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Will AstraZeneca's Pain Be Johnson & Johnson's Gain?

By Keith Speights and Brian Orelli, PhD - Feb 20, 2021 at 6:01AM

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The two big drugmakers' vaccine fortunes recently went in opposite directions.

South Africa recently placed AstraZeneca's (AZN 2.59%) COVID-19 vaccine on hold. However, the country began vaccinating some individuals with Johnson & Johnson's (JNJ 1.75%) COVID-19 vaccine, even though it hasn't been authorized or approved yet. In this Motley Fool Live video recorded on Feb. 10, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not AstraZeneca's pain could be J&J's gain.

Keith Speights: South Africa just put AstraZeneca's COVID-19 vaccine on hold in the country. The reason why they put it on hold was that data showed that it just wasn't very effective against the B.1.351 variant that was first identified in South Africa.

There have been some concerns about this particular variant. South Africa has put AstraZeneca's COVID vaccine on hold because it's not as effective. There were different studies from this or different results from the study, one showed efficacy as low as 22 percent. Another was a lot better, showed efficacy of 60 percent, but it's certainly raised some concerns in that country where this new variant is just sweeping. Most of the cases of COVID-19 in South Africa have this new variant. There's a real concern about AstraZeneca's vaccine.

Now, the latest news is that the country is moving forward with administering Johnson & Johnson's COVID-19 vaccine to frontline healthcare workers, even though Johnson & Johnson's vaccine hasn't been approved in South Africa yet. We have this situation where AstraZeneca's pain might be leading to Johnson & Johnson's gain.

Obviously, the question here is, how big of a problem is this for AstraZeneca? What might this decision mean for Johnson & Johnson in other countries? From my perspective, I'll be looking forward to see what Brian's take is on this, but from my perspective, this obviously isn't good news for AstraZeneca. But it doesn't mean a death knell by any means -- I think it's just a setback. AstraZeneca's vaccine is being given in the U.K., and it's still a promising vaccine, but it's certainly a setback.

Definitely good news for Johnson & Johnson that they think highly enough of its prospects against this new variant to go ahead and start administering it to healthcare workers, even before it's approved or authorized in the country of South Africa. That's obviously good news for J&J. All right, I think we have Brian with us. Good morning, Brian.

Brian Orelli: Good morning. My computer decided that it was going to take its own sweet time this morning loading itself. It took [laughs] it 15 minutes between when I turned it on and when I finally got into Zoom.

Speights: Murphy's law strikes again, right?

Orelli: Yeah.

Speights: Well Brian, I had gone ahead and jumped into our big COVID story of this week -- thus far, anyway -- just one that I'm sure you've heard about. I'll repeat it for your benefit. I was just telling our viewers that South Africa has put AstraZeneca's COVID-19 vaccine on hold in that country because of low efficacy against this new variant that was first discovered in South Africa. Some of the results, Brian, were showing efficacy as low as 22 percent, although it was all over the map. There were some results showing 60 percent efficacy.

But at any rate, South Africa was concerned enough that they put that vaccine on hold, and they are even beginning to administer Johnson & Johnson's vaccine to frontline healthcare workers, even though the J&J vaccine isn't authorized or approved in the country yet. I had started to get my take on -- I'm curious to see what your view is. How big of a problem do you think this is for AstraZeneca, and what could this mean over the bigger picture for Johnson & Johnson?

Orelli: Financially, it's not that big of a deal for AstraZeneca, since they're not planning on making any money off of the vaccine. If you're still [an] AstraZeneca shareholder in the short term, it's not a big deal, and in the long term, maybe they're going to make some money if there's boosters are required.

That could be a problem, obviously, if it's not protecting against the variants, but also because it's an adenovirus-based vaccine. Then there's likelihood that we develop antibodies to the adenovirus that delivers the DNA that's required to make the protein that gives you the immune response. I think that the booster shots of AstraZeneca and, for that matter, Johnson & Johnson's adenoviruses are probably not going to work very well, and then they have to come up with a different strategy using different adenoviruses. Not going to be using the same adenovirus with a new DNA that covers the variants.

Speights: Now, Brian, I'm sure some of our viewers might be wondering, could this have any impact whatsoever on AstraZeneca's chances of getting authorization in the U.S.? What do you think?

Orelli: I think it probably depends on how worried the FDA [Food and Drug Administration] is about South African variants in the United States. That will be determined based on when they apply for authorization. I think it's too early to tell, but I definitely think it's an issue for AstraZeneca -- and for the United States in terms of getting enough people vaccinated as quickly as possible.

Speights: Of course, you mentioned AstraZeneca isn't intending to make a profit from their vaccine right now. Johnson & Johnson is in the same boat. They've said at least during the pandemic, they won't charge anything above their cost for their vaccine, But with J&J's vaccine at least showing to be at least relatively more effective against the South African variant, could that be good news for J&J over the long run, you think?

Orelli: Yeah definitely, but I'm leery of knowing whether that's actually true. I don't know that we have enough data to really know that for a fact.

Speights: The big thing to keep in mind with both of these companies is, even if their vaccines are total commercial flops or huge commercial successes, it will only be a small impact on these companies because of their huge revenue streams already. They have lots of other products, so they are insulated against any big failures, and any big successes won't necessarily be huge drivers for the stocks necessarily. You could see possibly when Johnson & Johnson -- let's say they win authorization later this month, perhaps -- you could see maybe a jump for the stock, but it's not going to be a double-digit percentage gain, I don't think.

Orelli: Yeah, I agree. Their revenues currently are so large that adding a billion or two or three, and especially if it's a one-time benefit, is not going to move the revenue needle and their earnings needle in the long term.

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