«We expect there to be a vaccine by the first quarter of next year»

Matthew Harrison, head of biotech research at Morgan Stanley, sees a long period of social distancing measures ahead of us. But there is light at the end of the tunnel.

Mr. Harrison, in your base case in mid-March you expected 200,000 coronavirus infections in the US. The number has now reached over 600,000.
Our models are based on empirical methods. Looking at what happened in countries such as China, South Korea, Italy and Spain, we expected swift and efficient social distancing measures to be implemented in the US. But this took longer than expected. Our updated model, which makes assumptions for each individual state, foresees a total of 1.4 million infections.

Will the US have enough patience to keep the measures in place for as long as necessary?
An expert we work with said that social distancing should be observed for at least eight weeks. We expect the measures in the US to be eased from June onwards. But there are two narratives within the government. Governors are talking about different timelines than the federal government. It is therefore difficult right now to predict what the authorities will ultimately decide.

Morgan Stanley (MS 49.46 1.19%) expects to see a longer downturn for the US economy.
Ellen Zentner, our chief US economist, forecasts that the US economy will only return to pre-crisis levels in the fourth quarter of 2021. We expect the recovery to be gradual. Until a vaccine is found, it is highly unlikely that all social distancing measures will be lifted.

When will there be a vaccine?
We expect there to be a vaccine by the first quarter of next year. In the meantime, social distancing is likely to be relaxed. New hotspots are likely to emerge, at which point the authorities will probably reintroduce the stricter measures again. We therefore expect that the measures will be turned on and off, which means we do not foresee the economy to be fully reopened until next year.

What should investors be paying attention to?
The virus is very disruptive, but there are now many drugs in the pipeline. I recommend that investors keep an eye on drugs that are being developed, first primarily the antivirals and the antibodies and in the longer term also vaccines.

Some experts doubt it will be possible to develop a vaccine in 12 to 18 months.
I think that’s a realistic timeline. We are using it in our forecasts. But it contains aggressive assumptions. First of all, that the vaccine will be effective. And secondly, that in such a case, the authorities will lower the bar when assessing risk versus benefit.

What does that mean, exactly?
Normally, vaccines require lengthy studies with many participants. Because vaccines are administered to healthy people, there should be no major side effects. Normally a vaccine must also have a high protective benefit. In this case, even a vaccine that does not provide full protection might be sufficient.

So a less effective vaccine with side effects could be licensed?
The 12 to 18-month estimate for a vaccine is based on the assumption that there will be a certain amount of flexibility both in terms of the effectiveness and the safety of the first vaccines. Even if a vaccine does not provide full protection, antibodies that are produced in humans could mean that in case of an infection, they develop a mild form of the virus instead of a severe form.

The American biotech company Moderna is in the lead in terms of developing a vaccine.
Moderna was the first company to start clinical vaccine studies on humans for Coronavirus Sars-CoV-2. The Chinese company CanSino followed one day later. Unlike traditional methods, Moderna’s technology makes it possible for an active ingredient to be formulated in a just a few weeks and produced in a sufficient quantity to test it on the first patients. However, Moderna has yet to study any of its drug in late stage studies. The mRNA technology is new and so far, no such vaccines have been approved.

In the end, will it be biotechs or established pharmaceutical companies that will make the biggest medical contribution in this crisis?
When it comes to treatments for people who already have the virus, biotech companies are currently developing more active ingredients. So a first wave of drugs could come from them. But for vaccines, the traditional players are big pharmaceutical companies.

What about companies that are developing drugs for people who have been infected?
I break them down into three categories: the inflammation inhibitors such as Il-6 blockers, including Roche’s Actemra or Regeneron/Sanofi’s Kevzara. Then there are antiviral drugs and antibody therapies. For antivirals, Gilead (GILD 71.73 3.16%) is in the lead with Remdesivir. Of the leading companies for antibodies, I cover Regeneron Pharmaceuticals and Amgen (AMGN 247.36 1.1%).

Initial data on Remdesivir are promising. Could it be a game changer for the pandemic or the lockdowns?
An industry publication provided a quote from an investigator at a Chicago hospital where the investigator reported recoveries in fever and respiratory symptoms in patients taking Remdesivir. Gilead and collaborators have four active clinical trials studying Remdesivir in around 12,000 patients. While this anecdotal report is encouraging, we need to wait for data from the full trials – the first of which is expected by late April – before we can fully understand the potential benefit of the drug.

A lot of people are pinning their hopes on Regeneron as well in the corona crisis.
The US company has a technique whereby they can create an artificial human immune system in another host. The researchers use this technique to create antibodies for viruses. These antibodies are then extracted and the two or three that work best against the virus are selected. The antibodies that Regeneron then produces synthetically are the basis for their drugs. The company was successful with this for Ebola. It hopes to start clinical tests for a corona antibody at the beginning of the summer. We could see the first results by the end of the summer.

What about Amgen?
Amgen has not given a timeline and is taking a slightly different approach. The US biotech company searches for effective antibodies in the blood of recovered patients and then produces them synthetically. What is generally interesting about the antibodies is that they can be given to healthy people for prophylaxis as well as to people who are already infected.

What impact is this crisis having on the biotech industry?
It’s good to see that a lot of companies are now looking for possibilities in their approaches and pipelines to help in the fight against Covid-19. But many companies have also had to adjust their plans. Companies that wanted to launch new drugs are delaying that or at a minimum have significantly ramped down their marketing efforts.

How are things looking on the development front?
Many studies are delayed, but the extent of the delay cannot yet be estimated. Some biotech companies have had to stop enrolling new patients and some are trying to move their studies to Asia. Those that are already fully enrolled face the challenge of having all patients show up for their final check. There is a risk of losing patients, and therefore reducing the meaningfulness of the study. However, the effects of the crisis differ from case to case.

Do you have any favorite biotech stocks at the moment?
We do not have a list of favorites for the corona crisis. A lot of companies are pushing ahead with interesting projects. In general, we like Amgen and Vertex among the big biotech companies. We also find companies working on neurological drugs, such as Denali and Alector, particularly interesting. However, we are overweight for the stocks of many other smaller companies.