We have published a series of blog posts on COVID-19. For more in-depth analysis, contact us
The approval of a SARS-CoV-2 vaccine will be a watershed moment for the ongoing COVID-19 pandemic. It will mean that society can (almost) go back to how it was pre-COVID. People can safely commute to the office, children can go to school, and communities can return to socializing. To avoid a prolonged shock to our economy, it is imperative that a vaccine is approved quickly. Governments recognize this, and have collectively invested billions into a handful of companies.
This post will primarily focus on Pfizer ($PFE), Moderna ($MRNA), AstraZeneca ($AZN), Johnson & Johnson ($JNJ), Inovio ($INO), Novavax ($NVAX), and BioNTech ($BNTX). We acknowledge that there are other players in the vaccine spce including CureVac and a number of private companies, but there is not enough information on them to include in this post.
Many of these companies have already struck deals with governments including the US Government pre-ordering doses from Pfizer/BioNTech1 and Canada from Novavax and J&J2. Some reports have estimated that if about one third of the developed world needs the vaccine every year, that could amount to $10B in annual topline revenue assuming a price of ~$503 4. We believe having a Covid vaccine approved will make a material short-term impact to each company’s topline revenue.
In this blog post, we will analyze the market activity surrounding these vaccine candidates and discuss potential opportunities/dislocations. The market is often forward-looking and the market may be predicting who the vaccine winner may be.
This blog post won’t delve deep into the manufacturing partners, but we believe governments will purchase from multiple companies in order to innoculate the approximately 1.5B people living in the developed world. This means in the short-term, there may be multiple winners. We have delved into each company’s underlying science and long-term epidemiological predictions but will save that for a future post.
We analyzed relevant and historic data gathered from our own proprietary databases, publicly available databases, and 3rd party proprietary databases. We looked at data from equities databases, SEC filings, bonds databases, datafeeds from major exchanges, and news feeds.
Definitions: r = Correlation Coefficient, σ = Standard Deviation, DP = Dark Pool
Table 1. Table of details of the equities YTD (Jan 1, 2020 to September 25, 2020).
|Last closing price||$36.05||$69.47||$55.51||$145.66||$16.94||$113.56||$66.69|
|Drugs in market||312||0||>56||368||0||0||0|
|Short float (9/25)||0.81%||8.87%||0.16%||0.40%||15.35%||2.32%|
|Short ratio (9/25)||1.64||1.43||0.64||1.72||1.67||1.12||1.41|
Table 2.0. Correlation matrix comparing each equity to indices.
Table 2.1. Correlation matrix comparing each equity to each other.
Table 3. Table of unusual options activity YTD (Jan 1, 2020 to September 25, 2020), 2019, and 2018. Values in 000’s.
1 2019 was an unusually eventful year for JNJ during which it acquired 2 companies (one being Auris Health for $3.4B) and later had to cease sales of talcum powder and pay $4.7B in damages.
Equity Blocks (Dark Pools)
Table 4. Table of large equity blocks activity YTD (Jan 1, 2020 to September 25, 2020), 2019, and 2018, focused on dark pool prints. Values in 000’s.
|Dark Pool prints||244||12||183||9||43||9||0|
|Prints Total (Sep)||$211,682||$20,655||$92,676||$0||$39,546||$0||$0|
|Prints Total (Aug)||$254,532||$13,915||$124,018||$188,652||$15,725||$0||$0|
|Prints Total (Jul)||$387,801||$42,130||$530,546||$0||$22,868||$0||$0|
|Prints Total (YTD)||$3,186,863||$162,034||$2,561,660||$608,231||$156,683||$21,797||$0|
|Prints Total (2019)||$6,352,114||$153,447||$4,411,314||$960,333||$0||$0||$0|
|Prints Total (2018)||$3,124,317||-||$3,581,593||$570,918||$818||$0||$0|
Table 5. Table of insider, institution, and retail shareholders as of September 25, 2020.
|% Shares Held by Insiders||0.04%||0%||0.08%||2.69%||0.36%||1.26%|
|% Shares Held by Institutions||72.56%||53.53%||18.47%||70.25%||29.41%||13.89%||4.15%|
|% Float Held by Institutions||72.59%||70.38%||18.47%||70.31%||30.22%||13.94%||4.20%|
|# Institutional holders||3,140||298||738||3,782||163||130||36|
1 After a significant amount of insider selling between July and September 25.
2 Robintrack was most recently updated August 13, 2020. We do not have data beyond that date because of a change to Robinhood’s API.
From a cursory look at each companies’ charts, there is an obvious dichotomy that the small cap players have drastically increased in value, but the large cap players remain close, but below their all time high (exception of AstraZeneca). The amount of unusual options activity has skyrocketed in small cap vaccine players compared to previous years, and similarly with the amount of dark pool prints (except for Moderna which remained about the same, but it had a relatively recent IPO).
