‘What did “90% efficacy” really mean?’

Since the November 2020 headlines of “90%” vaccine efficacy, financial markets have generally believed that vaccines would eradicate COVID and therefore end the need for lockdowns, allowing normality to resume. It is probable that vaccine efficacy was never “90%” against transmission and that the efficacy against symptomatic infection wears off, hence the need for regular or annual “boosters”. It is almost certainly not correct to say that the vaccines provide “90% efficacy” for life against either infection or disease progression which is how the original headlines were interpreted and how the general population views the “vaccine solution”.

The reopening of the UK will almost certainly be accompanied be a further spike in COVID cases. Although hospitalisations and deaths are likely to be significantly reduced, whether the politicians and the population they have taught to fear asymptomatic infection can stomach this remains to be seen. The northern hemisphere winter is therefore likely to see evidence that COVID cannot be eradicated and vaccines have failed to prevent the disease becoming endemic. Unless the politics of COVID accepts that infections cannot be eradicated and focus its resources in managing the risks of hospitalisations and deaths in the vulnerable groups then further lockdowns seem inevitable.

In contrast to the currently observed economic boom, equity markets are currently suffering from a lack of risk appetite regarding the duration of economic expansion, unnerved by the implications of the flattening yield curve. Since the effectiveness of the vaccines is likely to disappoint, equity markets are vulnerable to further disappointments over the coming months particularly in industries hit hard from COVID where recovery and normalisation has already largely been priced in. On the other hand, the Federal Reserve’s next move will likely now be dovish, not - in contrast to consensus expectations - hawkish. More volatility is certain but even if the markets fear short-term deflation, we may end up with more inflation long-term, though this may morph into stagflation.

We originally published our views on COVID vaccines in July and September 2020, making the following points:

• The COVID vaccine trials tested the effectiveness of the vaccine against the development of the disease rather than transmission of the virus. Therefore, it was unclear whether COVID vaccines would prevent infection/cases rather than ameliorate symptoms of the disease
• If COVID vaccines were unproven in preventing transmission then there were no wider benefits to society from individual vaccination (which for example would make compulsory vaccination or “vaccine passports” a preposterous idea). Like flu, vaccination would only be appropriate for the vulnerable population cohort
• Mass vaccination without ability to prevent transmission was inappropriate for a disease which was very specific in its vulnerable demographic (82 year olds 90% of whom had comorbidities) and the side effects from the vaccine might be more severe for some demographics than COVID itself
• Like most vaccines, COVID inoculations were likely to work least well in the already old and sick (who were most at risk from COVID)
• Those most at risk from COVID were underrepresented in trials (over 90% of participants were non geriatric healthy adults)
• The initial results would not show the longevity of any immune response (or long-term side effects)
• We should not expect COVID vaccines to be significantly more effective than flu vaccines (c. 50% efficacy with the need for annual boosters)
• Like Flu we should expect COVID to mutate
• Like AIDS in the 1980s , there might be a lot of money thrown at a vaccine solution only for therapeutic drugs to prove more effective at treating the disease
• Governments and the media had mis-sold the vaccine as a “silver bullet” solution: most people viewed inoculation as a “one and done” lifelong immunity from SARS virus infection as well as the COVID disease progression

We were however somewhat surprised by the following positive headlines on vaccine “efficacy” in November 2020:

• “PFIZER VACCINE PREVENTS 90% OF COVID INFECTIONS IN LARGE STUDY” NOVEMBER 9TH, 2020
• “MODERNA CORNOAVIIRUS VACCINE PROVES 94.5% EFFFECTIVE IN KEY TEST”, NOVEMBER 16TH, 2020
• “ASTRA SAYS VACCINE UP TO 90% EFFECTIVE” NOVEMBER 23RD, 2020

We made the following observations at the time:

• The Astra trial was a shambles: they claimed a “higher efficacy on a lower dose”; they datamined the sample group to produce a “90% efficacy” figure; the main 2 dose trial showed only a “62%” efficacy in healthy adults; discrepancies were blamed on 24% of volunteers receiving the wrong dose. We said the Astra vaccine would never be approved by the FDA for use in the USA. It never will be.¹
• We were genuinely surprised by the headline efficacy from the mRNA vaccines (Pfizer and Moderna) and noted that this number related to the 2-month post double dose response. Since the trials were abruptly halted after the 2-month positive readout, the longer-term response and whether the efficacy faded was no longer being measured.²
• None of the main trials measured virus transmission as opposed to severity of disease progression. Without larger sample sizes of the vulnerable population, it was not possible to accurate measure effectiveness of preventing hospitalisations and deaths in the specific demographic at risk.³
• Even accepting that the vaccines would significantly reduce hospitalisations and deaths (although this was by no means certain) , given the ongoing political focus on infections/cases it was unlikely that the vaccines would be a “silver bullet” for normalisation of society.⁴

