The world is in a war against COVID-19. Over a million people have died. Economies have been shattered. We have to stop this awful disease. As humans, we're united toward that goal. But as investors, where should our focus be?
The answer is clear: vaccines. Governments around the world are spending billions of dollars to fund vaccine research. That's because vaccines can wipe out diseases. While COVID-19 diagnostics and treatment might be important now, they will be less meaningful once vaccination becomes widespread. As the U.S. government's Operation Warp Speed website says, its "goal is to produce and deliver 300 million doses of safe and effective vaccines" (emphasis mine).
As Woodward and Bernstein might say: "Follow the money." We're spending billions of dollars to vaccinate billions of people so that the threat from COVID-19 will disappear.
And I am sure that we will succeed. Consider just how many biotech companies and university labs are trying to find a working vaccine. An amazing 42 COVID-19 vaccine candidates are in human trials right now, with 156 still in preclinical evaluation.
Which vaccine stocks should investors buy? In the pivotal clinical trials taking place right now, we are seeing three major types of vaccine candidates:
- mRNA vaccines, represented by Moderna (MRNA 0.98%), and the collaboration between Pfizer and BioNTech.
- Adenovirus vaccine candidates, championed by AstraZeneca (AZN 0.97%) and Johnson & Johnson.
- "Classic" vaccines, represented by Novavax (NVAX 4.86%) and Sanofi (SNY 1.70%).
Here's why I think the companies working on classic vaccines are the strongest opportunities for investors now.
mRNA vaccines are unproven and have distribution issues
While many people think that mRNA vaccines will work, no mRNA vaccine has ever been approved before, for any indication. It's bad enough that we're trying to vaccinate against a brand-new disease. But to invest in an unproven technology that's never been successful before? The odds of failure are pretty substantial.
mRNA vaccines also have serious distribution issues. Pfizer's vaccine candidate has to be stored at minus 94 degrees Fahrenheit, and must be used within 24 hours after thawing. Moderna's vaccine has to be refrigerated at minus 4 degrees Fahrenheit. Perhaps because of this difficulty, neither Pfizer nor Moderna has lined up the manufacturing capacity they would need.
Significant side effects have also been reported with the mRNA vaccines, including high fever and intense chills. Nonetheless, there's been a lot of excitement about mRNA technology, in part because the companies behind it were able to get vaccine candidates out of the lab and into clinical trials very quickly.
Moderna's stock has tripled this year, mostly thanks to the impressive speed with which its vaccine candidate has dashed through clinical trials. But that rapid rise has caused another huge issue with its stock: valuation. At a market cap of $28 billion, Moderna's stock is very highly valued.
It's especially important to understand that an investment in Moderna or BioNTech is an investment in mRNA technology. Any disappointment in their COVID-19 vaccine trials will shake faith in the rest of their mRNA-based therapies as well. It's not just one mRNA vaccine that's riding on each trial -- it's the entire company.
Trials of the adenovirus vaccines have been halted
There might be an underlying problem with the adenovirus vaccines. AstraZeneca's U.S. trial was halted by the Food and Drug Administration on the basis of two serious adverse events that happened in the U.K. According to The New York Times, in September a 37-year-old woman participating in the study was diagnosed with transverse myelitis, a neurological disorder that causes an inflamed spinal cord. She had pain, trouble walking, and arm weakness.
What makes this concerning is that she's not the first person taking this vaccine candidate who suddenly came down with transverse myelitis. Back in June, AstraZeneca's trial was also briefly halted when a woman started suffering from the exact same symptoms. At the time, doctors concluded that it was an undiagnosed case of multiple sclerosis, unrelated to the vaccine. But now that two women have had similar adverse events, authorities are worried about the vaccine's safety profile. While the trial has resumed in the U.K., the FDA has paused it in the U.S. until the company provides more information.
In October, Johnson & Johnson also halted its vaccine trial due to an unexplained illness in one of its volunteers. The company is testing its vaccine in 60,000 people, so it's not surprising that somebody got sick. On the other hand, vaccine candidates are tested in healthy subjects. So a possible adverse event in one is far more concerning than in the case of a drug that's treating people who are already sick.
Is it a coincidence that both of the halted trials were testing adenovirus vaccines?
Classic vaccines are the best bet
Sanofi and Novavax are both vaccine experts. Sanofi has the market-leading flu vaccines, Flublok and Fluzone. Novavax has perhaps the strongest flu vaccine in the world -- its vaccine, NanoFlu, has beaten Sanofi's vaccines in three different clinical trials. (The FDA has not yet approved NanoFlu.)
Novavax uses a recombinant nanoparticle vaccine technology to find its vaccine candidates. Sanofi is using a similar technology, although Novavax was able to find its candidate fairly quickly and Sanofi took much longer. Both companies are relying on protein-based vaccines, a long-used method that is well understood by scientists and has enjoyed a lot of success in both safety and efficacy.
Novavax is using an adjuvant to increase immune response -- the same adjuvant it uses for its successful flu vaccine. Perhaps because of that success, Sanofi is collaborating with GlaxoSmithKline on its COVID-19 vaccine in order to gain access to GSK's adjuvant.
Many scientists have praised the data that Novavax has produced so far, which has been published in The New England Journal of Medicine. Unlike those of the adenovirus vaccines, trials of the classic vaccines have had no serious side effects reported. And unlike the mRNA vaccines, classic vaccines can be stored at room temperature and are relatively easy to distribute. Novavax has already lined up manufacturing capacity for over 2 billion doses.
While there are no certainties in our race to find a COVID-19 vaccine, in my opinion Novavax and Sanofi have the best chances to produce a winning vaccine that will reward investors.