US 2020 Election Investment Pulse: Biotech Advances Amid Pandemic

US 2020 Election Investment Pulse: Biotech Advances Amid Pandemic

November 13, 2020

Host: Hello and welcome to Talking Markets: exclusive and unique insights from Franklin Templeton. We continue our special series of daily podcasts related to the US elections. In this episode, we hear how the results could affect the biotech sector…plus, expert perspective on the coronavirus vaccine…from when it could be broadly available, to possible distribution challenges, and why the virus mutations may actually be good news for vaccine development.

Talking about it all is Evan McCulloch, director of research for Franklin Equity Group, specializing in biotech and emerging pharmaceutical companies…and Dr. Wendy Lam, a Portfolio Manager with Franklin Equity Group with a Ph.D in biology from MIT. Stephen Dover, head of equities at Franklin Templeton, leads our discussion.


Stephen Dover: Welcome Dr. Lam and Evan.

Before we start, I would like to present some of the results of the survey that Franklin Templeton has done along with the Gallup organization. This new Franklin Templeton-Gallup Economics of Recovery survey of 35,000 US adults finds that among many potential personal characteristics, such as age, income and political affiliation, the most significant predictor of whether someone will get a COVID-19 vaccine is if they took the flu vaccine last year. And last year, about 50% of adults get the flu vaccine. So best indication is about 50% of people would get any vaccine for COVID. The survey also finds vaccine acceptance would increase if the vaccine is released in early 2021, as compared with an early release in 2020. Acceptance would also increase if people receive reassuring information about the approval process, the side effects, the efficacy, and if the vaccine is provided at no cost. Although even with these and even more acceptance boosting conditions in place, the research and polls suggest that just over 60% of the adult population would accept the vaccine. Even if a vaccine was acceptable and available in the spring of 2021, the Franklin Templeton-Gallup Economics or Recovery Study finds that many Americans still anticipate they will be very slow to resume to normal pre COVID-19 activities.

It’s been a big week with election results last week, as well as news on a vaccine. Let's first go to you, Evan and let's talk about what is the impact of this election on the pharmaceutical and biotechnology industry in general?

Evan McCulloch: In terms of election, we're still waiting to see what the total outcomes are. But what we're talking about is what can happen in terms of efforts to lower drug prices through legislation, and in reality, who wins the presidency doesn't actually matter that much because we believe that both candidates, both Vice President Biden and President Trump would sign whatever legislation comes across their desk. So really it matters more about what comes out of the Senate and the house. We think something will pass. I think something needs to be done about drug pricing, there's just too much pressure from constituents. And the Senate probably defines, the left end of what that legislation could look like and probably the least onerous or most friendly to the industry. Whereas the house represents something that would be quite onerous and contain items like an international pricing index or a direct negotiation through Medicare. So right now, obviously the house is still Democrat, but the Senate race is still hinging a little bit on Georgia right now, so we'll have to see what happens. But on one end, if the Republicans win one seat, we'll have a divided government and it'll probably be a decent environment for the biotech and pharma sectors going forward in terms of seeing legislation that goes through, that doesn't really change the business model. If it does flip, it's still manageable, but, you know, I think we'll still see things that go through that attempt to lower drug pricing.

StephenDover: If we presume that Mr. Biden becomes our president, that the Senate remains a Republican and that the house remains Democrat, let's just presume that that might be the case. How might that impact the industry? How would that impact innovation and will it reduce or change the number of drugs that come to the market in the future?

Evan McCulloch: Right. This is a good question. And at the core of innovation is really expense, R&D [research and development] expenditures, and that's really drug discovery and development, and that is the pipeline for future drug approvals and our ability to address new diseases or the existing diseases in a better way. I think if we get something like the outcome that you're talking about, an environment at the earlier stage biotechnology companies are investor funded, and I think that will preserve an environment where we'll still continue to see innovation. I think a more of a concern is that we see a different outcome and we started to see legislation go through that reduces prices. It'll have a moderate impact on the larger companies, but still they have large margins. They'll be able to absorb it and they'll continue on maybe with less R&D expenditures and maybe a fewer drugs, but I don't think it will dry up. If something catastrophic occurs, what's underappreciated is a lot of the earlier stage companies are venture funded and investor funded and if investors feel like they cannot make an adequate return on that investment, some of the funding may dry up. So that's our concern. We've been in touch with lobbyists and even actually directly with senators and representatives about this. And we want to warn them if something really bad that happens that innovation could dry up and that would be a negative for public health.

