Global markets were choppy in the third quarter of 2021 as central bankers struggle with the spectre of stagflation. Investors fear a repeat of the 1970s, when long-term inflation expectations rose even as growth disappointed. US wage growth, commodity price spikes and supply chain bottlenecks are fueling inflation fears, whilst growth has slowed to a lackluster pace globally – with both US and China announcing one of the most disappointing GDP growth figures recently for 3Q 20211.
The jury is still out on whether we are facing a short term hiccup causing price spikes, or if there is indeed more behind these moves. Nonetheless, we would caution against a simple extrapolation of asset price movements from the 1970s to form investment decisions in this new era. For one, we do not think that interest rates will be anywhere near the levels seen in the 1970s. Secondly, the supply chain disruptions are on their way to be resolved with the easing of Covid-19-related measures.
Against the current backdrop of lackluster growth, we would add that the ability to invest in long term secular growth of companies with innovative, unique technology and products and pricing power is key for the long term investor. Well, just what kind of companies tends to have pricing power? The answer may lie in the average selling price of the latest iPhone model – from USD 199 of the iPhone 4 to almost a thousand dollars for the entry level iPhone 13.
Source: Global Times, 18 Oct 2021
DISRUPTIVE THEME IN FOCUS
In this quarter’s newsletter, we would like to explore a matter close to heart – how we can find the silver lining of innovation despite the dark days of the pandemic. Whilst almost 2 years along, Covid-19 remains a concern to most, it is worth considering the breakthrough we have achieved in vaccine research – for necessity is the mother of all inventions. This quarter we have our healthcare analyst Ng Shu Chen share with us some background science of mRNA technology and future market opportunities. Scientists have labored over mRNA technology for decades, and these efforts paid off only recently when the Covid-19 pandemic accelerated its commercial success.
The huge success of Covid-19 vaccines has provided strong validation to the mRNA technology and considerably raised awareness across the healthcare community, financial investors, policy- makers and general public. Covid-19 vaccines could be just the tip of the iceberg. There are many clinical trials currently underway evaluating mRNA vaccines and therapeutics for other infectious diseases, genetic diseases, autoimmune diseases and Oncology.
Recent scientific advancements have overcome historical challenges of creating mRNA medicines. These include efforts to:
- Improve the stability of the mRNA, as mRNA is an inherently unstable molecule.
- Prevent an immune reaction to the “foreign” mRNA when it enters the body.
- Facilitate safe and effective delivery of the mRNA to the target cells/tissues.
- Ensure the mRNA yields a sufficient amount of protein to have the intended therapeutic effect.
THE SCIENCE OF MRNA
Messenger ribonucleuc acid (mRNA) is a single-stranded molecule that carries genetic code from DNA in a cell’s nucleus to ribosomes, the cell’s protein-making machinery. mRNA essentially serves as an instruction manual that our cells use to make proteins. Proteins, on the other hand, play a vital role in nearly every function of the human body.
In mRNA medicine or vaccine, scientists can design mRNA strands that are programmed with the precise instructions for building any protein of their choice.
For Covid-19 vaccines, the mRNA contains the instructions for building the so-called “spike protein” found on the surface of the SARS-CoV-2 virus. Like other types of vaccines, the goal is to mimic a natural infection with the virus to train our immune system to recognize and fight off the virus if we become exposed to it in the future.
Conventional vaccines accomplish this by introducing an inactivated, weakened, or modified portion of the virus itself, whereas mRNA leverages the body’s own protein making-machinery to produce a protein found on the virus.
Figure 1.How Covid-19 mRNA Vaccines Work
Source : Jefferies – “The race is on: Previewing flu vaccine mRNA and the next genData by YE” 27 Sep 2021
ADVANTAGES OF MRNA
1. Short R&D cycle
mRNA is a platform technology, where vaccines and medicine have the ability to progress from ‘sequence’ to ‘clinic’ to ‘approval’ in shortened timelines. For example, once the genetic sequence of the SARS-CoV-2 virus became known in January 2020, scientists were able to rapidly begin creating mRNA vaccines against the virus. Moderna’s vaccine was designed in just two days and the first batch was produced 25 days later.
2. Highly flexible platform with wide application prospect
mRNA technology platform functions very much like an operating system on a
computer. It is designed so that it can plug and play interchangeably with different software programs. The “program” or “app” is the mRNA drug with an unique mRNA sequence that codes for a protein. mRNA can theoretically be programmed to produce any proteins and hence has the potential to target a wide range of diseases. In addition, it has the ability to combine different mRNA sequences encoding for different proteins in a single mRNA investigational medicine or vaccine. This will be difficult for traditional vaccine to achieve.
3. Manufacturing efficiency
mRNA is produced by transcription in vitro using DNA template, which is shorter in cycle, simpler in preparation and lower in cost than traditional protein fermentation. Furthermore, the same facilities/processes used to produce one mRNA vaccine can be swiftly adapted to manufacture another mRNA vaccine containing a different sequence. Compared to the conventional egg-based or cell-based vaccine manufacturing process, the highly versatile manufacturing process of the mRNA vaccine would be a better strategy to address a rapidly evolving virus.
MRNA COULD DISRUPT THE OVER USD 30 BILLION AND GROWING VACCINE MARKET
Beyond Covid-19 vaccines, there is a rich pipeline of mRNA vaccines in both clinical and preclinical studies, targeting a number of infectious diseases including influenza, Zika, rabies, HIV and others.
Figure 2.Total Vaccine Sales the Four Largest Global Vaccine Players are Expected to Grow from – $30 Billion in 2020 to $4 Billion in 2025
Source : Jefferies – Citigroup- GPS report “ Disruptive innovation VIII” – Oct 2021
Current flu vaccines are only 40-60% effective due to low antibody titers, long lead time to predict strains and mismatch between vaccine strain and circulating strain. The target strains are typically selected 6-9 months in advance based on researchers’ predictions of the virus strains in circulation in the upcoming flu season.
Figure 3. Clinical Trails for mRNA Vaccines Against Diseases Other than COVID-19
Source : Goldman- mRNA vaccine 8 Jul 2021
The mRNA approach appears to offer substantial improvement in terms of immune response and efficacy over the conventional flu vaccine. The shortened development timeline allows mRNA vaccine manufacturers to select vaccine strains closer to the onset of the actual flu season. This should reduce the risk of a mismatch between the vaccine strains and the dominant circulating strains during flu season as the virus mutates, potentially resulting in a more effective vaccine.
mRNA is well-suited to disrupt the global flu vaccine market, which is currently highly concentrated and dominated by 4 players. However, it is worth noting that the established flu vaccine players like Moderna, Pfizer/BioNtech, Sanofi/translate and GSK/Curevac are now advancing clinical programs in mRNA-based flu vaccine. Under a best case scenario, it is possible a monovalent flu vaccine can enter the market in 2023 and a combination vaccine in 2024+.
MRNA COULD CHANGE THE FUTURE OF MEDICINE
mRNA offers hope against more than just infectious diseases. The application of mRNA technology in oncology might be more ground- breaking. Personalized mRNA vaccine could be used post-surgery to program the immune system to search out and destroy any residual cancer cells, thus preventing future cancer recurrence.
Figure 4. Cancer Immunotherapy pipeline laid out by the three mRNA giants
Source : Moderna website, Oct 2021