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As fears of a second wave of Covid-19 weigh on stocks, here’s some potentially good news: A vaccine may be approved before the November election, according to a major biotechnology investing research firm.
The prediction is a big deal for investors for three reasons.
1. It’s credible because it comes from Jefferies, a high-profile brokerage in biotech and pharma that’s wired in to literally hundreds of companies in the group, including the major vaccine developers. Jefferies has nine analysts covering the industry.
2. Food and Drug Administration (FDA) approval of a vaccine ahead of voting could have an impact on the elections, possibly swaying the outcome in favor of President Trump.
3. For investors, early vaccine approval would be bullish for biotech stocks, cyclical stocks, travel stocks, the economy and the market overall. The S&P 500 Index SPX, +0.05% and the Dow Jones Industrial Average DJIA, -0.15% have recovered most of their March losses, and the Nasdaq Composite Index COMP, +0.32% recently hit new highs. They’ll need some good news to support further advances.
Ironically, early vaccine approvals probably won’t mean much for investors who have already enjoyed good runs in vaccine developers. It might not mean much for most people worried about contracting the virus, either. Weird, right? We’ll get to that later in this column.
Bold prediction
We hear time and again that vaccines take 10 to 15 years to research and bring to market. So given the limited timeline of Covid-19 vaccine safety and efficacy studies to date, the following is a bold projection.
“We believe the FDA will likely approve at least one vaccine prior to the November election,” Jefferies health-care strategist Jared Holz said in an interview. “Perhaps multiple vaccines could get the go-ahead at some point early in the fourth quarter and quell fears of a second wave of Covid-19.”
But this isn’t too off the wall, even if Covid-19 vaccines have only been investigated for under a year. That’s because Holz is basing his prediction, in part, on signals from vaccine-development companies.
He says New York-based Jefferies has heard from several vaccine developers — including Moderna MRNA, +2.59% and AstraZeneca AZN, -2.30% — that an emergency authorization may happen before the elections. And just as important, they’ll be close to having the capacity to produce millions of doses.
“That sets a very high bar, which no one is asking them to set,” says Holz.
Efficacy studies will continue. Moderna is moving into Phase II Covid-19 vaccine trials now, and it will start a larger Phase III clinical study at the beginning of July, the company has said. Both trials look at efficacy, and they will continue to examine safety. Many other vaccine companies are on a similar timeline.
Machiavellian maneuver
Here are three other reasons we may well see Covid-19 vaccine approval before early November.
1. President Trump has a penchant for timing policy decisions (such as China trade negotiation breakthroughs) to influence the markets and the electorate at key tactical turning points. So it won’t be surprising if he exerts behind-the-scenes pressure to get vaccine approval to boost ratings and his odds against the Democrats, says Holz. Sounds Machiavellian. But welcome to politics.
2. The federal government is directly funding many of the vaccine-development programs. This “raises the odds of near-term approval, given the inherent bias,” says Holz.
3. Initial approval would be for emergency use only, which lowers the research hurdles for efficacy. “The efficacy bar will be fairly low considering the toll Covid-19 has taken on the world over the past four to six months from a health and an economic standpoint,” says Holz.
Emergency-use approval seems like a letdown because it would take a lot of potential beneficiaries, including you and me, out of the equation. Health-care workers would be first in line. But limited-use approval would still be important for investors and the economy.
Here’s why.
It would help the health-care system. Our leaders shut down much of the economy when Covid-19 struck because they had failed to prepare the health-care system for a pandemic. Having vaccines that might keep more front-line health care workers on the job and healthy — boosting their morale and numbers — would take some of the pressure off politicians to reimpose fresh lockdowns to “flatten the curve” in a resurgence.
Will we get a resurgence? Probably, but not right now. I think the current resurgence data are just noise. The case-count data are based on non-random samples, which renders them meaningless, statistically. Florida tested more and found more, in lockstep. Exactly what you would expect. The Florida data do not show a resurgence in Covid-19, only more testing.
But I do expect a meaningful resurgence starting in early October when the flu season begins. This is what happened with the swine flu in 2010 and the Spanish flu a century ago. However, the October resurgence won’t be as scary as round one, because a lot of people will already have been exposed, and we will have better testing and tracking capabilities to support selective rather than blanket lockdowns. And we might even have a vaccine.
Vaccine investors, hold the Champagne
Early approval of vaccines before the elections probably wouldn’t help investors in the companies developing them, including Moderna, AstraZeneca, Pfizer PFE, -0.95%, Johnson & Johnson JNJ, -0.42%, Sanofi SNY, -2.01%, Inovio Pharmaceuticals INO, +3.76%, Novavax NVAX, +6.96% and Arcturus Therapeutics ARCT, +3.46%, among others.
That’s because many of the stocks have already risen a lot, especially those closer to being pure plays because they are smaller.
Next, it would be bad PR for vaccine producers to be seen making a lot of profits off a global pandemic health crisis. (The same goes for Covid-19 therapy developers including Gilead GILD, +0.38%, which is researching remdesivir as a treatment.) Given the government’s role in funding research, it would likewise also pressure vaccine makers to cap pricing.
Winners
But many other investors would benefit from vaccine approvals. Biotech and pharma investors would get a boost if the public and politicians view them as having “saved the day” in the Covid-19 crisis. That would mean there would be less pressure for them to rein in drug pricing.
That would support biotech and pharma companies and exchange traded funds including iShares NASDAQ Biotechnology Index IBB, +0.50% and SPDR S&P Biotech XBI, +1.06%. They have been plagued for years by worries the government will regulate drug prices.
“In the end, a vaccine likely does more for the sector as whole from a sentiment standpoint,” says Jefferies’ Holz.
Vaccine approval would also help cyclical and travel stocks because it would lower the odds of another full lockdown. It would also benefit a group I call “public-gathering-place” stocks.
A portfolio of eight public gathering place stocks I suggested in my stock letter, Brush Up on Stocks, on March 17 was already up 71% by the close June 15, compared with 26.3% gains for the SPDR S&P 500 ETF Trust SPY, . I wrote about this topic in MarketWatch last month.
I expect further gains from those stocks when vaccines are approved. My portfolio includes Churchill Downs CHDN, -0.54%, Royal Caribbean Cruises RCL, +2.27%, Carnival CCL, -1.41%, Planet Fitness PLNT, -0.85% and Cedar Fair FUN, -0.20% in amusement parks.
At the time of publication, Michael Brush owned CHDN and CCL. Brush has suggested PFE, JNJ, SNY, INO, NVAX, IBB, XBI, CHDN, RCL, CCL, PLNT and FUN in his stock newsletter, Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School. Follow Brush on Twitter: @mbrushstocks.