Stephen Dover: Now let's just turn very directly to talking about COVID-19,and turn to Dr. Lam. Dr. Lam, there's big news earlier last week that the Pfizer vaccine showed at least a 90% efficacy. Tell us what does that mean exactly and what do you think of these results?

Wendy Lam: Yeah, so the short answer to that is that at least 90% effective means that the vaccine reduced the number of actions by least 90% compared to placebo in the trial. That's the first interim analysis that was done early this month. So keep in mind that as an interim analysis, the trial is still ongoing. They're still following the patients. So this number could change over time, but if it holds up 90% is very impressive. For example, the seasonal flu vaccine is usually between 40 and 60% effective. And also 90% is well above the bar that the FDA has set for emergency use authorization or EUA, which is 50%. So, there's still a lot that we need to learn about safety and efficacy, especially in the longer term and whether protection will be long lived. But overall, I can say this is very promising and it makes me feel confident that we have at least one effective vaccine that should be available very soon. And it also makes me confident that other vaccines in development are likely to work, as some of them take a very similar approach to the Pfizer vaccine.

Stephen Dover: Well, there's this great emphasis on the efficacy of the vaccine, seems like very good news, but are there any concerns on the safety side?

Wendy Lam: Yeah, so I'll, split that up into two parts. So generally speaking for all vaccines, not just the Pfizer vaccine, I'd say that just like any other drug in development that hasn't been tested in humans before you have to make sure the vaccine can be used safely in patients. And this is especially important here given that many of these vaccines are using novel technologies like mRNA, that haven't been tested in humans before. And because these vaccines will be used very broadly, ideally we want it to be as safe as possible and so from what we know so far from the phase one studies for a lot of these vaccines, it seems that these vaccines do have some slight differences in their safety profiles. And just to remind you, we have a variety of vaccine platforms being tested right now, like the mRNA-based vaccines, the protein-based vaccines and the antivirus-based vaccines. You know, for example, one thing we worry about is the possibility of causing a severe systemic immune reaction, which often comes in the form of a fever. And sometimes vaccines can do that because you want the immune system to respond, of course, but you don't want it to respond so strongly that it harms the patient and of these vaccines, like the mRNA vaccines and the antivirus-based vaccines did cause some systemic immune reactions in some of the patients in the phase one studies. So that said they've been pretty mild and transient. So hopefully that won't be a huge issue later on. So generally speaking, I would say also the antivirus-based vaccines do come with some more side effects than the others. And we've now seen some safety events emerging in some of these trials, including AstraZeneca and Johnson & Johnson. So these studies are still blinded, so we don't know all the details yet, but it's something that we're watching.

Stephen Dover: Give us an idea how, how quickly we would know about the side effects and is that an impediment to rolling out the vaccine?

Wendy Lam: So right now, we have information, very limited information, from the Pfizer trial in terms of safety. Other than that, we know that there were no serious adverse events flagged thus far, I view that as a positive but we still need to see a little bit more safety follow-up from that trial. Pfizer plans to file for EUA after they've collected about two months worth of safety follow-up from this trial, but we'll have to see longer-term, follow-up at least six months of safety follow-up for FDA approval. So I would say that right now that the safety seems to be sufficiently clean, but we do need to have a little bit more follow-up to enable FDA approval and broader use.

Stephen Dover: That's interesting but we do hear on an awful lot about other vaccines. Can you tell us about how these other vaccines would work, how they're very similar to what Pfizer has or different?

