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On Nov. 30, Hong Kong’s government announced a rare piece of news that was welcome in all sectors of a politically-divided city battling its fourth wave of COVID-19 infections: The vaccines are on their way.
Hong Kong had purchased 7.5 million doses of a vaccine co-developed by U.S. pharmaceutical giant Pfizer and German vaccine maker BioNTech, Hong Kong’s chief executive Carrie Lam and other government ministers said at a press conference.
At the event, government ministers repeatedly referred to the first vaccine as either Pfizer’s or BioNTech’s.
“We have an in-principle agreement with Pfizer,” Lam said on Dec. 11 while explaining the logistics of distributing the vaccine.
But later that night, the government’s language changed. It issued a statement clarifying that it had ordered the doses through Chinese pharmaceutical giant Fosun Pharma, BioNTech’s COVID-19 partner in China. Fosun Pharma, the statement said, would control the “sales and marketing” of the vaccine in Hong Kong, meaning the doses will carry Fosun’s name. The statement also specified that the doses would be manufactured in Europe, not in China.
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The backlash was swift, as critics called out the government for what they saw as an attempt to gloss over the involvement of Fosun, a firm based in mainland China. Mary Ma, a local newspaper columnist in Hong Kong, argued that the government’s effort to brand the vaccine as Pfizer’s at the press conference, without mentioning that it would be sold by a Chinese company, was a public relations flub that could “backfire” by undermining public trust in the vaccine.
To be sure, the vials of the BioNTech vaccine headed for Hong Kong contain the same immunizing cocktail that hospitals in the U.S., Canada, and the U.K. have received. But Fosun marketing and distributing the doses is unique to mainland China, Hong Kong, Taiwan and Macau, and its role could complicate distribution of the vaccine since some people in the region are skeptical of any company associated with mainland China.
Developing the vaccine
In late 2020, the BioNTech vaccine became the gold standard of COVID-19 vaccines, posting a 95% efficacy rate in phase III clinical trials and earning emergency authorization from regulators in the U.S., Canada and U.K.
BioNTech and Pfizer are the corporate names tied to the vaccine’s rapid development, with their CEOs becoming the public faces of the extraordinary scientific feat. But Fosun Pharma has been a sort of silent third party in the venture all along.
Fosun Pharma is a subsidiary of Fosun Group, the private Chinese conglomerate with vast international holdings that include the Club Med Hotel chain, an English Premier League soccer team, and the circus group Cirque du Soleil. In its own right, Fosun Pharma is one of China’s largest health care companies, manufacturing and selling drugs as well as providing health care services in hospitals.
Fosun Pharma jointly founded the Sinopharm Group with the Chinese government in 2003. Sinopharm, for its part, is China’s leading seller of pharmaceuticals and controlled 15% of all drug distribution in China as of 2018. Sinopharm says Fosun owns a 49% stake in the company, with the other shares controlled by China’s government.
Early in the pandemic, on March 15, Fosun Pharma agreed to invest $135 million in BioNTech to conduct clinical trials and buy the rights to exclusively license BioNTech’s COVID-19 vaccine candidates in Greater China, an area the companies define as mainland China, Taiwan, Hong Kong and Macau. Fosun said it would help develop the vaccine, though BioNTech’s mRNA technology is at the heart of the effort.
Two days after Fosun and BioNTech signed their deal, American pharmaceutical giant Pfizer announced its own investment in BioNTech—worth as much as $748 million—for the right to license and distribute BioNTech’s vaccine in the rest of the world.
As BioNTech’s partners, Fosun and Pfizer both helped execute early tests of the vaccine. Pfizer launched phase I and II trials in the U.S. and Germany in May, and Fosun got one underway in mainland China in late July.
Critically, Pfizer and Fosun were testing different versions of BioNTech’s vaccine. As it turned out, Fosun had a losing candidate. BioNTech’s other candidate, which Pfizer helped test, performed better.
The outcome of the trials is one reason why Pfizer has overshadowed Fosun as BioNTech’s partner.
