The new space race

05 Aug 2020

Christopher Cowell, Quantitative Investment Strategist

North of the Cowley Road in east Oxford sits a rather unremarkable set of glass buildings that could easily be mistaken for a small out-of-town business park. And until six months ago, it’s unlikely that you would have taken any notice of the Jenner Institute, a small medical research laboratory on the edge of Oxford University’s campus.

Named after Edward Jenner, the inventor of the original vaccination, it is at the forefront of the race to develop the world’s first vaccine against SARS-CoV-2. With governments all over the world pledging billions of dollars of funding to speed up the search for an effective COVID vaccine, the effort has come to resemble a more urgent version of the space race that followed the launch of Sputnik in 1957.

At the end of July, according to the World Health Organisation (WHO), there were 180 COVID vaccines in development, 26 of which were in clinical trials, including six within the late stage (or phase 3) trials. Oxford’s vaccine was the first to enter this third and final phase of development, closely followed by potential vaccines from Sinovac, a Chinese biopharmaceutical firm, and Moderna, a medium-sized American biotech company.

Unlike the space race, the dash for a vaccine has been dominated by private sector companies, incuding big pharmaceutical businesses such as Pfizer and GlaxoSmithKline, but also many small-to-medium sized biotechs like Moderna. The few remaining vaccine candidates have been discovered by academics like Sarah Gilbert and her team at the Jenner Institute.

Professor Gilbert has now teamed up with British pharmaceutical company AstraZeneca to ensure that the vaccine is available widely and rapidly if approved by regulators. Creating an effective vaccine in record time is one thing, but the manufacturing and distribution of millions/billions of doses is another.

Rising to the challenge

AstraZeneca is rising to the challenge. With the possibility that full approval will be given early in 2021 (which would require successful results from multiple phase 3 trials), the company has been working on this challenge since it partnered with Oxford in April. Current estimates are that once production is up and running, they will be able to produce a billion doses every eight weeks.

Two billion doses have already been ordered – over a billion of these will go to Europe, Britain and America. And if Oxford’s vaccine trials go to plan, there is a chance that the regulator will approve it for emergency use by high-risk groups as soon as October this year.

But this is a big if. Whether or not the immune response is robust enough to ensure long-term protection against the disease across a large cross section of society is still unknown. However, the interim data released by Oxford has indicated no early safety concerns and that the vaccine does induce a strong immune response, so things are moving in the right direction.

The political and economic angles driving vaccine development, however, should not be ignored. While many leaders are talking about global scientific collaboration, government officials have said publicly that national interests will dominate. The first 100 million doses of the Oxford vaccine, for example, will be used in Britain. A safe and effective vaccine will not only garner political capital, but will fast track the return to normalcy and the economic benefits that entails. So the race is on.

No vaccine has ever been developed within the kinds of schedules being currently targeted – in months rather than years. While we initially thought that such short time frames should be reserved for our best-case or V+ scenario, we are increasingly optimistic that the race for a COVID vaccine could be won in record time. We also think that a second wave of infections in areas like London and New York that had big initial surges is highly unlikely.

So we now think that our worst-case or L scenario is far less likely than we thought a couple of months ago. We have put in place a basket of equities that will benefit in a V+ scenario where the world recovers from COVID reasonably smoothly. The basket includes US Real Estate Investment Trusts, European equities and Berkshire Hathaway, Warren Buffett’s company, all of which should benefit from a cyclical rebound in the global economy.

As a reminder, the four coronavirus recovery scenarios we have mapped are:

Scenario

The virus timeline

Second wave and treatment timeline

What will the recovery look like?

V+

Hammer: successful

Dance: starts in June, US and Europe replicate South Korea and China

Second wave: none

Treatment: end-2020

Economy reopens: in June except foreign travel

Recovery: end of the year

V

Hammer: successful
Dance: starts in June. But shutdowns still part of the solution

Second wave: small clusters

Treatment: early-2021

Economy reopens: in June but not fully

Recovery: early next year

U

Hammer: works, eventually

Dance: starts in Sept. But shutdowns still part of the solution

Second wave: same as first
Treatment: mid-2021

Economy reopens: in Sept but not fully

Recovery: early mid year

L

Hammer: fails as virus mutation moves fast.

Dance: never gets going

Second wave: first never ends

Treatment: late-2021

Economy reopens: shutdowns remain in place until treatment

Recovery: moves into 2022

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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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