Wendy Lam: Yeah, so we have different kinds of vaccines right now in development. Like the mRNA-based vaccines, like the Pfizer vaccine, uh, protein-based vaccines like for Novavax and anti-virus based vaccines and all of these vaccines, including the Pfizer/BioNTech vaccine are similar in that they all target the same target, which is the spike protein of the SARS-CoV-2 virus. How they differ is really the approach they take to target that protein and the idea is you want to get the spike protein into the body somehow, so that it tricks your immune system into thinking you've been infected and that trains your body and your immune system to recognize anything bearing the spike protein, including the virus so that if you get infected with SARS-CoV-2 your immune system should recognize it and destroy it before it wreaks havoc in your body. And so these vaccines do that in different ways. The mRNA-based vaccines that we just discussed use an mRNA sequence that encodes for the spike protein, so that when that's in your body, your cells make the spike protein. The antivirus approach uses a viral vector that carries a sequence for the spike protein so that when the virus enters your body, it makes it spike protein as well. And then lastly, that protein-based approach is the simplest one in that you just inject the protein into the body. And so the Pfizer results answer two very important questions for the vaccine field, first are mRNA vaccines effective? Because before this, no one had ever gotten this far with testing an mRNA-based vaccine in humans. And secondly is the spike protein a good target? And so thankfully the answer to both questions is yes, we now know that mRNA vaccines work so that bodes well for others using the same approach. And then on the spike protein, most of the vaccines we have in development are targeting protein. So in a way that was like putting all of our eggs into one basket. But now we know that it works and we know that it produces robust neutralizing antibody responses. And now that we know from the Pfizer study that it actually protects people from infection. So, the other vaccines in development have generated similar levels of neutralizing antibodies. Although I'd say that the levels seen with the protein-based vaccines are a little bit higher, but for this reason, we think that the efficacy for these other vaccines should be similar to what we saw in Pfizer vaccine.

Stephen Dover: When do you think we'll get the results from the other vaccines and when might they be available and do you expect a whole lot of different vaccines to be roughly available at a similar time?

Wendy Lam: Yeah, so the other ones are pretty close behind. So, we already have phase one results for a few of these vaccines. And so we should be seeing the phase three results in the next couple of months. So Moderna is the next one to come. They also have an mRNA-based vaccine and they just announced earlier this week that they've cleared enough events now to announce the first interim readout. And so that means we should be getting that very shortly within the next week or so. And Novavax, who was developing a protein-based vaccine, it's running trials all around the world now. They've already started their phase three in the UK earlier this fall. And so the results from not to come as early as the first quarter of next year. And so, besides that, we're also watching a couple of antivirus-based vaccines. They're a bit further behind because they had to pause enrollment for safety reasons, but the first would be yesterday, AstraZeneca, who should report results sometime within the next couple of months. So, they're all pretty close behind Pfizer. So while we get the Pfizer vaccine first, the other ones should follow shortly.

Stephen Dover: I understand the Pfizer vaccine takes a booster shot about a month later. Would these other vaccines also require a booster shot, or would they be a single vaccine?

Wendy Lam: So the vast majority of them are required two doses one with the part. There are a few companies that are working on one dose vaccines, but they don't seem to be as effective. So I would say it's likely that everyone will need a second shot.

Stephen Dover: And how long do you anticipate, or do we know how long the vaccine will actually be effective and provide protection?

Wendy Lam: So it's really too early to know that right now. Because the phase threes are still ongoing, it's still very early. So really we need to follow patients out for longer to know how durable the immune response will be. We do have some clues in how durable it could be from patients who've gotten infected and have since recovered. So you can actually measure the antibodies in those patients and track them over time. And there was a largely from Mount Sinai that showed that these antibodies tend to last about five months, which is not the most durable, but we have to keep in mind that when a patient develops immunity after recovering from an infection, generally speaking, that's usually less durable than from the vaccine because vaccines are designed to generate a very strong immune response that's very durable that hopefully lasts for a lot longer, if not a lifetime. So it's hard to say right now, whether it would be durable for a lifetime, we'll really have to see. It probably won't be, but it's too early to know right now how long lasting it will be.

