China may have already won the race. Five of the 10 vaccines that are undergoing Phase Three trials are by Chinese pharmaceutical companies. As it is, the vaccine by a subsidiary of SinoPharm Group Co has already been tested on hundreds of thousands of Chinese themselves. A testament to Chinese confidence is the Golden Week — the one-week holiday in October where reportedly more than half a billion Chinese will be travelling.
Elsewhere, Covid-19 has upended the global order in many ways. China — where the virus is believed to have originated — is seen very much as a First In, First Out economy. The middle kingdom — with a population of over 1 billion — was able to control the spread of Covid-19 with draconian measures. Then again, Taiwan controlled the spread with no Covid-19 cases reported since April. New Zealand, most of Australia, Vietnam, South Korea, and increasingly Singapore are reporting a handful or no cases.
Yet, the world continues to race towards developing a vaccine. Covid-19 has been controlled because of the sharp decline in travel, and while semblances of economic activity have restarted, the global economy may not return to pre-Covid-19 normality till a safe vaccine is found.
According to Bloomberg, there are 90 vaccines in various stages of development. Among those furthest ahead, with phase III trials underway are three Chinese companies, and a bunch of US and European companies. With the exception of CanSino Biologics, which is listed in Hong Kong, and AstraZeneca in the UK, the other candidates are listed on Nasdaq and NYSE.
Scientists have found that the Covid-19 does not seem to mutate like the flu virus, and most vaccine candidates currently being developed are targeting the “spike protein” region of the virus. The spike protein is important because it enables the virus to attach to human cells and gain entry. By targeting a part of the virus that is unlikely to mutate, it is hoped that any such vaccine will be broadly effective at granting immunity without the need for creating additional vaccines every year.
Types of vaccines
The most familiar vaccines are those made from weakened (and live) viruses, and inactivated viruses. These usually take years to develop and require extensive testing. In the race for a Covid-19 vaccine, at least seven teams are developing vaccines using the virus itself, in a weakened or inactivated form, according to the British weekly scientific journal Nature.
A virus can be conventionally weakened by passing it through an animal or human cell until it mutates such that it is harmless. This weakened or live vaccine is used for measles, mumps, rubella (MMR), smallpox, chickenpox and yellow fever. Unlisted Codagenix in New York State is working with the Serum Institute of India to produce a weakened virus for Covid-19.
An inactivated virus is one that is made uninfectious using chemicals such as formaldehyde. Hepatitis A, flu shots, polio, and rabies vaccines are examples of vaccines made from inactivated viruses. Sinovac Biotech and China National Biotec Group Co (CNBG), a subsidiary of SinoPharm — both headquartered in Beijing — have started to test an inactivated version of SARS-CoV-2 in humans with their vaccines in phase III tests.
Hundreds of thousands of people have received the Covid-19 vaccine shots so far, the SinoPharm subsidiary said on its official WeChat account. The vaccine is being administered under an emergency-use program that allows experimental shots to be used for frontline workers before the company completes final testing.
It has also been reported by the Chinese press that more than 100,000 people have been injected with these two vaccines by the two Chinese pharmaceutical companies, and the vaccines have been approved for emergency use. No side-effects are observed so far, including for Chinese diplomats working overseas, SOE employees going abroad, students going overseas to study, and some military personnel.
In a recent research report, Citi says that CNBG’s two shots are among a handful of the world’s fastest-moving coronavirus vaccine candidates now in the final stage of testing.
Viral-vector vaccines
Around 25 groups say they are working on viral-vector vaccines. Viral vector vaccines use live viruses to carry di-ribonucleic acid (DNA) into human cells. The DNA contained in the virus encodes antigens that, once inside the infected human cells, elicit an immune response. Under this method, a virus such as measles or an adenovirus is genetically engineered so that it can produce coronavirus proteins in the body. (Adenoviruses are a group of common viruses that infect the lining of your eyes, airways and lungs, intestines, urinary tract, and nervous system.)
These viruses are weakened so they cannot cause disease. There are two types viral-vector vaccines: those that can replicate within cells and those that cannot because key genes have been disabled.
Viral vectored vaccines are easy and relatively cheap to make. The adenovirus vector, for example, can be grown up in cells and used for various vaccines.
Six vaccine candidates in clinical trials for Covid-19 employ viruses to deliver genetic cargo that, once inside our cells, instructs them to make SARS-CoV-2 protein.
One of the companies, CanSino Biologics, which is using a non-replicating viral vector, noted that 266 of the 508 participants given the vaccine shot had high pre-existing immunity to one of the adenovirus vectors, and that older participants had a significantly lower immune response to the vaccine, suggesting that the vaccine will not work so well in them.