Another is China’s relative containment of COVID-19. Compared to places like the U.S. and Europe, where Pfizer conducted trials as the virus raged, China was unsuitable territory for Fosun and BioNTech to conduct large-scale phase III trials since volunteers need to be exposed to the virus to determine if the vaccine is effective. In the U.S., Pfizer’s phase III clinical trials came to a speedy conclusion due to widespread COVID-19 outbreaks.
Dr. Aimin Hui, Fosun Pharma’s chief medical officer, says his company was “deeply involved” in BioNTech’s vaccine research and development process. While one of Fosun’s human trials ultimately failed, Hui notes that Fosun conducted an earlier animal trial of the vaccine candidate that was successful.
BioNTech is quick to point out that its collaboration with Fosun relied on BioNTech’s own technology, and it plays up Fosuns role as a distribution partner in China.
“Fosun brings a lot of experience with the Chinese regulatory system and in bringing new products to market,” a BioNTech spokesperson told Fortune. “If we are successful in gaining approval for our vaccine in China, Fosun Pharma will be responsible for distributing it.”
Still, Fosun is a partner in BioNTech’s ongoing trials in mainland China. The two companies jointly launched a new phase I/II trial in the mainland in November, this time with BioNTech’s leading candidate.
Beijing has said it will not approve the BioNTech candidate until the trials conclude, but on Dec. 16 Fosun purchased 100 million doses of the vaccine for the Chinese market, indicating Fosun is optimistic about rolling out the vaccine in China in 2021. The Hong Kong-based newspaper the South China Morning Post recently reported that Fosun is preparing to distribute vaccine doses in China as early as this month.
For now, BioNTech is responsible for manufacturing doses for the Chinese market, but that could change.
BioNTech said in October that its vaccines for China’s market would be manufactured entirely in Germany, but BioNTech told Fortune that’s only the case for BioNTech’s first vaccine shipment to China. Starting with the second shipment, BioNTech will send vaccine materials to Fosun to “fill and finish,” meaning Fosun will fill the vials and package the vaccines for distribution. Both companies told Fortune that Fosun may eventually manufacture the vaccine start to finish in China.
On Dec. 30, Chinese news outlet Caixin reported that the two companies are in talks to build a manufacturing plant in China with the capacity to produce 200 million doses of the vaccine annually.
Fosun’s ties with Sinopharm will also prove crucial for distribution of the vaccine that must be kept at ultra-low temperatures, Fosun told Fortune.
In September, Fosun said in a press release that it would work with Sinopharm to set up its cold-chain distribution network in China.
For deployment to Hong Kong, Hui told Fortune the vaccine will be shipped in a dry-ice container to Hong Kong—he did not specify if it would come directly from Europe or mainland China—and stored in a Hong Kong cold warehouse at -70 degrees Celsius. The doses will then be brought to vaccination centers in refrigerated trucks for distribution in the city, he said.
Sinopharm’s experience in distributing drugs in China may prove a boon to Fosun’s efforts to roll out the vaccine on a massive scale, but the partnership also means Fosun is relying on a state-owned entity that has faced transparency questions about its own COVID-19 vaccine. Chinese authorities have approved a COVID-19 inoculation developed by a unit of Sinopharm that the company says in 79% effective. Authorities in the United Arab Emirates, Bahrain, and Egypt also have cleared the vaccine for use, but the company has not provided data to back up its claims about how well the jabs work.
Even though Fosun is just distributing BioNTech’s vaccine at this point, it’s facing some pushback in the region because it’s a mainland China-based company.
In Hong Kong, activists have urged the government not to buy any vaccines produced in mainland China. The activists have long decried mainland China’s influence over the city’s affairs and believe Hong Kong’s potential reliance on Chinese vaccines is the latest example of how the city is subject to Beijing. Hong Kong’s government, meanwhile, has said those who criticize the government for working with Chinese companies on the vaccine rollout are “rumormongers” that act with “evil intentions.”
Fosun faces some opposition in Hong Kong, but its problems in Taiwan may be even more substantial.
Taiwan’s government says it has a long-standing ban against importing mainland Chinese-made vaccines and other biological products. Officials have cited China’s recent history of vaccine scandals as a reason why it continues to enforce the prohibition. The BioNTech doses may skirt the ban since they’ll be sourced from Europe initially, but the vaccine could still meet resistance from the Taiwanese public if it passes through Fosun’s hands.
