Should Investors Care About a Vaccine’s Efficacy?

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As illustrated in a Nature article published on Tuesday, scientists are puzzled by the preliminary results of covid tests. Given expectations and historic vaccination results, there appears to be something odd going on. And something unexplained like that could have very important implications for the markets in general, not just the stock prices of the companies developing the vaccines.

When Pfizer first announced the results of their study, the efficacy rate of over 90% caught most people by surprise. In general, vaccines have around a 50% efficacy rate only. This explains why virtually the entire population needs to be vaccinated in order to achieve herd immunity.

An efficacy of around 60% would have otherwise been considered a good result. But subsequent study publications of other vaccines have shown efficacy levels in the same range.

Why is this Important?

The goal of vaccination is to achieve herd immunity. For this particular virus, this is currently estimated to be around half of the population. In other words, if half of the population has antibodies or T-cell immunity, then it would prevent the spread of covid. Initial estimates, given prior attempts at creating respiratory-transmitted viruses, assumed that most of the population would have to be inoculated in order to put an end to the pandemic.

But if the vaccines are effective in the 90% range, in order to bring the pandemic under control, it means that a smaller percentage of the population would need to be vaccinated  Given that the next hurdle is vaccine production, this could substantially reduce the time by which enough of the population is vaccinated.

So, What’s the Problem?

The tests that we are seeing are all done in clinical settings; real-world results might be radically different. This is particularly in the case for people over the age of 65, which constitute over 90% of the deaths from the virus.

Unsurprisingly, the number of volunteers for older cohorts in the vaccine studies was lower, meaning the data is less reliable. Add to that AstraZeneca yesterday disclosed that there was a manufacturing error. This led to a small cohort of people only under the age of 55 in which the high efficacy was noted.

Current estimates are that there will be enough coverage by the end of May. If efficacy rates in the real world are lower, then the time to reach herd immunity might be extended. This is especially relevant for the efficacy of patients over the age of 65, which concentrate the bulk of hospitalizations and deaths. This explains the reason why we need to have lockdowns and have an economic impact.

When Will We Know?

Both Pfizer and Moderna’s vaccines are expected to be authorized in the first two weeks of December. All the studies show that peak immune response is achieved 14 days after inoculation. This also coincides with the length of the incubation period.

It would take about a week to process efficacy data. This means that potential real-world results will be processed during the holidays. Most likely, in the first week of January, we could have a clearer understanding of when to expect enough immunizations to be available.

On an individual stock level, efficacy could play a major role in which vaccines are prioritized. The company with a higher efficacy is likely to get more orders and outperform rivals on the market.

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