CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider (Saxo Bank). You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.
If 2020 revived the notion that corporate heroism is alive – Big Pharma could certainly put its hat in the ring. This is a long way from the “The Constant Gardener” a 2001 John Le Carré book on pharmaceutical corruption.
C-19 offers Big Pharma a chance for image restoration. A Gallup poll in 2019 on the US public perception of 25 major industries ranked Big Pharma last. Americans were more than twice as likely, 58% v 27% to view the industry negatively.
Many industry players have been working 24/7 for a C-19 vaccine. Big Pharma has provided the means, expertise and funding for testing drug candidates in collaboration with smaller biotechs/ university research facilities who have contributed the science. Over 200 different vaccine candidates are being investigated globally.
The race to tackle C-19 is analogous to the Grand National. A protracted race event with plenty of hurdles to jump!
The disproportionate impact of C-19 on the USA is well known. The US has c. 4% of the global population but has had 21% of infections (12.59m/ 59.81m) and 18.4% of fatalities (259.9k v 1.41m) according to John Hopkins University. The USA in pharma terms remains the trophy asset, the source of 50% of global drug profits – the key goal is C-19 market share in the United States.
Given the context of the C-19 pandemic and hundreds of Americans dying every day, key ‘first mover’ hurdles for all companies wanting US market share include:-
a) Clear evidence from large scale (phase 3) patient trials of vaccine safety and efficacy and proof of correct dosage
b) Quick regulatory filing / rapid US Food & Drug Administration approval
c) Large scale manufacturing & distribution (key will be the ability to quickly fill pre-orders) and the ability to secure sufficient APIs (active pharmaceutical ingredients) and vials.
The priority now is effective quick roll-out. Pricing, administration and logistics are less important factors. Going into 2021 drug specific factors will become more important. Capture of C-19 market share will then depend more on:-
a) Single shot doses that simply vaccine delivery and administration
b) More convenient chilled (2-8 degree) or even room temperature storage
c) Longer vaccine shelf life / longer protection
d) Competitive pricing
e) Engagement in a global solution is available that allows countries to access sufficient C-19 vaccine on a fair and cost-effective basis.
The dynamics of C-19 pandemic mean that the first drugs to market could be temporary and expensive fixes that give way to better alternatives in 2021.
The ‘early birds’ notably Pfizer, Moderna and Astra Zeneca have a 2-3 month headstart. Their first mover advantage allows them to build market share quickly and possibly deal with the C-19 problem quickly insofar as it relates to higher risk people.
A key issue is the time taken to distribute and inoculate the population who are deemed to be higher risk and hence higher up in the vaccine pecking order. These categories would include the late middle aged, elderly, sick, healthcare, care home workers etc. In terms of population this could easily be 25% of the total inoculations.
This might explain why some companies, notably GSK (the world’s largest vaccine maker) and its partner Sanofi have been slow relative to their peers. GSK/ Sanofi is playing the long game, which might cost it US market share in the short term and give it a lot of catching up to do in 2021.
GSK/ Sanofi will use the extra time to create a more effective drug that is better suited to lower risk population subsets. GSK is possibly targeting an affordable vaccine suitable for the industry standard 2-8 degree cold chain infrastructure.
We still have some known “unknowns”. Notably:-
i) potential side-effects from various C-19 vaccines
ii) Many governments have yet to decide whether inoculations will be mandatory, or if they will be mandatory only for certain population subsets. If vaccinations are not mandatory this would impact C-19 vaccine demand.
Understanding Vaccine Efficacy (VE)
The bar is now been set high in efficacy terms for late arrivals. Vaccine efficacy is generally calculated as:-
VE = (ARU- ARV) / ARU *100%
VE: vaccine efficacy
ARU: attack rate of unvaccinated people
ARV: attack rate of vaccinated people
It is worth noting that “vaccine efficacy” is an industry measurement based on pharma trials which differ from real world performance, known as “vaccine effectiveness”. This is because people chosen for clinical trials are often young or middle aged and healthy. A trial sample will not match the medical profile of the population at large. Furthermore people can have medical conditions that interfere with a vaccine’s performance. C-19 has primarily impacted and killed people with pre-existing medical conditions. Hence this category needs to be part of the trials.
That said, Pfizer/ BioNTech claimed their vaccine had a 95% VE rate, Moderna claims a 94.5%, the Russian Sputnik claims “over 90%” whilst Astra Zeneca claims around 70% if results from both dosing regimens are combined.
