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1 Green Flag and 1 Red Flag for Johnson & Johnson's Vaccine Candidate

By Jason Hawthorne - Feb 13, 2021 at 6:10AM

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A huge market awaits if the company can make enough doses.

In July of last year, Janssen, a unit of healthcare giant Johnson & Johnson (JNJ 1.75%), received European authorization for its Ebola vaccine. The vaccine piggybacks on a modified virus from a different family to introduce a noteworthy gene from the targeted virus. This mechanism allows the immune system to recognize and attack it if it sees it again. The company has leveraged the same approach to target HIV, Zika, and now SARS-CoV-2, the coronavirus that causes COVID-19.

Johnson & Johnson's phase 3 trial began in September and produced positive results late last month. With shares at roughly the same price they were when the data was released, there's time to weigh the pros and cons to decide whether J&J's COVID-19 vaccine is a reason to buy the stock.

Masked female medical worker administers a vaccine to a seated masked male patient.

Image source: Getty Images

Green flag

The company's coronavirus vaccine candidate has one huge advantage over all the rest: It dose schedule only requires a single shot. This, along with its ability to be stored in a regular refrigerator for three months, could simplify the supply chain and increase the pace of inoculations around the world.

Instead of specially designed cold storage, a fast-expiring inventory, and the complications of coordinating a follow-up visit for a second dose, Johnson & Johnson's offering could be shipped, stored, and administered without much risk that many doses go unused.

Although the vaccine, Ad26.COV2.S, didn't meet the high efficacy bar set by previously authorized vaccines from Moderna and Pfizer, both of which reached about 95% efficacy at preventing infection, it easily cleared the 50% efficacy hurdle set by the U.S. Food and Drug Administration (FDA). In a trial of 45,000 participants, the Johnson & Johnson vaccine proved 72% effective at preventing COVID in the U.S. Unfortunately, it was less effective in areas where variants of the virus have begun to take over. Ad26.COV2.S showed 66% efficacy in Latin America and 57% in South Africa. Perhaps most importantly, it proved 85% effective at preventing severe cases in all regions.

Red flag

As encouraging as the news is for the company's one-dose vaccine, the benefits are likely to be felt a little later than planned. Johnson & Johnson was originally aiming to produce 12 million doses by the end of February, an amount that reportedly now won't be reached until April, two months behind schedule. Without specifying details, the lead manufacturing advisor for Operation Warp Speed has acknowledged the delays, claiming J&J could still catch up by March.

According to Johnson & Johnson's chief scientific officer, the company remains on track to produce 1 billion doses this year, ramping up as the year progresses. The vaccine is being produced across the globe, with seven contract manufacturers expected to be onboarded by the end of June. Additionally, CFO Joe Wolk recently said the company feels it can comfortably meet all of its order commitments. Those deals include 100 million doses to the U.S. and another 100 million to developing nations, as well as 200 million to Europe.

For now, it appears the setback is temporary. With the world worn out from enduring a pandemic for nearly a year, it's not surprising that the delay of another month or two would draw headlines. But if that's all it ends up being, it may be a small price to pay for another, more convenient vaccine to help get society back to normal.

There's still more to come

Management must now wait for the FDA's independent review of the data and the advisory committee's recommendation during a hearing scheduled for Feb. 26. Based on the data submitted, the vaccine is expected to become available in early March, shortly after the hearing. Next up will be the data from the company's two-dose study.

In November, Johnson & Johnson began an investigation to determine efficacy after both a first and second dose of Ad26.COV2.S. If its two-dose efficacy rivals Moderna's and Pfizer's vaccines, J&J's advantages in shipping and storage could make its product the preferred COVID-19 vaccine for much of the globe. That could add unexpected profits for shareholders for years to come, in a market that many analysts estimate could approach $10 billion annually. For investors seeking exposure to COVID-19 vaccines' wins, there may not be a safer way to get it than via shares of Johnson & Johnson.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$176.98 (1.75%) $3.04
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$52.47 (3.59%) $1.82
Moderna, Inc. Stock Quote
Moderna, Inc.
MRNA
$136.25 (-4.97%) $-7.13

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