Monday Musings: July 27, 2020

Jul 27, 2020

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Public Trust Credit Team
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The GOP to release stimulus bill, setting up negotiations to bridge the gap

The GOP is expected to announce its stimulus bill today that will set the stage for negotiations to bridge the gap between the $1 trillion Senate bill and the $3.5 trillion House bill. The GOP bill contains another round of $1,200 payments, money for testing, and aid to schools and universities. Key items that are not included in the GOP bill are an extension of the unemployment benefits that expire this week and aid to state and local governments. However, the proposal does grant more flexibility with regards to how states and local governments can use their CARES Act dollars received as part of the prior stimulus. It will likely be a long road of negotiations before we see a workable proposal that can pass both chambers. 
 
In the meantime, we can glean some information on what the bill means for the credit markets. For municipal bonds, investors have moved spreads extremely tight despite the growing worries around state and local budgets that have seen some significant pain due to COVID-19. A bill that does not include aid to states could inject some unease into the municipal bond market, especially in areas that are harder hit or have lower credit ratings. On the banking side, payment deferrals and unemployment insurance have largely kept loan losses down since the pandemic started. If the unemployment insurance ends as it would under the Senate proposal, we could certainly see that as a catalyst for loan losses to creep up as many U.S. states struggle with reopening and controlling new virus spikes.

Moderna announces it has started the Phase 3 trial of the company’s potential COVID-19 vaccine

Now in Phase 3, the 30,000 participant study and large-scale clinical trial is the final phase before Moderna’s fast-tracked, designated vaccine candidate, mRNA-1273, is submitted for approval by the Food and Drug Administration (FDA). Titled “Cove,” the trial is a dual effort between Moderna and the U.S. National Institutes of Health (NIH) at more than 100 sites across the U.S. with ambitious plans to develop a COVID-19 vaccine before the end of the year; the beginning of this crucial trial and the final stage of testing brings that goal closer to reality. Additionally, the joint effort by Pfizer and BioNTech’s two fast-tracked potential COVID-19 vaccines, BNT162b1 and BNT162b2, is anticipated to start the Phase 3 trials later this month, with Johnson & Johnson aiming to begin a Phase 3 trial some time this fall. Presently, there is no vaccine available for COVID-19.
 
The drug approval process by the FDA typically consists of a pre-clinical stage and clinical stage. The pre-clinical stage includes the drug company’s discovery and screening, providing basic information on the potential candidate. The clinical stage involves three different phases. Phase 1 is typically composed of 20-80 healthy volunteers with a focus on safety, determining what the most frequent side effects are, and how the drug is metabolized. Phase 2 includes hundreds of volunteers with a primary focus on effectiveness and gathering preliminary data on whether the drug works in patients that have a condition or disease. These controlled trials may include some patients receiving a placebo as safety continues to be examined as well as any short-term side effects. Phase 3 consists of thousands of patients or volunteers to gather even more data regarding safety and effectiveness as well as studying diverse populations with different dosages, possibly in combination with other drugs. 
 
The FDA has Accelerated Approval and Fast Track programs. The Accelerated Approval program allows the FDA to base the drug candidate’s effectiveness on a “surrogate endpoint” and includes a blood test rather than waiting on data from a clinical trial. The Fast Track program greatly reduces the approval time for drugs that treat or fulfill unmet medical needs of serious or life-threatening diseases. The Fast Track designation allows drug companies to utilize rolling submissions where portions of the application are submitted as information becomes available rather than waiting until all data and information are available. The Moderna as well as the Pfizer and BioNTech candidates have been fast-track approved by the FDA.
All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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