Governments and COVID vaccine manufacturers have continued to closely control the narrative of the “vaccine solution” to COVID which until recently financial markets have largely accepted. However, recent developments may be leading to a reappraisal of consensual views on vaccine efficacy, namely:

• COVID cases in high fully vaccinated populations in UK (54% population, largely Astra) and UAE (68% population, largely SinoPharm) have again risen significantly. This is being blamed on “new” variants e.g. Delta which might be more resistant to the original vaccines, with the alternative explanation that the vaccines were either never effective at preventing transmission or that their effectiveness wears off receiving little media attention⁵
• Although absolute numbers remain low there has also been a recent rise in infections in Israel (61% population, Pfizer), where fully vaccinated account for over half of new cases and where a recent study showed the effectiveness of the Pfizer vaccine against symptomatic infection from the Delta variant falling to as low as 64%.⁶
• Although hospitalisation and mortality rates are so far mercifully lower than in previous waves (supporting efficacy of the vaccines in preventing disease progression) it is now claimed that most hospitalisations and deaths in both the UK and Israel are now occurring in “double jabbed” patients. This can be partially explained by most of the population (and a higher proportion of the vulnerable demographic) being in the “double jabbed” population. Governments are being very cautious on providing clarity on these statistics.⁷
• Those who have previously been infected by COVID have a more reliable long-term immune response than those who have been “double jabbed”. ⁸
• Over 9,000 adults in the US are claimed to have died from COVID vaccine side-effects (though this is not a statistic that governments wish to provide any clarity on). ⁹

The “efficacy” trends witnessed in UK, UAE and Israel raise the following questions:

• The reopening of the UK will almost certainly be accompanied be a further spike in COVID cases. Although hospitalisations and deaths are likely to be significantly reduced, whether the politicians and the population they have taught to fear asymptomatic infection can stomach this remains to be seen
• In the US there is a widespread belief that only the unvaccinated – or those who have taken a non mRNA vaccine – are at risk of infection from the Delta variant. This argument might gain false temporary credence from the current summer flu season in the southern “anti vax” states (remember the so-called US “second wave” this time last year which was in fact a southern regional “first wave”). In view of the Israeli data this could be a complacent view with the potential for a negative surprise from September onwards.
• It is probable that vaccine efficacy was never “90%” against transmission and that the efficacy against symptomatic infection wears off, hence the need for regular or annual “boosters”. It is almost certainly not correct to say that the vaccines provide “90% efficacy” for life against either infection or disease progression which is how the original headlines were interpreted and how the general population views the “vaccine solution”. As such our original view that the COVID vaccines would be more akin to flu vaccines (closer to 50% over time rather than 90% efficacy in the vulnerable with the need for annual boosters) still stands.
• The northern hemisphere winter is therefore likely to see evidence that COVID cannot be eradicated and vaccines have failed to prevent the disease becoming endemic. Unless the politics of COVID accepts that infections cannot be eradicated and focus its resources in managing the risks of hospitalisations and deaths in the vulnerable groups then further lockdowns would seem inevitable.

The implications for investors are as follows:

• Since November 2020, financial markets have generally believed that vaccines would eradicate COVID and therefore end the need for lockdowns, allowing normality to resume. This can no longer be assumed.
• In our opinion the recent flattening of the Treasury yield curve (see https://blog.argonautcapital.co.uk/articles/2021/06/21/has-the-fed-just-killed-the-cycle/) cannot be explained by currently observed macro trends or current US monetary or fiscal policy. It can however be explained by the incremental realisation that the vaccine solution for COVID may fail, at least in terms of eradicating the virus.
• In contrast to the currently observed economic boom, equity markets are currently suffering from a lack of risk appetite regarding the duration of economic expansion, unnerved by the implications of the flattening yield curve. Since the effectiveness of the vaccines is likely to disappoint, equity markets are vulnerable to further disappointments over the coming months particularly in industries hit hard from COVID where recovery and normalisation has already largely been priced in. On the other hand, lower rates and more stay-at-home will only extend the duration of housing booms, particularly in those countries where it is underpinned by structural under supply.
• The Federal Reserve’s next move will likely now be dovish, not - in contrast to consensus expectations - hawkish. To steepen the Treasury yield curve, the Fed will need to reintroduce the risk of inflation overshoot, which arguably they took away at the June FOMC.
• Further lockdowns will exacerbate supply shortages, may lead to more stimulus and ultimately more inflation (while at the same time slowly bankrupting other industries). More volatility is certain but even if the markets fear short-term deflation - particularly when other factors (such as ESG, Chinese disengagement from globalisation, decarbonisation and fighting “inequality”) are considered- we may end up with more inflation long-term, though this may morph into stagflation.

Barry Norris
Argonaut Capital
July 2021