Are drug candidates required to show very high VE for US regulatory clearance? No. The US Food & Drug Administration has said it will grant emergency approval for vaccines that showed 50% efficacy. Setting the regulatory bar at this low hurdle could mean quite a few vaccines will be approved, increasing competition.
But marketing of C-19 vaccines will be easier the higher the advertised VE rate. This is important to justify the more expensive treatments from Pfizer and Moderna.
Big Pharma could win the C-19 battle but lose the war; Vaccine Nationalism – is the ability of wealthier countries to ‘crowd out’ poorer countries from the market via large scale pre-ordering, higher pricing and easier distribution. It is a reputational risk for the pharmaceutical industry who could be accused of favouritism and/or only protecting or prioritising their best clients.
Pre-ordering (needed to fund investment in vaccine R&D and trials) is well underway with the US, UK, EU, Japan holding purchase options over significant portions of the expected manufacturing capacity. In the case of the US, UK and Japan these countries’ C-19 orders exceed their population and substantially exceed the expected early stage mandatory inoculations.
Source: www.qz.com / 24th November 2020
NB. The EU has ordered 160m Moderna vaccines on the 25th November 2020.
Covax, a group of 94 of the wealthiest countries (excluding the USA) is co-lead by Gavi (the Global Vaccines Alliance), the Bill and Melinda Gates Foundation and Serum Institute of India aims to procure, effectively allocate and deliver 2bn doses of C-19 vaccine. It has an ambitious target to inoculate 20% of the global population by end 2021. It has already raised its $2bn requirement for 2020 and needs a further $5bn to secure its 2021 objectives.
Covax has secured a deal for the Astra-Zeneca/ University of Oxford AZD1222 for 2bn doses (covering 1 bn people) at a maximum cost of US$3.00 a dose. This is expressly allocated to 92 low – middle income countries and it is claimed this being done on a “not for profit” basis i.e. at cost price.
However it is thought that up to c.17bn doses may ultimately be required globally, given the risks of theft, counterfeiting, spoiling and wastage (according to WHO wastage is c. 50% globally due to a lack of cold chain requirements in parts of world) and the problem of not knowing precisely how long the average dose protection will last. It is critical that the pharmaceutical industry distributes C-19 fairly and is seen as doing so.
Astra-Zeneca / Oxford – AZD1222
The Astra-Zeneca/ Oxford AZD1222 Phase 3 results were disappointing. Why was this?
*Firstly this was an interim analysis of phase 3 data from 11,636 i.e. a small sample of a total Astra phase 3 trial expected at c.60,000 globally. There are 23k more still being tested and those results are due this year. This second data reading could shift up or down making this early read unreliable. But the trial showing a 90% efficacy (half dose then full dose) was from a sample of just 2,741 people whilst the 62% (2 full doses one month apart) VE rate came from the larger 8,895 test giving an average of c.70%. It is worth pointing out that pharmaceutical trials involve hundreds of people in Phase 2 but many thousands in Phase 3. Whilst encouraging in safety terms, this reading is based on partial information. The FDA could insist on the full trial results being submitted.
*No reasons were provided for the large VE discrepancy between the two trials’ data sets. The inference is that Astra-Zeneca does not know the reason, because if so, it should have disclosed it.
*The age categories of the sample sizes were not revealed on Monday. This is a major factor impacting VE. It has since emerged that for both reported results, the age group was ’sub 55’ only (also relatively vague). This grouping has a far lower risk of C-19 hence pushing the stated results to the upside. Regulators will want to know the performance for elderly people. In the Pfizer trial 41% of people were in the 56-85 age bracket.
*Even if 90% VE is used rather than 62% this was still a lower VE rate than either Pfizer or Moderna. Whilst AZD1222 should obtain US regulatory clearance, the real issue is whether US healthcare authorities feel comfortable buying AZD1222 in these circumstances given the data is showing a weaker relative performance. I don’t see the pricing as necessarily a key factor.
*The subtext is AZD1222 is less attractive in the US market than its peers when viewed on purely medical grounds. AZD1222 may well be fine for the rest of the world but there the vaccine pricing is less favourable and Astra-Zeneca has committed to significant sales at cost price.
The Astra-Zeneca share price response, a 500p drop from Monday morning speaks volumes for itself. The stock was moderately lower in London trading but very sharply down once US trading started suggesting US investors were taking a dim view of the data. Futhermore the Pfizer share price was holding up well, and has done since, suggesting investors believe AZD1222 is not a competitive problem for Pfizer.