Johnson & Johnson, which is using a replicating viral vector, reported in July that its Adenovirus Covid-19 vaccine protects macaques against SARS-CoV-2 and in September that it protects against severe clinical diseases in hamsters.
The Russian Sputnik V vaccine, approved despite no published data or phase III trial results, starts with a shot of an adenovirus vector followed by a booster with another adenovirus vector, both of which carry the gene for the spike protein of SARS-CoV-2.
Among vector virus vaccines, DNA and RNA-based vaccines work by introducing the genetic sequence of a viral antigen into a host’s cells and relying on the body to then transform this genetic material into a viral sub-unit (or subunit), which the body’s lymphocytes can target for adaptive immunity. Pfizer in partnership with Shanghai Fosun Pharmaceutical and BioNtech, a German company listed on Nasdaq, is using messenger ribonucleic acid or mRNA-based vaccine. In this kind of vaccine, DNA and RNA give instructions for cells to make certain proteins. So an mRNA vaccine has instructions for the SARSCoV2 protein. Once inside the human cell, the protein is made and that triggers the immune response.
Since the body produces the viral protein, this cuts out some of the production processes so that companies can make the vaccine at scale and at a greater speed than traditional vaccines. The drawback is that an mRNA vaccine has never been approved for public consumption.
In the past, RNA was regarded as difficult to work with because of its instability and tendency to degrade rapidly. Furthermore, many early RNA-based vaccines were ineffective at producing a robust immune response because they failed to properly integrate with the body’s cells. Recent innovations have improved the “packaging” of mRNA such that it can be used in a vaccine.
The lowest valuations
The lowest valuations are usually the blue-chip large-cap pharmaceutical stocks such as Gilead Sciences, Pfizer, Johnson & Johnson and AstraZeneca. During a recent The Edge-TD Ameritrade webcast, Christopher Brankin, CEO of TD Ameritrade Singapore says: “Some of the larger pharmaceutical companies have lots of different drugs and therapeutics in the pipeline such as Pfizer or Moderna.”
Hence they are not just reliant on a Covid-19 vaccine. As an example, in September, Pfizer released full data for its next-generation ALK inhibitor Lorbrena to treat lung cancer. “We agree that the drug showed very impressive efficacy in the Crown trial, especially in patients with intracranial lesions, although the tolerability profile may limit the uptake of the product, in our view,” says Mizuho Securities. Pfizer also has vaccines for RSV or respiratory syncytial virus and pentavalent meningitis in late-stage development.
Mizuho has a price target of US$43, up 22% from its current price, based on a 75%/25% blend of discounted cash flow (DCF) valuation at US$44 and relative valuation at US$40. “Our DCF is based on cash flows forecasted through 2030, along with a 6% discount rate and a 0.5% rate of terminal growth,” Mizuho says. Its relative valuation is based on a 15 times multiple of 2021 P/E ratio.
“Pfizer has a dividend yield around 4%,” Brankin points out. “That is something that has been interesting and we do see some more people participating in Pfizer,” he adds.
Among the Chinese pharmaceutical companies, SinoPharm has the lowest valuation with a dividend yield of 4%, with a consensus of analysts on Bloomberg expecting a 58% upside from its current levels.
In our table, we have included Gilead Sciences because of its portfolio of antiviral drugs, including Remdesivir which has been shown to be effective against Covid-19 and which has emergency approval from the US Food and Drug Administration. According to Gilead’s CEO, Daniel O’Day, five-day treatment course using 6 vials of Remdesivir, equates to US$2,340 per patient.
“We discounted the price to a level that is affordable for developed countries with the lowest purchasing power. This price will be offered to all governments in developed countries around the world where Remdesivir is approved or authorised for use. At the current price of US$390 per vial, Remdesivir is positioned to achieve the aim of providing immediate net savings for healthcare systems,” O’Day said on June 29.
On Sept 29, Regeneron announced initial results for an antibody cocktail of Covid-19 outpatients. From Oct 2-6, US President Donald Trump was reported to be given the Regeneron cocktail, and a course of Remdesivir. Interestingly, Gilead has the highest dividend yield of 4.4% among the pharmaceutical stocks, and its ability to pay dividends is demonstrated by operating and free cash flow of more than 11% (see table).
The earliest Covid-19 vaccine, according to Pfizer’s timetable could be approved by the end of November. However, China’s nonchalant holiday-makers appear to be travelling with some sort of immunity, most likely triggered by SinoPharm’s vaccine
