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Global race to recover from Covid-19

Asia Analytica
Asia Analytica • 9 min read
Global race to recover from Covid-19
Last Tuesday, the UK became the first major Western country to start inoculating its population.
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The Covid-19 immunisation programme is unfolding faster than anyone would have thought possible at the outset of the pandemic — or even just a few months back. A safe and effective vaccine, which usually takes years to develop, is now ready for mass distribution in less than a year. For the world, the move from containment (lockdown) to mitigation (immunisation) and normalisation cannot come soon enough.

Last week, we highlighted the different levels of lockdown stringency taken by different countries, with varying degrees of success. The overriding conclusion is that containment of this very contagious — and relatively fatal — virus is exceptionally difficult. And it comes at an extremely high cost, socially and economically.

Now that the first approved vaccine with high efficacy and no safety issue (in clinical trials) is available, there is little sense in continuing to pursue containment measures. Instead, we must move as quickly as possible towards mitigation and recovery.

Last Tuesday, the UK became the first major Western country to start inoculating its population, after receiving delivery of some 800,000 doses of the Pfizer-BioNTech vaccine. Those aged above 80 and frontline health and social care workers are prioritised and vaccinations will eventually encompass all adults over the age of 16.

The vaccination rollout came just one week after the country’s regulatory agency approved the drug for emergency use on Dec 2. This was possible because the UK has pre-purchased 357 million doses of seven vaccine candidates, according to the Associated Press. This is way more doses than necessary for its entire population of 67 million, including babies and children.

In fact, this is what many of the biggest developed economies have done — pre-purchase more than sufficient doses for their entire populations (see Chart).

Obviously, it is the prudent move — to hedge your bets and not put all your eggs in one basket given that final clinical trials are still underway for the vaccine candidates. We do not yet know which works and which does not, and which is better than the others.

The more pertinent rationale is that these countries are getting their ducks in a row. Locking in a diverse portfolio of vaccines early, as opposed to waiting for certainty on what works best, is the smartest strategy. Why? Because the risk and reward proposition is very much tilted in favour of the former.

The faster the vaccination rollout, the faster the normalisation of economic activities and reopening of international borders. This will effectively give the country the jump on investments and tourism.

Once the population is immunised, it matters not whether the rest of the world has been vaccinated. The country can still be open for business. Many governments recognise this fact. It is now a critical global race to recovery.

The Pfizer vaccination rollout in the UK might have hogged the spotlight in almost all of the Western media. But in fact, China has already vaccinated millions of its own people, including army personnel and government officials, healthcare workers, students as well as the general public, under emergency use permissions since July.

Russia approved the home-grown Sputnik V vaccine in August and began administering shots to thousands of doctors, teachers and social workers last weekend. The immunisation programme is currently being expanded nationwide.

Canada was the third country to approve the Pfizer vaccine last week, after the UK and Bahrain. The country has taken delivery of 249,000 initial doses — of the pre-purchased 20 million doses, with an option for an additional 56 million — and expects to begin inoculations this week. Canada has secured one of the most diverse portfolios of vaccines, totalling more than five times its requirement. The target is to inoculate the majority of its 38 million population by September 2021.

Singapore has in place a manufacturing support-purchase deal worth US$220 million ($294.1 million) with US-based biotech company, Arcturus Therapeutics Holdings, which is working with Duke-NUS Medical School for its vaccine candidate currently in Phase1/2 trial. The vaccine uses the same messenger RNA technology as that employed by Pfizer and Moderna.

The purchase rights, valued at US$175 million, should more than cover enough doses for Singapore’s entire population. The vaccine is reportedly on track for shipment in 1Q2021. In addition, Singapore is a participant in the COVAX Facility and is in talks with other manufacturers to secure a variety of vaccines, though the government has offered little in terms of concrete details.

Indonesia, which had abandoned a broad lockdown strategy amid the worst outbreak in Asean, received its first vaccine shipment last week from Sinovac Biotech. The vaccines are being warehoused pending approval from the Indonesian Food and Drug Monitoring Agency. The immunisation programme will start as soon as approval is granted, likely by January 2021.

Indonesia has secured the bulk of its required doses to attain herd immunity, mainly from AstraZeneca, Novavax and several Chinese pharmaceutical companies. It targets to vaccinate 40% of its population by 1H2021 and up to 60% by end-2021.

