V is for vaccine

“If a vaccine became available early nextyear, as expected, then the pandemic couldbe brought under ‘good enough control” bythe end of 2021. " says Anthony Fauci, the directorofthe National Institute of Allergy andInfectiousDiseasesofUS

IT has been just over five months since the World Health Organisation (WHO) declared Covid-19 as a pandemic and since then, the number of cases and deaths globally has breached the 22.8 million mark and 800,000 respectively.

At the point of declaration, Covid-19 had spread to 114 countries, with 118,000 cases and just 4,300 deaths.

Indeed, in the short space of time, the number of cases and deaths have jumped almost 200 times.

Of course, the economic toll Covid-19 has taken is unimaginable given the unprecedented economic output loss that the world experienced, especially in the second quarter (2Q) period due to the lockdown period.

For Malaysia, the 17.1% y-o-y 2Q GDP contraction in real terms or 18.6% y-o-y in nominal terms, translates to economic output loss that is equivalent to about RM69bil in nominal value. Malaysia’s 2Q GDP performance was Malaysia’s worst ever quarterly GDP contraction and when compared with other countries, Malaysia’s 2Q GDP was only better than UK’s 21.7% deep dive, France’s 19% drop, Mexico’s 18.9% plunge and Italy’s 17.3% fall.

Naturally, with most countries worried about the long-term impact of Covid-19, the race for a vaccine has developed all over the world. Based on information provided by WHO, there are presently some 29 different vaccines in human trials around the world.

Russia’s announcement that it has found the world’s first Covid-19 vaccine, nick-named “Sputnik V”, caught many by surprised, especially the early front runners for a vaccine, which were mainly from the United States.

The Russian vaccine, although it seems to have gone through human testing, has not in actual fact conducted clinical research, which is defined as Phase 3 clinical trials, and hence its claim to be the world’s first remains a question mark.

According to Regulatory Affairs Professional Society (RAPS), it will take a fast-tracked vaccine development anywhere between 12 and 18 months to be marketed commercially and that too only if the process goes through smoothly end-to-end.

Based on the current quest for a vaccine, three from the United States are in the frontline under Phase 3 and they include Moderna’s mRNA-1273, the University of Oxford’s and AstraZeneca’s ChAdOx1nCov-19, and Pfizer and BioNTech’s BNT162b2. Out of China, there are a couple of them under Phase 3 too and these include Sinovac Biotech’s CoronaVac and China National Biotech Group and Sinopharm’s unnamed vaccine.

Other than vaccines, the development of antiviral is another defence mechanism for humans as companies like Gilead have been approved to produce them under the drug named Remdesiver while another drug, Favipiravir, developed by Zhejiang Hisun Pharmaceuticals, is being deployed in Japan.

In addition, the first Covid-19 vaccine patent out of China was recently approved and this was granted to CanSino Biologics for its vaccine named Ad5-nCOV.

While researchers are busy formulating a vaccine or even antiviral drugs, the coronavirus itself is mutating. The D614G mutation was even detected in Malaysia and with this, vaccines that are presently being developed could be ineffective as the mutated virus may have different characteristics than in its original form. However, the data so far seems to suggest that the mutated virus is not any deadlier than the original virus.

Traditional vaccine development takes years to develop and most scientists would agree that a typical timespan is at least 10 years and hence the current race to produce vaccines for Covid-19 comes with significant risk as they may not be 100% effective in providing a cure to infected patients. According to Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases of US, even if the vaccine that are being developed now is half effective, it would be good enough to bring back normalcy within a year.

He added that if a vaccine became available early next year, as expected, then the pandemic could be brought under “good enough control” by the end of 2021. Indirectly his statement suggests that it would be a while before we return to our lives without mask or without hand sanitisers and without social or physical distancing.

What does this mean for economies and markets?

Assuming that a vaccine is between 50% and 60% effectively, this suggests that the vaccine only gives that amount of protection and there is a 40%-50% probability that it may not be enough and hence Covid-19 remains a harmful. At the same time, the development of vaccine, even assuming if we end up having multiple vaccines approved, it would also means that we would need huge manufacturing capability to produce and bottled them.

Distributing the vaccines to places all over the globe and administering them is going to be another herculean effort but most importantly is who gets the vaccines first?

It is likely that the first to be administered are the current patients who are at the critical stage, the frontline healthcare workers, as they are exposed to the greatest risk, and perhaps followed by those who had been infected earlier but are now in the clear. This is to provide them some form of protection against potential second wave of attack and, of course, the high-risk group, especially those above the age of 60 and have existing non-communicable diseases.

With “good enough control” not foreseeable until the end of next year, economic recovery going ahead will remain patchy. As it is, we are seeing most economies globally having some sort of recovery phase in the 3Q period and hopefully this can be sustained in the next few quarters. The key is, of course, the rate of infection and spread of the disease as it is widely believed that most economies cannot afford another lock-down.

As for markets, as long as economies remain open, companies should be able to sustain themselves but, of course, there could be some weakness as well, as consumers hold back on spending and consumption.

For companies in the healthcare segment, especially rubber glove and face mask manufacturers, strong demand seems to be written all over the wall, at least for the next one year. This is also confirmed by guidance given by the glove makers as they are maxed out in terms of sales for the next 12 months at least.

For now, while economists are still wondering about the economic recovery path ahead to be either in the shape of the letter L or U or V or W, fund managers are already shifting in terms of their expectations. In the August 2020 global fund manager survey by Bank of America, 37% believe that the recovery ahead will be in the shape of “W” while 31% thought it would be a U-shaped recovery. In contrast, last month’s reading for “W” was at 30% while that for “U” was at 44%. The “V” shaped recovery is only expected by 17% of fund managers.

While economists and fund managers remain divided on the shape of recovery ahead, scientists are only concerned about one letter, i.e. the letter V.

V here is of course for vaccine.

Pankaj C. Kumar is a long-time investment analyst. The views expressed here are the writer’s own.

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