Stephen Dover: So just to make sure I understand somebody who's had COVID, it looks like they wouldn't get it again for at least six months or so, but not forever. And with the vaccine, we just don't know. Well probably longer than the six months, maybe a year, but it's likely people have to take it more than one time. Is this virus mutating that we know of?

Wendy Lam: So, it is mutating, but that said everything you take, so you and I are mutating right now—every living organism mutates, it's a question of how often. And so, all viruses actually mutate very often and quickly because it's how they survive and how they evade the human immune system. But that said, this virus mutates a lot more slowly than other coronaviruses, you know, the flu. And so, from that standpoint, it's a blessing for us in terms of making a vaccine, because hopefully that means that one vaccine will be useful for a longer period of time than the seasonal flu vaccine, which as you all know, we have to get every year because they mutate so quickly. And so, we have seen some cases of point mutations popping up in the virus. We now have one mutation called D614G, which appeared first in Europe, and now is the predominant strain in the US and Europe and other parts of the world. So it's not really clear how this mutation changes the properties of the virus, but it might've been more infectious, but the good news is that our vaccines right now in the pipeline work against this experience. So, it is mutating, but I would say it's probably less of a concern for this virus, you know, versus others that we've seen.

Stephen Dover: I've actually never thought of myself as mutating. So that's the first time I've heard that. Now we talked about the survey at the beginning, the Franklin Templeton-Gallup Economics of Recovery Survey. And it said that probably somewhere around 50, 60% of the people at this point seem to be willing to get the vaccine. If that's the case, what's the implications of that? How many people, what percentage of people that we really need to get the vaccine or for it to be effective for us to have some sort of a herd response?

Wendy Lam: So that is the goal here is to build herd immunity, to get enough people to generate the antibodies, whether it's through the vaccine or through infection, so that you can stop transmission of this virus. So that's the ultimate goal. The question is how many people we need to get there. And so that's a really tough number to forget because it relies on a lot of variables. It relies on things like how infectious this virus is, which we can always find infectious, how effective the vaccines are and how durable that protection is. So, you know, for a really effective vaccine that gives lifelong protection, you probably only need about 60% or so of the human population to have antibodies through those two means that we just discussed, but if it's short lived protection, then that number would be a lot higher. In terms of infectiousness for a really infectious virus like measles, you need a herd immunity threshold of 90% of the population, it’s really high. As of right now, it doesn't seem like SARS-CoV-2 is as infectious. So the threshold is probably lower, but again, that threshold changes on a lot based on a lot of factors including our behavior. So as soon as societies reopen and things go back to normal, that threshold is going to go up. So right now the estimates that we're hearing out there is that you need about 60 to 70% of the population to be vaccinated in order to achieve herd immunity. Although again, these numbers are very fluid.

Stephen Dover: So another thing we hear about this vaccine is that it needs cold storage, which implies that it's difficult to actually… that's something you can't do in doctor's offices, it's going to be difficult in a lot of emerging markets. Talk a little bit about just the ability to get this vaccine out to people.

Wendy Lam: Yeah, so you're right. The cold chain storage is a challenge, especially when it comes to developing countries who might not have the ability to do that easily. And so it does present a challenge in terms of broader distribution. It's probably less of an issue for developed countries who do have that infrastructure already built in but it's really for the developing world. So, as far as cold chain and we have different vaccines right now in development that have different requirements, um, there are some that require minus 80 Celsius storage, which is especially difficult. Some of them require minus 20 degrees Celsius, which is just your freezer that you have in your home. So that's a little bit easier. And then you have some that are like the protein vaccines, lyophilized formulations that can be shipped at room temperature. So that's a lot easier to get around the world. So in the end, it really depends on which vaccines end up succeeding. Hopefully we'll have more options that are a little bit easier to transport around the world, but, all of these companies are also working on versions that can be stored at warmer temperatures. So hopefully that won't be an issue in the longer term.

