JNJ's COVID-19 Vaccine Receives FDA Authorization

The Food and Drug Administration, or FDA, authorized Johnson & Johnson's JNJ COVID-19 vaccine based on strong clinical efficacy and safety, but we don't expect any change to our fair value estimate for the firm as the vaccine will be distributed on a non-profit basis. However, this remarkable speed to market (joining Pfizer/BioNTech's and Moderna's COVID-19 vaccines) shows the innovative power of the drug industry, a key pillar in the moats for the large drug firms. Also, the development of the vaccines creates goodwill that should reduce pressure from ongoing U.S. drug pricing policy plans, which continue to be a major headwind weighing on the industry's valuation. A unanimous FDA advisory committee vote in support of J&J's COVID-19 vaccine on Friday shows strong backing for the vaccine. The FDA quickly granted emergency use authorization for the vaccine in adults on Feb. 27, which further supports the favorable outlook for the vaccine. While the vaccine looks effective, with a roughly 67% reduction in symptomatic disease, we view the competing vaccines from Pfizer/BioNTech and Moderna as more effective, with reduction levels closer to 95%. However, cross-trial comparisons are fraught with error, and J&J's phase 3 trial included significant enrollment in South Africa, which is dominated by a tougher variant. We expect the J&J vaccine will help the U.S. achieve herd immunity by the summer. Further, J&J's one dose (instead of two) and easier storage (refrigerated instead of frozen) makes the vaccination process easier. Turning to supply potential, J&J has been setting up manufacturing facilities at risk to prepare for this authorization. As a result, J&J stated that 20 million doses should be ready for the U.S. by the end of March and a total of 100 million in the first half of the year. Without significant supply ramping until April, we assume that mRNA vaccines from Moderna and Pfizer/BioNTech will continue to dominate the U.S. market and the drive to herd immunity.

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