Malaysia has, so far, publicly announced that it has secured sufficient doses for 30% of the population — 20% from Pfizer and 10% from COVAX. However, we understand the government may have procured enough, including from AstraZeneca, Sinovac and CanSino Biologics, to vaccinate up to 70% of the population, sufficient to achieve herd immunity.

If so, the question is when the vaccines will arrive in the country and more critically, when will we start vaccinating the population? Will the approval come from the National Pharmaceutical Regulatory Agency under the Health Ministry or will Malaysia wait for the green light from the World Health Organization? All the countries that have approved the use of Pfizer’s vaccines thus far have done so based on their domestic regulatory agencies’ recommendations.

Also, should Malaysia follow the more developed world and Singapore to buy in excess of what is required and from diversified sources?

Stockpiling diverse vaccines and not waiting for approval is the smart way

The bulk of total capacity of leading Western-based vaccine candidates from the likes of Pfizer, Moderna, AstraZeneca-Oxford, Sanofi-GSK and Johnson & Johnson has already been pre-purchased, mainly by wealthier nations (see Table 1).

Many emerging countries will likely depend on allocations from COVAX Facility, a global initiative to ensure equitable distribution of vaccines, as their primary source. Vaccines from China and Russia are likely to be key for many poorer countries. The four leading Chinese vaccine candidates have a combined indicative production capacity of about two billion doses in 2021 while Russia is aiming to produce up to one billion doses next year.

Yes, there is the cost of wastage in pre-purchasing more than necessary — for instance, if some of the vaccine candidates turn out to be not as effective as expected or present serious side effects. However, this cost is small relative to prolonging the economic damage by being unprepared and overly cautious. Waiting for certainty is not an option.

We will prove this with simple maths. Assuming Malaysia needs to vaccinate 70% of its 33 million population to achieve herd immunity, with two doses each at a cost of say, US$12 per dose, the total cost works out to be less than RM2.3 billion.

If we were to purchase double the doses required — in case the final clinical trial results of one or more of the vaccine candidates are not up to expectations, defective or for any other reason — it would cost an additional RM2.3 billion, or RM4.6 billion in total, to provide 200% coverage for Malaysians.

RM2.3 billion may sound like a lot of money to waste but in fact, it is equivalent to the current cost of economic damage to the country in just about a week. Yes, you read right, one week. Even if we stockpile three times the amount of vaccines needed, the price tag is equivalent to only two weeks of the cost of economic damage to the country.

We would say this is a very, very low price to pay for backup — to ensure that Malaysians can get vaccinated as soon as it is safe to do so, without risking the loss of more lives than absolutely necessary to the virus and getting the economy back on track as quickly as possible.

With vaccines now available and vaccination having started in developed countries, it is time to change to a mitigation strategy rather than containment.

From gloves to vaccines

We have previously written about the mania that is the gloves story. Companies merely have to announce the intention to venture in gloves manufacturing to see their share prices double, triple, or more. No prior experience or track record needed. No need even for the venture to actually take off, with ground break for factories or buying of equipment.

That mania has now shifted to vaccines distribution. One thing we have to concede, Malaysian companies do react very quickly to changing times.

In recent days, we have seen a flurry of announcements of local companies tying up with foreign pharmaceuticals – mainly Chinese – to distribute vaccines in the country. Yes, vaccine is the new gloves! See Table.

As with the gloves mania, stock prices for these companies have risen quickly and steeply. Make no mistake – this is a highly speculative trade. The early investors in these stocks have certainly made a killing but when – not if – the music will stops there will surely be plenty of tears to go around.

Our advice to you is this; “Caveat emptor. There are many snake oil salesmen.”

Thus far, only two government-linked pharmaceutical companies – Pharmaniaga and Duopharma Biotech – have been given the nod by the government to undertake the fill and finish processes for Covid-19 vaccines.

The Global Portfolio traded 0.7% higher for the week ended Dec 10, lifting total returns to 44.1% since inception. This portfolio is outperforming the MSCI World Net Return index, which is up 31.9% over the same period.

Taiwan Semiconductor Manufacturing Co was the top gainer for the week, up 4.9%. Other notable gainers include Qualcomm (+4%) and Johnson & Johnson (+3.3%). Alphabet (-2.6%), Home Depot (-2%) and Microsoft (-1.7%) were among the big losers.

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

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