“The vast majority of Taiwanese [citizens] no longer trust China,” says Chunheui Chi, director for the Center of Global Health at Oregon State University. The skepticism is deep-rooted—the two sides are engaged in a decades-long fight over Taiwan’s sovereignty—and has flared of late, due to Beijing blocking Taiwan from participating in the World Health Organization and its failure to disclose the contagiousness of COVID-19 in the early stages of the pandemic.
That mistrust could be why Taiwan has yet to officially strike a deal for the vaccine.
In November, Chen Shih-chung, the head of Taiwan’s Central Epidemic Command Center, was asked at a press conference whether Taiwan would import BioNTech’s vaccine if it was distributed by China’s Fosun Pharma.
“There is no way Taiwan would import vaccines made in China,” Chen said. But Chen seemed to leave open the possibility that Taiwan could import the ‘Fosun’ vaccine if it was manufactured outside of mainland China. “The place of manufacture is important,” he said.
Fosun did not answer Fortune’s questions on how it plans to deal with potential pushback in Hong Kong and Taiwan.
The BioNTech vaccine is already difficult to distribute—it must be kept at sub-arctic temperatures and administered in two doses several weeks apart. But in places like Hong Kong and Taiwan, the backlash against the vaccine’s distributor may be an additional challenge to overcome.
More health care and Big Pharma coverage from Fortune:
- Vaccinating the world against COVID is off to a slow start. These firms think A.I. and blockchain could help
- Timeline: From the first coronavirus cases to the first vaccinations
- It’s the New Year, and pharma companies are already hiking prices for popular drugs
- Commentary: In the COVID vaccine rollout, our expectations don’t match reality
- The COVID recession may kill more Americans than COVID-19 does
Elon Musk loves Joe Biden
Good morning. In a lengthy phone interview with Fortune’s Vivienne Walt last week, the world’s richest man (sorry, JB) gushed over the new American president. “I’m super fired up that the new administration is focused on climate,” he said.
Musk fan boys can tell you that his political views have long leaned to the right, on many issues. He has fought unionization at his factories, and in 2018, donated far more to Republicans than Democrats.
But his turnaround on Biden should come as no surprise. The Biden team is contemplating a variety of measure to encourage electric cars and attack climate change—which can only mean more money in Musk’s pocket. It recognizes a new reality in the climate debate from a decade or two ago. Businesses used to routinely oppose climate discussions because they feared resulting taxes and regulations. But one person’s tax is another’s subsidy. And today, some of the biggest companies—Tesla included (No. 7 in market cap in the S&P 500)—are on the receiving end.
More news below. And here’s your fact for the day: For the first time in 37 years, Budweiser will not be advertising in the Super Bowl. I guess the Clydesdales are in quarantine.
What the savvy investor can learn from the bonkers rally in GameStop shares
This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning, Bull Sheeters. Tech stocks are leading the way this morning, sending U.S. futures mostly higher, and lifting global stocks, too.
It’s a big earnings week for Big Tech with one half of the FAANGM sextet reporting in the coming days.
In today’s essay, I look at the bubbly trade in penny and loss-making stocks, including the crazy surge in GameStop.
But first, let’s see where investors are putting their money.
- The major Asia indexes are mostly higher in afternoon trading with Hong Kong’s Hang Seng up 2.4%, continuing an impressive monthlong rally.
- The big gainer is Tencent, which at one point was up more than 10% on Monday as bulls poured into call options at a staggering clip.
- China is the new global leader for business investment. The much watched figures on direct foreign investment came out this weekend, showing the U.S. lost the No. 1 position in the past year, thanks to COVID-19.
- The European bourses were mostly higher out of the gates with the Stoxx Europe 600 up 0.5% at the open, before slipping.
- President Biden phoned a slew of world leaders this weekend, including Britain’s Boris Johnson. Downing Street was quick to highlight that the topic of a trade deal came up on the call. The White House had a different recollection of the conversation.
- The one-two punch of Brexit and COVID is jangling nerves in the U.K.’s financial and business capital. Roughly 40% of Londoners say they’d consider a move across the Channel to Europe.
- U.S. futures point to a positive open. That’s after all three exchanges closed out last week in the green.
