COVID variants: The impact on pandemic trajectory & biopharma stocks

Michael McNurney: Welcome to Janus Henderson’s ongoing series on investing amid the COVID crisis. My name is Michael McNurney, and today I am joined by two of our biotechnology analysts, Dr. Dan Lyons and Dr. Agustin Mohedas.

Dan, at the end of 2020, we saw that there was a lot of optimism about the COVID-19 vaccines that have come to market, especially with 95% efficacy rates for a couple of those vaccines. But lately, there are new variants of the COVID disease that have come to light and there has been some concerns about the efficacy of these vaccines for fighting those new variants. Can you give us an update on where we stand in terms of how effective these vaccines are on those variants?

Dan Lyons: Yeah, that is a really good question. So early on, the vaccine trials have shown from Moderna, BioNTech and Pfizer, you know, 90%-95% efficacy. And as we’ve gotten into 2021, we’ve seen some more recent readouts from vaccine studies, and here we are seeing somewhat of a drop in the activity of some of the vaccines. The reason that is an area of concern, all of the vaccines are basically going after the spike protein, which is a key part of the virus. And what these variants have cropping up inside of them, are different mutations that basically change the susceptibility of the virus to the immune response that is caused by the different vaccines. And because the vaccines and our immune system are really good at targeting a wide range of both antibody and T-cell responses, you know, we were optimistic that there should be some level of efficacy for the vaccines across many of the variants. However, as more and more mutations build up, you get a higher and higher chance that there could be what is called escape variants, which can basically get around some of those antibody responses or T-cell responses. And unfortunately, some variants have come up both in the UK and South Africa that are showing that trend.

McNurney: So, Dan, what does that mean in terms of our capability of returning to normal, so to speak? Does it change the herd immunity rates, and does that mean that we are potentially going to get to herd immunity much slower than we originally predicted?

Lyons: Well, first, I will start with the good. The good thing that we have seen across all of the vaccine programs is almost complete protection against really severe hospitalization or severe infections. So, the vaccines, so far, even against the South African variant, from both J&J and Novavax studies, have shown very good protection there. So, the vaccines are still doing their job and will provide substantial protection against the severe disease.

However, we also have to take into account from a herd immunity standpoint two other things that we have learned. One, we learned that in South Africa, the population can basically be reinfected after having prior COVID infection. What this means from a herd immunity standpoint is that all the people that have been infected before don’t really count for herd immunity because basically these new variants can reinfect people. So, there may be somewhat of a delay in terms of when we can reach herd immunity. Now, it could be possible that we need booster vaccines in the future to fully protect against the new variants and to protect against people getting infected with those. But the important thing is that people would still be protected from having serious disease.

McNurney: You’ve mentioned the Novavax and the Johnson & Johnson vaccines. Agustin, maybe let’s turn to you, and if we can just discuss where are we in terms of getting approvals for those vaccines, and do they differ from what we’ve already seen from Moderna and the collaboration between Pfizer and BioNTech?

Agustin Mohedas: So, the Novavax vaccine is more of a standard vaccine approach, it is a subunit vaccine that is made recombinantly in insect cells. It’s called the baculovirus system. And so Novavax basically makes a recombinant spike protein and mixes that spike protein in with an adjuvant, a proprietary adjuvant that is very strong, and then it uses that as the vaccination. And so that is a different approach than using mRNA that, you know, obviously just uses mRNA to create the spike protein within cells in our own bodies. And the Novavax approach has some benefits to it in that you need a lot less from a dose point of view, you need a lot less. They are using 5 and 10 microgram doses versus 25 microgram doses for some of the mRNA vaccines. So, that potentially allows it to scale more rapidly. Also, their baculovirus system, production system can easily be modified to start generating spike protein from the new variants. And so Novavax is guiding that, by the second quarter of this year, they will have new vaccines that will potentially be providing boosting immunity against new variants, and so that is very exciting.

The J&J vaccine is quite different. It uses an adenoviral vector to deliver the spike protein DNA. And, so, very much like the mRNA virus vaccines, it relies on your own body making the spike protein and then generating an immune response. The J&J data, so far, have shown less efficacy than mRNA vaccines against even the standard variant but that is in large part because this is a single-shot vaccine. J&J is also studying this vaccine in a two-dose regimen that could potentially show better efficacy. However, the J&J vaccine will be much more challenging to retool for new variants. And, so, we will be relying mostly on mRNA vaccines and probably protein subunit vaccines like Novavax for new variants.

McNurney: Dan, I am going to come back to you, and I think that long term, we see that we are going to overcome this disease. However, what do these new variants mean in terms of the timing? You have already suggested a little bit that we could see delayed timing, but do you have a better sense for how long we may be delayed in terms of overcoming this disease?

Lyons: Yeah, that is a really important question. And as we said earlier, you know, it is probably going to take longer for the population to develop herd immunity, and there is a scenario now where, unfortunately, COVID may be somewhat of an endemic disease, kind of just given, given the fact that the variants are out there. The way I think about it, it is most likely with a good vaccination campaign in the U.S., you know, by the back half of the year, we can have a substantial portion of the population, maybe half or so, by mid-year to the third quarter, that is hopefully nearing vaccination. And with a growing percentage of the population vaccinated, you know, it is possible that COVID disease could become something more like an endemic common cold virus, where we have most of the population protected to some extent from really severe disease. But it is possible we may still have the condition circulating around.

One other thing that Agustin mentioned where we basically do have the capability to make booster vaccines against these novel variants. And companies like Moderna, BioNTech and Novavax are already working on that and we will have those in clinical development. And relatively quickly, there could be the potential that we could have booster doses of vaccine that might help protect us and knock this thing out more fully. But that remains speculative right now. So, I think the key thing, message right now is we need to vaccinate as quickly as possible to try to protect as much of the population as we can.

McNurney: These companies – Moderna, BioNTech, Pfizer, even J&J and potentially Novavax – have seen their stocks increase fairly dramatically. What do you see in terms of the outlook for these stocks and how they may react as we continue to address this crisis?

Lyons: Yeah, we have seen, obviously huge moves up in many of these stocks. We are being very careful in terms of our investments in this space just because there are still a lot of uncertainties. You know, in order to justify substantial long-term value here, we need to believe that there could be a potential booster market down the road or the validation of technology such that these platforms might work in other common diseases like influenza. And all these companies are working on novel flu vaccines as well and that is where their manufacturing capabilities and their flexibility may come into play. So, we are trying to be targeted in our investments in this space, taking in mind those kind of longer-term considerations.

McNurney: Yeah, I think the next video in this series will be with our Director of Research to talk about the overall impact to the market as we emerge from this crisis. But gentlemen, thank you very much for your time today, your insights have been tremendously valuable to our investment team here at Janus Henderson, and we look forward to talking to you again.