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Why Novartis’ Absence From the Covid-19 Vaccine Race Is a Benefit

Josh Enomoto
·5 mins read

As one of the world’s leading pharmaceutical companies, you probably would have expected Novartis (NYSE:NVS) to jump in the novel coronavirus vaccine fray. For one thing, the company has the capacity to mass produce a successful candidate. As well, it could leverage its expertise in addressing multiple diseases. Yet the pharma didn’t follow its peers, which may turn out to be a positive for Novartis stock.

Novartis (NVS) logo on a corporate building during daylight
Novartis (NVS) logo on a corporate building during daylight

Source: Denis Linine / Shutterstock.com

At the time, it may have seemed like the wrong decision. Among the majors, you have names like AstraZeneca (NYSE:AZN) partnering with Oxford University to develop a viral-vector vaccine. Utilizing a similar approach is Johnson & Johnson (NYSE:JNJ). Further, Pfizer (NYSE:PFE) has teamed up with BioNTech (NASDAQ:BNTX) to develop a messenger RNA-based vaccine. This approach competes with Moderna (NASDAQ:MRNA), along with the partnership between Sanofi (NASDAQ:SNY) and GlaxoSmithKline (NYSE:GSK).

Rather than throw its hat into the mix, Novartis has supported Covid-19 vaccine developers by offering some of its manufacturing capacity. For instance, the company, through its gene therapy business AveXis, contributed adeno-associated virus vector (AAV) technology and manufacturing space to support a project led by the Massachusetts Eye and Ear and Massachusetts General Hospital.

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If recent trades are anything to go by, management’s decision to avoid the vaccine race directly has allowed stakeholders of Novartis stock to sleep a bit easier.

Since the beginning of August, some of the major vaccine players haven’t performed well. Take a look at AZN, SNY, PFE and BNTX. These shares are either flat or are declining at the time of this writing. In contrast, Novartis stock has been steadily marching higher, albeit in a choppy fashion.

Given the uncertainties of vaccinations, it’s a luxury to concentrate on core businesses.

Novartis Stock Doesn’t Have to Deal with Covid-19’s Tough Science

One of the fascinating dynamics of the novel coronavirus vaccine race is just how difficult it will be for the Trump administration — or perhaps the Biden administration — to decide which candidate, if any, to support.

Of the four major types of vaccines — traditional, subunit, viral vector and nucleic acid — each have extensive pros and cons. For instance, I’ve thrown out traditional vaccines in my mind because while they have a history of success, they take far too long to develop and distribute. Frankly, we don’t have the time.

Even Novartis’ gene therapy subsidiary may run into problems supporting vaccine developers. As I mentioned above, AveXis specializes in AAVs. Eagle-eyed InvestorPlace readers will recognize the platform as the one Ocugen (NASDAQ:OCGN) uses to address inherited retinal diseases.

But the problem with AAVs is that patients may suffer a negative response to the virus vector (or carrier) that “infects” cells with the carried genes. As you know, AstraZeneca had a hiccup in its clinical trial when a U.K. patient came down with an unexplained illness.

To be fair, AstraZeneca used an adenovirus as its vector (carrier), whereas Novartis’ AveXis uses adeno-associated vectors. Further, we don’t know exactly why the U.K. patient got sick. Nevertheless, the risk of a negative immune response against viral vectors has always been a risk factor for this process.

Moreover, other leading vaccine types are not safe from scrutiny. For instance, while clinical data for Moderna’s vaccine candidate looks promising, The New England Journal of Medicine reported that antibody titers increased significantly among early participants during the second vaccination.

Should Moderna win out, its candidate will likely require two doses. That could be an issue. But for Novartis stock, none of this matters because the underlying company isn’t involved in the race.

NVS Isn’t Completely Disassociated

While Novartis is staying out of the vaccination fray, it’s lending its direct expertise to an area that might truly emerge victorious: treatments. With many Americans scared to take a Covid-19 vaccine, the treatment approach may be the better one, at least in this country.

If so, Novartis would again win out. According to its website, NVS has a new indication for its canakinumab (ACZ885) drug, which “significantly reduced the risk of a composite of cardiovascular death, non-fatal myocardial infarction and non-fatal stroke for patients with a prior heart attack and inflammatory atherosclerosis.”

Now, ACZ885 is undergoing trials “to demonstrate that early treatment with canakinumab prevents progressive heart and respiratory failure in patients with COVID 19 infection, myocardial injury and hyperinflammation.”

To note, the study won’t come out until around the end of this year. But if you believe that we’ll have a second wave of coronavirus soon, Novartis stock might not be a bad bet. The underlying company will find itself relevant and it doesn’t have to deal with the vaccination drama.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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