pricing concerns for the broader pharma industry as well. If power changes in Washington, D.C., it could mean greater focus on pricing and regulation overall, as many pharmaceutical and medical device firms saw during the Obama administration. For investors, it probably doesn’t pay to panic, however, because it seems very hard to get anything done on Capitol Hill these days.
Looking at the bottom line, analysts predict overall Q3 earnings per share for Health Care to rise by 1.6%, compared with about an 18% average earnings loss for the broader S&P 500, according to research firm FactSet.
Congratulations, Health Care. You’re at the top of the 2020 Q3 sector class. There’s no need to join the Peace Corp, though. No one is getting expelled.
TD Ameritrade® commentary for educational purposes only. Member SIPC.
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