Date: 09/24/2021
Author: Mr. X
This is a grim world. Your health is DLC, your immune system is a subscription service, and the best thing you can do is try to profit off it.
Let’s wind the clock back about a year…
Johnson & Johnson [JNJ] was a clear loser in the vaccine race. Unlike the vaccines produced by Moderna [MRNA] and Pfizer/BioNTech SE [PFE/BNTX], Johnson & Johnson used a more “old-fashioned” style of vaccine rather than modifying messenger RNA (mRNA). Initial data showed that it was only about 66% effective (globally) against the novel coronavirus, far below what the two leading mRNA vaccines could boast.
Johnson & Johnson’s shot did have the advantage of being only a “single-serving” treatment, rather than the two required for Moderna and Pfizer. Unfortunately, media stories about side effects (notably about 100 cases of Guillain-Barre after more than 12 million doses administered) and the relatively low level of protection put many patients off. Most fully vaccinated people in the United States either used Moderna or Pfizer.
Of course, that term, “fully vaccinated,” isn’t what it used to be.
New data from Pfizer shows that vaccine effectiveness drops off somewhat after about four months. Moderna holds up better. Thus, the FDA recently approved a third “booster” shot of Pfizer for Americans 65 and older and others who may be immunocompromised. We’ll have to see what happens with Moderna. In any event, with “fully vaccinated” now coming with an expiration date, JNJ has another opportunity.
A two-dose version of Johnson & Johnson’s treatment provides a reported 94% protection against symptomatic infection. JNJ now has something equal to what is offered by Pfizer and Moderna. Data also show that the second shot actually generates a stronger response if it is given six months later rather than four months. The FDA is currently reviewing the relevant evidence, but Johnson & Johnson suddenly has a chance of moving back into the first rank of vaccine contenders.
JNJ’s single-shot treatment and stronger second shot may play even better globally. Namibian president Hage Geingob recently blasted what the called “vaccine apartheid,” or the relative lack of access to vaccines in Africa. South Africa’s Cyril Ramphosa has said the world has not followed “the principles of solidarity and cooperation in securing equitable access of COVID-19 vaccines.” He specifically said it was an “indictment of humanity” that more than 82% of vaccines have been acquired by wealthy countries.
This provides an opening for Johnson & Johnson. Its initial single-dose treatment, relatively flexible requirements for transportation and storage, and increased effectiveness with a longer delay for a second shot makes it ideal for Africa. The African Union has already purchased an astounding 400 million doses of the Johnson & Johnson vaccine.
Nonetheless, JNJ is practically dead in the water when it comes to its stock. Despite having a P/E ratio of less than 25, it’s moved up less than 12% over the last year and is actually down over the last month. In contrast, MRNA is up about 569% over the last year and more than 14% over the last month. BNTX is up 424% over the last year, though it is down about 4% over the last month. PFE has P/E ratio of less than 19 and is up about 28% over the last year and down about 9% over the last month – a larger decline than that suffered by JNJ.
Of course, JNJ is not a pure vaccine play the same way MRNA is. Johnson & Johnson is a pharmaceutical giant that can enjoy a surge or suffer a reversal from any number of factors. It’s also dealing with various lawsuits, something purely COVID-19 vaccine plays don’t have to deal with. According to the Public Readiness and Emergency Preparedness Act invoked in February 2020, companies making COVID-19 vaccines cannot be sued (at least not successfully). This was judged necessary to have a vaccine quickly.
Yet we are past the first stage of the vaccination wars. It’s no longer a question about which company will be first, but which company will have the largest growth market, best long-term effectiveness, and best distribution network. JNJ stock probably has further to fall before it looks worthwhile. However, it was just above $153 as recently as March. If a significant part of the global market is dominated by JNJ, it can count on a significant revenue stream that will help it overcome other challenges. If share prices fall to similar levels again, JNJ looks like something to consider.
Some have joked darkly that vaccines are now similar to the “DLC” (downloadable content) offered by video games. You aren’t simply vaccinated and then set for life anymore than you can just buy a game now and have the whole thing. You have to keep making incremental purchases.
