Genius, is it?
Letter # 24, 8 January 2021
We often encounter our destiny on the very path we take to dodge it. 2021 has begun with a bang, and with a degree of frenzy that many would have thought was impossible during mid-2020. Also, last week, India’s Central Drugs and Standards Committee (CDSCO) formally approved coronavirus vaccines from two companies: (a) Bharat Biotech’s Covaxin; and (b) Serum Institute of India’s (SII) Covishied. SII was chosen by Oxford University and its partner AstraZeneca to manufacture vaccines (1).
While how the Oxford vaccine works is relatively simple to understand, what we are more interested in knowing is how it developed one in such record time – 10 months versus previous best of 4 years it took for the mumps vaccines in 1967 and the average vaccine development time of 10-15 years (2).
First, a few over-simplified steps on how the Oxford vaccine is supposed to work. They take a virus that causes common cold in chimpanzees. This virus is then genetically modified so that it cannot infect humans (hence, safe for children and elderlies). The coronavirus spike protein is then printed on this virus and injected into humans. When the vaccine enters human cells, it induces an immune response, priming the immune system to attack the coronavirus if it later infects the body.
Now for the fun part. In early hours of 11th Jan 2020, Prof. Teresa Lambe of Oxford University received the genetic code for the novel coronavirus shared on the worldwide web by scientists in China. She got to work straight away, still in her pajamas, and was glued to her laptop for the next 2 days. By Monday morning, she was ready with the template for a new experimental coronavirus vaccine. She basically designed the vaccine in 48 hours! (3).
This might seem like a stroke of genius, but it wasn’t JUST that. Oxford has been working on this delivery mechanism for an extremely long time. It had used similar technique for malaria vaccine development, the first field trial results of which were published in 2015 (4) . But as of December 2020, final human trials (5) are yet to be completed. cAd3-EBO Z, the vaccine for Ebola, was also developed using the same route, wherein phase 1 clinical trials were held as early as in September 2014. Because a lot of hard work was already put into the delivery mechanism, developing a solution to this problem (Covid vaccine) in such a record time (10 months versus minimum 10 years average) appears a stroke of genius.
And, speaking of geniuses, why should just the vaccine master chefs be entitled to the tag! Markets have a way of tricking us into believing that all of us have become genius stock-pickers off-late. Over the past three months, the broader Sensex Index is up 22%, but mid- and small-cap indices are up around 28%. Better still are those 191 companies that have returned over 50% and the 36 companies have doubled in price, all within a matter of just 3 months.
That is not to say that the pace of the rally isn’t scary. The scars of backlash after every major rally are still fresh in our memories. In just the past half decade, we saw RBI conducting AQR on banks in 2015, demonetisation in 2016, GST implementation glitches in 2017, the NBFC crisis in 2018 and the Covid pandemic in 2020. This has shrunk the market cycle from 3-5 years into a much smaller shock-based yo-yo. After every cycle, consumption-based themes have been the first to recover and that sector seemed to have become a “go-to” sector for most professional investors. The past 3 months, however, have lifted all boats where excesses in a few sectors or performance of different market-capitalisation indices have evened out in one clean swoop.
Whereas short-term rallies and corrections have become a way of life for most of us, it is the Financial Times’ (FT story) story on the top 100 companies by equity value added that piqued our interest. The sheer size and speed with which these companies have grown is staggering. Majority of the businesses are delivering new technological solutions or traditional products through better technology. The only company to make an appearance from India is Reliance Industries.
Despite all the frenzy over the past 3 months, the lone appearance that India makes on the global scene is at number 89 in top-100. The short boom-bust cycle over the past 5 years has got us so focused on ‘buying companies with predictable cash flows and paying anything for it’ that we have forgotten what the long-term change could bring us. Could India demand its legitimate role in the new world order (she was too young during the Bretton Woods era)? Could India drive the next round of technological developments? How about the next big thing in infrastructure or pharmaceuticals or being the global hub for manufacturing?
While it will be our endeavour to look out for pitfalls when (and not if) the current exuberance subsides, it will equally be our zest to find the next company from India that could make it on that FT list a few years down the line. As always, we continue to believe that like the ecology, an investment framework has to keep evolving: (a) it needs a balance of cyclicals in the portfolio (link); (b) it needs a judicious mix of sectors in the portfolio (link); and (c) generally, it needs a flexible investment approach that is willing to learn (link, link, link, link, link).
With that we wish all our readers a Happy New Year. We intend to keep our date with you every week in 2021.
(1) Serum to apply for licence to manufacture Oxford vaccine in a week, says CEO Adar Poonawalla – Health News , Firstpost
(2) What’s the Fastest a Vaccine Has Been Made in Modern Medicine? (nautil.us)
(3) Oxford-AstraZeneca vaccine: Bogus reports, accidental finds – the story of the jab – BBC News
(4) New Malaria vaccine shows promise in field trial | University of Oxford
(5) Team behind Oxford Covid jab start final stage of malaria vaccine trials | Malaria | The Guardian
(6) Vaccines against Ebola Virus disease — Oxford Vaccine Group
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