Stephen Dover: So from what I'm gathering from what you've said, obviously, fantastic news that we've gotten now with the, with a vaccine, but it's not a cure-all there's a lot more steps, going forward and it's not going to be so easy to roll it out. Let's now shift to the treatments for COVID. We've seen a dramatic improvement in treatments, but what's the update on what's really working in terms of the therapeutics around COVID?

Wendy Lam: Yeah, so, we have a few new drugs now that have been useful in managing the virus. So we have one antiviral called remdesivir, which is from a company called Gilead, which received EUA in the US earlier this year, and just got full FDA approval here recently. And so this drug has been shown to reduce mortality and time to recovery in moderately to severe patients. And so it's quickly become the standard of care for hospitalized patients. And also, it's been shown that dexamethasone, which is a steroid is very effective at managing the hyperactive immune response we just talked about in some of these patients. And so that's also helped reduce mortality. So overall we've learned how to manage these patients better. And, we now have two drugs that seem to be very effective and outcomes overall have improved for these patients. Now, in terms of the monoclonal antibody treatments, you may have heard of like the one from Regeneron that President Trump received. I would say the data there's been a little bit more mixed. We have a couple of companies here working on that. Regeneron is developing an antibody cocktail, a mix of antibodies. So from what we know about that in the outpatient setting, it seems to be more effective in patients who don't form a rapid antibody response when exposed to the virus. So, it's interesting, but it's a little bit disappointing to me that it’s not more broadly effective. And then Lilly's also developing, a monoclonal antibody. That unfortunately went to a lot of issues recently. Actually, both they and Regeneron, both had to put a pause on enrollment due to safety issues and Lilly actually got a full-on halt on their hospitalized and severe COVID trial. And then they ended up missing their primary end point in the pivotal trial. So it's not clear to me if this is going to be especially effective, but regardless of what I just told you, the Lilly antibody just got EUA in the US earlier this week, and it's likely that Regeneron will as well sometime very soon. So it's possible these antibody treatments could be effective in reducing viral load and improving outcomes. But my guess is there'll be most effective when used in combination with other drugs, like remdesivir and steroids. So, I really think the combination approach here is effective.

Stephen Dover: Dr. Lam, you're in central unique position. You're a Ph.D. scientist that specializes in this, and you're also looking at it from the economic side and looking at the company. So sort of the question everybody wants to know, which I know is a very difficult question to actually answer, but when do you think things might get back to normal? When are we going to get through this whole virus period?

Wendy Lam: So, it's not going to be overnight. So while I do think we are on the way to recovery, it's still going to take some time to get to full recovery. So, even though we're close to having at least one vaccine, supply is very limited right now, and we still need full FDA approval here in the US and full EMA approval in the EU in order to have broad distribution of any vaccines. So I would say, at the earliest in the best case scenario, I would say mid next year is probably when things start to get a little bit more normal. So depending on how many vaccines we ended up having, besides just this Pfizer vaccine, the supply will be very limited for the next year, if not longer. So not everyone who wants a vaccine will be able to get it right away. And on top of that, most of the doses that the companies expect to make over the next year have already been locked up by certain regions like the US, Europe, Japan. So those regions will be the first to get the vaccine. Whereas other regions who don't have existing contracts with those companies will have to wait for longer. So this means that even if we start getting back to normal here in the US or in Europe, sometime mid or late next year that countries around the world might not have access to that vaccine and will have to deal with that virus for a lot longer. So globally, I think it could take several years before we really get back to normal. So, it is a long process. And, again, I think when it comes to any vaccine, we do need to emphasize the importance of global coordination in terms of distribution of the vaccine.

Stephen Dover: That's a very sobering commentary, but so great to get that very direct information. Thank you, Dr. Lam. Thank you, Evan, for talking about the politics of this, it's really been a pleasure to talk with both of you.

Host: And thank you for listening to this episode of Talking Markets with Franklin Templeton. We hope you’ll join us next week as our special series related to the US elections continues. And, if you’d like to hear more, visit our archive of previous episodes and subscribe on iTunes, Google Play, Spotify, or just about any other major podcast provider.

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