- Goldman Sachs equity strategists see signs of “froth” and “unsustainable excess” in the U.S. stock market. It’s not just with SPACs, they warn, but also the “bubble-like” enthusiasm for stocks with negative earnings. There’s more on this below in today’s essay.
- Big tech dominates the earnings calendar this week. The big names include: Microsoft (Tuesday), Apple and Facebook (Wednesday).
- Gold is flat, trading around $1,850/ounce.
- The dollar is down.
- Crude is up, with Brent trading above $55/barrel.
- As of 9 a.m. Rome time, Bitcoin was up around 1%, at $33,300.
The B-word comes up a lot on Wall Street these days.
As Goldman Sachs equity analysts wrote in a note this weekend, “among the questions we receive most frequently from clients is whether U.S. stocks trade at unsustainably high levels (read: “Bubble”).”
The answer to that question is: yes, bubbles abound. But you have to know where to look for them.
For example, equities pros struggle to find an adjective for the craze in blank-check SPACs. There have been 56 SPAC IPOs so far in 2021, raising $16 billion. (If SPACs still puzzle you, check out Fortune‘s Jeff John Roberts analysis of what a “lousy” investment the SPAC is for anybody looking to make a quick and decent return.)
There are other alarm bells Goldman sees in the markets—namely, the robust trade in penny stocks, in companies hemorrhaging losses and in overvalued stocks (as represented by EV/sales multiples hitting or exceeding 20X). It almost goes without saying that such risky bets usually don’t end well. And yet volumes in these YOLO (you only live once) trades are reaching historic highs.
EV/sales is a much watched metric. It gives investors a good idea of whether the market value of a company (factoring in its level of equity and debt) is in line with revenues. A stock with a relatively low EV/sales—say, under 1X—may be a company that’s undervalued despite decent top-line growth. A high EV/sales ratio, meanwhile, indicates investor exuberance is running hot for a business whose stock price is growing faster than sales—or so it often seems.
They tend to be highly risky.
“Since 1985,” Goldman writes, “the median stock trading at an EV/sales multiple above 20x has generated a subsequent 12-month return of -1%, compared with +6% for the median US stock.”
In the past month, nearly one-quarter (23%) of shares that have changed hands are companies with out-of-whack inflated EV/sales, as the table above shows. Meanwhile, there’s been a similar surge in the volume of trading in firms with negative earnings.
One such beloved loser is GameStop; it’s soaring again this morning in pre-market trading. The loss-making video game retailer is up nearly six-fold since Jan. 12 as retail investors go all in to punish the many shorts that are betting on its crash. It’s being called the mother of all short squeezes, and it’s triggering a whole slew of vicious take-downs on Twitter. The big scalp for the WallStreetBets crowd is the veteran activist short Andrew Left of Citron Research, who it appears is losing huge sums on his bearish position at the moment.
At one point on Friday, GameStop was the most actively traded U.S.-listed company, Bloomberg reported. Never mind that it had a rough Christmas sales period, and recently delivered a sobering outlook that involves further belt-tightening to weather its COVID-battered market.
GameStop bulls—I can’t believe I just typed those words—are going all in on the stock as if it were an e-commerce juggernaut.
If you were a bubble hunter, stocks like this one would be worth examining.
Have a nice day, everyone. I’ll see you here tomorrow… Until then, there’s more news below.
As always, you can write to [email protected] or reply to this email with suggestions and feedback.
What does big business need to do to earn your trust?
A peaceful transfer of power doesn’t mean that threats of political violence—and difficult conversations about it—have ended. Tim Ryan, the chair of PwC U.S. weighs in with some advice below. (Hint: The actual challenge leaders are facing is proving that they’re trustworthy.)
But first, here’s your Inaugural poet Amanda Gorman-inspired week in review, in Haiku.
“Where can we find light
in this never-ending shade?”
Asked by a new voice,
in a new moment,
free from the belly of a
beast that stalks us all.
It took a poet
to capture the promise of
a hard-won hill, climbed
by many on the
backs of a justice-seeking
few. Unfinished, yes
we are. But here’s a
good place to start: Pay all the
poets what they’re worth.
Wishing you a lyrically peaceful weekend.