As well as having infected in excess of 3.6 million and claimed 250,000 lives, COVID-19 has put the global economy into a deep freeze.

It’s no surprise that markets have reacted positively to the news of an antiviral drug that could help COVID-19 patients recover faster. Five Australian hospitals are already in line to receive the drug.

Manufactured by Gilead Science, Remdesivir could be a useful interim drug, while scientists work furiously to develop an effective coronavirus vaccine. It’s important to note that Remdesivir is not a vaccine, but can help speed up recovery time. It takes the typical coronavirus patient 15 days to recover, but Remdesivir could reduce recovery time to 11 days.

Gaetan Burgio, the head of the transgenesis facility at John Curtin School of Medical Research at Australian National University warned that Remdesivir isn’t a  “silver bullet” for COVID-19. 

Despite its limitations, the market responded positively to the new drug. Gilead Science stocks went up as much as 11% last Wednesday when the company released the news, and its shares are up nearly 25% this year. The news may have also contributed to the S&P500 climbing 2.4% higher in premarket trading in New York last Wednesday and the FTSE100 closing up 156 points at 6,115, which was its highest close since 6 March.

How could a vaccine affect the markets?

Remdesivir is not going to be a game changer for the markets as it is not a vaccine.

But even for a real vaccine, the markets’ reaction would still depend on factors such as how long it provides protection for and how quickly it will be distributed around the world. There is also the risk that a virus could respawn from a remote region of the world after the vaccine wears off, and this could trigger a market reaction. 

The biggest benefit of a vaccine, for the community and in extension for the market, would be less fear of a ‘second wave’. Gaining herd immunity via a vaccine would eventually stop the transmission of the virus locally, if the vaccine has a long lasting effect.

“As long as you don’t have a strong treatment or vaccine, you’re under the cloud of a second-wave risk and people being more cautious about how they interact,” said Dennis DeBusschere, head of Evercore ISI’s portfolio strategy.

The company that develops a vaccine would obviously also be very well positioned for profit as they would have a windfall of orders and licensing for production.

DeBusschere said the odds are high for a vaccine in the next 12 to 18 months. There are a few vaccines in development across the world, with several from companies like Johnson & Johnson, Pfizer, and Moderna at or near the human trials phase. “We have very good early indicators that not only can we depend on this to be a safe vaccine base, but also one that will ultimately be effective,” said Johnson & Johnson CEO, Alex Gorsky.

Another vaccine trial with 1110 test participants has also begun at Oxford University. Half of the participants will receive the potential vaccine while the remaining half will receive a control immunisation against meningitis.

Professor Sarah Gilbert, the leader of the trial, said she’s “80% confident” the vaccination will be effective. If community transmission remains high, the effectiveness of the vaccine could be measured within two to three months. If transmission lowers, it could take up to six months.

“The upside of being the first country in the world to develop a successful vaccine is so huge that I am throwing everything at it,” said Matt Hancock, the UK Secretary of State for Health and Social Care.

According to Jared Holtz, a healthcare strategist at Jefferies, this is creating optimism in the market.“The first to market advantage could be pretty significant,” he said. 

However if a vaccine is not delivered before a second wave of infection, the fallout could be much more severe than severe – especially if the expectation of a vaccine was already factored into the market. 

A second wave could force countries to go into lock down causing another massive hit to the economy and the market alike. The bounce of finding a vaccine would be relatively short-lived in comparison. 

Sources:

• Coronavirus: UK ‘throwing everything’ at developing vaccine

• Oxford COVID-19 vaccine begins human trial stage

• The stock market is rising on hope for a pharma solution to coronavirus — here’s how close we are

• World’s stock markets soar on coronavirus treatment hopes

• Gilead soars 11% after reporting positive news on potential coronavirus treatment

• Gilead CEO says remdesivir will be available to patients this week: ‘We’ve donated the entire supply’

• Remdesivir: five Australian hospitals to receive experimental coronavirus drug

• COVID-19 CORONAVIRUS PANDEMIC

• Coronavirus: Stock markets boosted by remdesivir drug hopes