Looking at the correlation matrices, the large cap companies track the S&P 500 and Dow Jines Industrial Average indices very closely, while the small cap companies move independently of the indices and don’t track each other (their correlation coefficient is basically 0). This helps quite a bit when thinking of diversification.
With options implied volatility (IV) well over 100% (>200% for Inovio) for the smaller cap companies, the market seems to have priced in the fact that a vaccine will create material impact for these companies. In most cases, this will be their first revenue-producing drug. In Moderna’s case, the Covid vaccine is its first ever Phase III trial.
There were 2 huge dark pool Pfizer prints on 9/25 totaling $47M. However, the dark pool activity YTD for Pfizer wasn’t significantly different from 2019 (which was higher totaling $6B in dark pool prints) or 2018. It is likely this is just pension fund rebalancing (noise).
We recognize there has been significant insider selling in Moderna, but we still commend the insiders for still holding almost a quarter of the shares fully diluted.
One thing we found interesting is the lack of activity in BioNTech. In fact, since July, there have been large put order sweeps targeting Q4 2020. One would think BioNTech (with the support of Pfizer) could be highly competitive with Moderna and is neck-to-neck in Phase III trials.
From our discussions with asset allocators and wealth managers, the broader market seems to anticipate an inevitable vaccine by 2021 at latest and likely won’t care whether a vaccine comes sooner or later.
Despite this, we are puzzled by the lack of options action in the larger cap vaccine manufacturers. Perhaps the market doesn’t believe vaccine revenue will make a dent to the conglomerates. Either way, our opinion is that large cap companies’ options are priced quite cheaply.
The market has clearly identified a few underdogs (Moderna and Inovio) and has even made Moderna into a household name and the favorite for a Covid trade. Clearly the market understands that the Covid vaccine will create substantial revenue for these companies (and will also be their first drug in the market). We would not be surprised if a significant number of institutional investors and hedge funds start piling into a company like Moderna if vaccine news comes out.
It is hard to say whether the market has selected a winner, but the options market looks very favorably upon Moderna.
There is much more to consider here beyond the short-term impacts. These companies will be cash rich and can further develop their pipeline and platforms. For example, mRNA vaccines (like the ones Moderna and Pfizer/BioNTech are developing) are mostly unproven concept. The traditional way of developing vaccines is to use a viral vector, usually adenovirus. We will keep a close eye to see what is revealed when large numbers of people are administered mRNA vaccines.
This is the first in a series of posts. In a future blog post, we will look at a calendar view of activity around the frontrunners. We will also be examining vaccine manufacturers, short-term and long-term vaccine winners, possible epidemiological forecasts, and further examining opportunities in each vaccine company.
Appen. Chart 1. Finviz Pfizer ($PFE) Chart YTD
Appen. Chart 2. Finviz Moderna ($MRNA) Chart YTD
Appen. Chart 3. Finviz AstraZeneca ($AZN) Chart YTD
Appen. Chart 4. Finviz Johnson & Johnson ($JNJ) Chart YTD
Appen. Chart 5. Finviz Inovio ($INO) Chart YTD
Appen. Chart 6. Finviz Novavax ($NVAX) Chart YTD
Appen. Chart 7. Finviz BioNTech ($BNTX) Chart YTD
Appen. Table 1. YTD monthly close correlation table.
BioNTech SE; Pfizer Inc. (2020). Pfizer and BioNTech Announce an Agreement with U. S. Government for up to 600 Million Doses of mRNA-based Vaccine Candidate Against SARS-CoV-2 [Press release]. 22 July. Available at https://www.globenewswire.com/news-release/2020/07/22/2065701/0/en/Pfizer-and-BioNTech-Announce-an-Agreement-with-U-S-Government-for-up-to-600-Million-Doses-of-mRNA-based-Vaccine-Candidate-Against-SARS-CoV-2.html ↩
Bolongaro K. (2020). Trudeau Unveils Covid-19 Vaccine Deals with Novavax, J&J. Bloomberg. 31 August. Retrieved from https://www.bloomberg.com/news/articles/2020-08-31/trudeau-unveils-covid-19-vaccine-deals-with-novavax-j-j ↩
Alpert B. (2020). A Covid-19 Vaccine Could Be Worth Billions for Moderna and Its Rivals. Barron’s. 19 May. Retrieved from https://www.barrons.com/articles/a-covid-19-vaccine-could-be-worth-billions-for-moderna-and-its-rivals-51589902769 ↩
Mancini DP, Cookson C, and Kulcher H. (2020). Moderna pitches virus vaccine at about $50-$60 per course. Financial Times. 28 July. Retrieved from https://www.ft.com/content/405c0d07-d15a-4f5b-8a77-3c2fbd5d4c1c ↩