We are in an early stage here ahead of FDA approval and key data so it is too early to draw firm conclusions. I would not write-off AZD1222 due to its better pricing and storage requirements. However AZD1222 is clearly on the back foot in the USA, its second round of data has to show real improvement.
Market size and impact on financials
A closer look at the Pfizer revenue opportunity is required. (Pfizer and Moderna are operating on a commercial basis unlike Astra Zeneca and Johnson & Johnson).
The US government has agreed to buy up to 100m of Pfizer’s difficult and expensive vaccine, at $39.50 (2 doses) – even assuming a 50% inoculation rate, and 30% market share, and this is supplied in 2021 that is c. $1.95bn a c. 7.6% upside to Pfizer $52bn annual revenues. Nice but not earth shattering.
The total global revenue opportunity is c.$4.6bn over 2021 assuming Pfizer market shares of 30% in the US, 20% in EU and Japan, 10% elsewhere – hence c 8.9% of Pfizer 2019 revenues. It is also worth noting the relative importance of the US to Pfizer, the 500m option order for example, the pricing could well be critical to a positive outcome.
This is a fast moving situation and since “Pfizer Monday” (10th November 2020) the Pfizer board have submitted (20th November 2020) their request to the FDA for Emergency Use Authorisation (EUA). Permission would allow vaccine roll-out by mid December 2020 to 15m-20m C-19 high risk members of the population. This could slow the advance of C-19 significantly in the USA by late January 2021.
Getting to a C-19 vaccine is certainly reputation enhancing for all concerned. But possibly the C-19 vaccine is being over-trumpeted as a profit opportunity for drugs companies.
The issue of national champions has also been raised, specifically in relation to the Russian Sputnik V treatment which lacks global distribution and received local authorization before phase 3 trial results were released! Only Hungary has expressed an interest in Sputnik V which is being priced at $10 a dose with the apparent intention of undercutting Pfizer by 50%. Some countries will be more willing to reward their national champions which would give Astra Zeneca an advantage in the UK and possibly in the EU.
The US appears willing to award the first round to Pfizer notwithstanding the storage problem (liquid nitrogen) and administrative difficulty. Based on our findings I broadly concur with this assessment. Astra-Zeneca can still catch up but has its work cut out, a similar conclusion holds for GSK/ Sanofi and J&J.
Please be aware that the following disclosures of Material Interests are relevant to this research note:
Company Name – Relevant disclosures: (2)
Astra-Zeneca Relevant disclosures: <2>
Pfizer Relevant disclosures: <2>
Moderna Relevant disclosures: <2>
GSK Relevant disclosures: <2>
Sanofi Relevant disclosures: <2>
BioNTech AG Relevant disclosures: <2>
The report’s author certifies that this research report accurately states his personal views about the subject securities, which is reflected in the ratings as well as the substance of the reports.
Collins Sarri Statham Investments Ltd (CSS) does not in any of its publications take into account any particular recipient's investment objectives, financial situation, and specific needs and demands. Therefore, all CSS publications are, unless otherwise specifically stated, intended for informational and/or marketing purposes only.CSS shall not be responsible for any loss arising from any investment based on a perceived recommendation.
No publication (including recommendations) shall be construed as a representation or warranty that the recipient will profit, nor avoid sustaining losses, from trading in accordance with a trading strategy set forth in a publication.
This research is non-independent and is classified as a Marketing Communication under FCA rules detailed in their Conduct of Business Rulebook (COBS). As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition of dealing ahead of the dissemination of investment research outlined in COBS 12.2.18.
Trading in the products and services offered by Collins Sarri Statham Investments Ltd (CSS) may, result in losses as well as profits as the value of investments may go down as well as up. You may not get back the full amount you have invested. Any reference to past performance should not be viewed as an indication of any future performance. Investments held in overseas markets are subject to the effects of changes in exchange rates which will impact on the value of the underlying investment. Investments made in AIM and penny shares carry an increased risk due to the difficulty in creating a market in these shares. There may be a substantial difference in the buy and sell price. Leveraged products such as Contracts for Difference (CFDs), derivatives, commodities & Foreign Exchange (FX), carry a higher risk to your capital and they can lose their value rapidly.
The information contained herein is based on materials and sources that we believe to be reliable however we make no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Please note that the figures shown may, in some instances, be rounded to the nearest penny. Prices can move sharply from those quoted in this document. Current prices can be verified by calling one of our brokers. CSS is under no obligation to update the information contained herein. Neither CSS, nor its affiliates, nor its employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from the use of this document.