This seems sinister, and, well, maybe it is. Yet even the most benevolent and selfless health authorities have to deal with the reality that this virus changes and vaccine effectiveness seems to fade with time. Perhaps someone will invent an instant cure or a one-shot vaccine that you get at infancy, but these don’t exist yet. “Subscription service” vaccines are inevitable.
What seems likely to emerge is an initially ad-hoc but gradually centralized system of vaccinations that will be tracked across countries over time. Legal requirements for international travel or jobs will ensure that all this information is tracked. Safeguards will be put in place to prevent fraud. Terms like “fully vaccinated” will change as more data comes in about long-term effectiveness of vaccines. The possibility of new mutant strains will require constant innovation.
Yes, this is a terrible way to live. No, I don’t think there’s a way out.
This is a cynical way to look at things, but hey, it’s my approach, and there are gains to be made. JNJ could be one place to look for them.
Another one seems even more exciting, Novavax [NVAX].
Novavax recently secured an advanced purchase agreement with the European Commission for up to 200 million doses of its own COVID-19 vaccine. It’s also appealed to the World Health Organization for emergency use listing of its own COVID-19 vaccine, which would allow the company to capture market share in poorer countries. Finally, and perhaps most importantly, Novavax may have the best “DLC program” of all.
Novavax’s big vaccine win didn’t come with COVID-19, but with a regular flu vaccine. Results from a Phase 3 trial of “Nanoflu” were recently published in The Lancet and showed broad effectiveness. Now, the company is combining its COVID-19 vaccine with a regular flu vaccine.
From a financial point of view, this is probably the key market. Yearly flu vaccines have become a standard part of life for many people, and that was without mandates and a rather lackluster public education campaign.
A combined COVID-19 and flu vaccine, backed up by mandates and (arguably) hyperbolic rhetoric about the pandemic, would become a physical, emotional, and financial necessity for many people. It already seems very likely that to be “fully vaccinated” will require you to have yearly shots. It might even be more often.
The company that can tackle the broadest range of maladies with a “standard” shot will have a key advantage.
Still, Novavax does have two major problems. First, Moderna, which already has won brand loyalty from millions of Americans, is also pursuing a combined flu-and-COVID vaccine.
Second, and more importantly, a study showed that “mixing and matching” vaccines lead to increased side effects. These side effects are reportedly not serious and didn’t require hospitalization. However, given how bad even the “mild” side effects of a second-shot from Pfizer and Moderna can be, many Americans will undoubtedly want to stick with the same brand.
It should be noted that this study, published in May, only considered vaccines from Pfizer and AstraZeneca/Oxford University [AZN]. More data is being assembled that includes Novavax and Moderna. That data could show something different.
The vaccine issue has become so political that it can be dangerous to talk about. It’s also complex. The evidence can’t just be summarized in soundbites. Finally, the situation is ever-changing, as more data comes in and new virus strains emerge.
All that said, and at the risk of picking a fight, two things seem very likely.
- First, a broader global market remains unserved by vaccine companies.
- Second, vaccines will become “DLC,” something that will need to be renewed yearly (if not more often). Companies that make this annoying process as painless as possible will do well.
Johnson and Johnson looks to be getting back in the game when it comes to global markets. If its current price decline continues to about the $150 mark, it might be worth taking another look at the stock.
As for Novavax, the company may have a unique appeal. It may have lost to Moderna in the initial COVID-19 race. Moderna enjoys brand loyalty. Moderna is also pursuing a combined vaccine. Still, if Novavax can build off its flu success and create a safe combined flu-and-COVID vaccine first, it might become the “subscription service” of choice.
Given short term market conditions, NVAX is performing better than JNJ. It’s also easier to track because it is so linked to vaccines specifically.
I don’t like the world that’s emerging. I don’t like health care being so nakedly reduced to a commodity. It is vulgar to speak about health care as “DLC” and “subscription services.”
Unfortunately, what is vulgar just means what is unadorned and undisguised. The world is as it is.
The timeless truths of economics will apply in this market as in everything else. Consumers will probably go with the company that will make this unpleasant process as easy as possible. MRNA and PFE/BNTX were first out of the gate, but JNJ and NVAX are regaining lost ground.
