What Does the Johnson & Johnson (JNJ) Vaccine Mean For Its Stock?

Johnson & Johnson (JNJ) yesterday became the latest company to request an emergency use authorization from the FDA for their Covid-19 vaccine. If approved, JNJ would be the third to achieve such an authorization in the U.S., behind vaccines developed by Pfizer (PFE)/BioNTech (BNTX) and Moderna (MRNA).  Given that it is not first to market and has been reported as having only a 66% efficacy rate as opposed to 90-95% for the other two approved vaccines, what are the prospects for JNJ at this point?

In a general sense, the vaccine wars are heating up. Just a few short months ago, the world was desperate for just one proven, effective vaccine against Covid-19. All of a sudden, a whole bunch seemed to come along at the same time. There are now, according to the Regulatory Affairs Professional Society, nine vaccines that have been approved in at least one country around the world, with a stunning fifty-eight more in development. Even assuming that some of those fail clinical trials, there will likely be over fifty available Covid vaccines before too long. That is great news for the overall supply of doses, but it does mean that investors should be careful about getting too carried away with the profit prospects of any one product.

Given that, JNJ’s 66% reported effectiveness does look like a problem, but there are other redeeming factors that give it a real chance of rapid uptake and potentially game-changing sales. First, while that 66% number is correct, the JNJ vaccine did show 85% effectiveness against severe disease, which is very encouraging.

Second, comparing the reported efficacy of different drugs is misleading, as the trials for them were not uniform or consistent. There were differences in methodology and what outcomes were tested for. The biggest difference was that the Pfizer and Moderna vaccines were tested based on two doses, spaced a few weeks apart, whereas the JNJ trials were conducted using only one dose.

That is significant when assessing the potential sales of the Johnson & Johnson vaccine, as is one other major difference. Both of the other early approvals are MRNA vaccines and need to be stored at very cold temperatures right up until being administered. JNJ’s is not. It is what is known as a viral vectored vaccine and needs no special handling. Those two things combined -- one dose and simple transport and storage -- make it an ideal candidate for a market that to this point has been massively underserved, but which must be supplied if the world is going to beat Covid-19: the developing world.

It should come as no surprise to learn that as vaccinations begin in the U.S., Europe and other rich countries, the world’s poorer nations are getting left behind. You may even think that this is just the way of the world. Being rich, whether as an individual or a nation, has advantages; it always has and always will. The problem is that, as with so many things in life, we are all only as protected from a virus as is the weakest among us. Unless we are prepared to completely isolate from the rest of the world, leaving some countries with little or no vaccine coverage creates a problem for everyone, rich or poor.

That means that there will be a huge market for a vaccine that is simple to transport and store. In many of the world’s countries, there just isn’t enough access to refrigeration to make the PFE or MRNA vaccines a viable option. That opens the door for JNJ, but one question remains for those looking at the impact of the vaccine on its stock: Will JNJ get paid?

The countries that can benefit most from this vaccine will likely have difficulty affording the millions of doses they will need. That is obvious and understood, which is why the COVAX organization was set up to increase the international use of Covid vaccines. Initially, COVAX had a problem. Almost all the developed world signed on, but the Trump administration refused to join. Biden has since reversed that policy. For now, the new administration remains committed to getting Americans vaccinated first if possible, but America’s inclusion in COVAX does make a well-funded vaccination campaign in the developing world more likely at some point.

It is possible that when that point is reached, there will be other viral vectored vaccines on the market, but JNJ will have a few advantages. They will have been “first to market” in that particular area, so will be further along in production and the logistics of supply than any future competitors. They will also have the advantage of being an American company, which might well matter if the U.S. does turn out to be a major funder of COVAX.

At first glance, the lower effectiveness of the Johnson & Johnson vaccine in trials may make it seem like it will struggle to be a commercial success, but that isn’t so. If you broaden your outlook beyond these shores, it has some significant advantages over the PFE and MRNA products, and therefore has a chance of being a major driver of revenue for JNJ.

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