In this ongoing video series on COVID-19, Biotech Analyst Agustin Mohedas discusses how new technology and government funding are helping accelerate vaccine development for COVID-19 – and could potentially benefit the biotech sector over the long term.

Key Takeaways

  • The COVID-19 crisis has helped to highlight biotech’s impressive medical advances. Whereas historically vaccine development has taken an average of seven to 10 years, today companies are on track to create a COVID-19 vaccine in seven to 10 months.
  • Government aid is also speeding vaccine development. Such assistance could be particularly beneficial to small-cap biotechs, which could use COVID-19 research to validate nascent drug platforms.
  • In the lead-up to the U.S. presidential election, the crisis could shift the political discourse around health care, underscoring the importance of improving patient access while safeguarding incentives for innovation.

Michael McNurney: Hello, and welcome to Janus Henderson’s ongoing series on the COVID crisis. My name is Michael McNurney, and today I am joined by Agustin Mohedas, one of the premier analysts here at Janus Henderson who is working not only on the biotechnology companies that are addressing this disease, but also helping Janus Henderson investors model the trajectory of the disease globally.

Agustin, one of the key long-term drivers of healthcare has been the innovation that is ongoing in the sector, and I know that there have been some tremendous innovations in cardiovascular disease or cancer or even in the medical device space for treating diseases like diabetes. But as COVID has unfurled and we have seen the biopharma industry really try to address the disease, I think there is a brand-new appreciation for that innovation. Can you talk to us about how that innovation has picked up over the last several years?

Agustin Mohedas: Yeah, I think one of the things that COVID has highlighted is really just the advancements that we have made in the biotech sector. And, in particular, on the vaccine front, many of the vaccines that are in development are a new type of vaccine that we have discussed in the past and other members of the health care team have discussed, but these are based on mRNA, which is called messenger RNA technology. And this is a technology that even five years ago really was non-existent, and it is really the advances made by small innovative biotech companies that have allowed us to so quickly develop a vaccine against COVID. And these vaccines are currently in phase 3 studies, and just, you know, less than eight months ago, we didn’t even know much about this virus, let alone did we imagine we would already be running large, multinational randomized controlled phase 3 studies.

McNurney: Yeah, I think one of the remarkable aspects about this is just how quickly we are trying to develop a vaccine. And I know that we have talked in the past about, you know, vaccines typically take seven to ten years in development. We are trying to do this in seven to ten months. Do we have the capability, though, of developing the vaccine, but then actually getting the number of doses to really make an impact?

Mohedas: Yeah, no, this has been really quite remarkable. Part of the reason why we have been able to do it so much faster than before is this new technology. mRNA technology allows us to use the genetic sequence of the virus to create a new vaccine as opposed to other types of technologies where we would, for example, have to actually grow the virus inside of chicken eggs, for example, and then purify that down and use that as a vaccine. So, by using mRNA technology we can skip a lot of these manufacturing steps and the manufacturing is much more, let’s say, precise and efficient. And on that front, a lot of these companies like a Moderna or a BioNTech have actually gone ahead and started ramping up manufacturing at-risk a little bit ahead of the phase 3 data. Because if in fact the phase 3 data is positive, they want to really quickly deploy these vaccines to health care workers, people that are at the highest risk, and then more broadly into the population.

Other companies such as J&J have an adenovirus-based vaccine and they are also ramping up production. And the government has stepped in here in a big way with Operation Warp Speed and the Department of Defense providing hundreds of millions of dollars of funding to many of these companies in order to help backstop some of that manufacturing building and also to secure hundreds of millions of doses across multiple vaccine candidates. You know, they are spreading out their risk, as well, in terms of which one could potentially make it across the finish line.

McNurney: Do we see that the investment case for some of these companies that are developing a solution for COVID has changed over the course of the last eight months or so?

Mohedas: Yeah, I think the investment case is a challenging one because there is so much uncertainty. We don’t know if this would be a vaccine that is required on a yearly basis, for example, or if it would just be a one-time administration and then the pandemic will resolve. But what we do know is that the government has provided hundreds of millions of dollars to companies to help accelerate manufacturing timelines. But in exchange, they [governments] have also secured hundreds of millions of doses of vaccines. And so, both sides are benefitting from these types of arrangements.

Now, small biotech companies are benefitting probably the most in that they are able to use this capital to ramp up manufacturing for their coronavirus vaccine, but they are also able to prove their platform, prove that their technology works and potentially use these manufacturing capabilities down the line for other products. Larger pharmaceutical companies that are also developing coronavirus vaccines – they are mostly benefitting from the goodwill that they are going to receive as bringing a solution to this huge problem. And that goodwill will hopefully pay dividends down the road when it comes to, let’s say, drug pricing legislation. And so, I think both, lots of companies across the biotech and pharmaceutical spectrum will benefit from the COVID-19 pandemic in terms of highlighting the importance of what they are doing.

McNurney: Agustin, so far this year biotech has performed extremely well, outperforming the broader markets. What should investors be looking for as we head into the clinical trial readouts here toward the end of the year, as well as the U.S. elections?

Mohedas: Yeah, you are right that biotech and health care in general has outperformed the broader markets this year. But I will remind you that since 2015, really both sectors have faced some headwinds because of the political issues surrounding drug pricing in particular. Now, while biotech especially has outperformed this year* as investors have sought refuge in these companies that are developing cures and vaccines for coronavirus treatment, you know, we do expect volatility to increase because we will have multiple phase 3 readouts towards the end of the year. What we do, while we expect more volatility, we think that the sector can continue to perform well, and we like the fact that there are multiple shots on goal across multiple types of vaccine candidates from mRNA, adenovirus-based vaccines and then your traditional what are called subunit vaccines. And so, we have multiple vaccine candidates in large phase 3 studies, and we do expect at least one positive phase 3 clinical trial and a potential approval before the end of the year and then these vaccines can then be rolled out into 2021.

Now, as we head into an election year, we think that the COVID-19 crisis will have highlighted the importance of biotech innovation and so any reforms that are done from, for example, in drug pricing, for example to address rebates or out-of-pocket costs for consumers, will still preserve the innovative part of the sector.

McNurney: Agustin, as always, thank you very much for your time today, and we will talk soon.

Mohedas: Yeah, thanks Mike.


*Source: Bloomberg, as of 10 August 2020