As coronavirus (COVID-19) continues to spread around the world, it is increasingly clear that all of us have a role in fighting this disease, whether simply staying at home and washing our hands or the huge efforts of key workers on the front lines. Healthcare and pharmaceutical companies also have a vital part to play and, reflecting this, the sector has been among those to hold up best in the indiscriminate selling of recent weeks.
While there have been many pandemics over the course of history, what makes this one so unprecedented is how our species lives as part of an interconnected global community like never before. Technology is a huge factor in many of the themes that shape our sustainable investment philosophy at Liontrust and the companies we own that are making the world cleaner, safer and healthier. But equally, it has created a world where we have 4.5 billion airline passengers per year, of which two billion are international travellers.
Innovations in healthcare
From an investment perspective, most of the focus around coronavirus has understandably been on the bigger macroeconomic picture as market volatility continues and central banks employ emergency measures. But with healthcare central to two of our themes – enabling innovation in healthcare and providing affordable healthcare globally – we are also analysing what the situation means for companies in these sectors and how the pandemic may influence the health and pharmaceutical industries’ future trajectory.
A large part of our work on the Sustainable Investment team is analysing how companies are making a positive contribution to society – so, for the short term at least, we are looking at how these businesses are facing up to the COVID-19 challenge.
Facing the COVID-19 challenge
If we focus on different stages of the fight against the disease, the first is facing up to it and this has highlighted the growing need to provide protective equipment for medical staff. Thermo Fisher Scientific is a key long-term holding across our portfolios and has a market-leading position in this personal protection equipment space, helping healthcare professionals avoid catching the virus from patients.
Next is identifying the disease and three holdings across our funds, Roche, PerkinElmer and Thermo Fisher again, already have specific diagnostic tests approved by the FDA in the US. Moving to panel diagnostic tests – showing what you do have if not coronavirus – Dutch firm Qiagen is a leading player in this area and the company’s acquisition by Thermo Fisher was announced in March.
Broadening out to diagnostic equipment in general, we have various holdings exposed to this, that trio of Roche, Thermo Fisher and Perkin Elmer again, as well as Spain’s Grifols. Their work is particularly important given the current lack of testing around the world, with a cheap, accessible way of determining whether people have, or have had, the disease seen as increasingly imperative.
Finding a way of preventing the spread of coronavirus is obviously commanding huge attention at present with so many of us locked down in our homes. In the traditional vaccines space, we have exposure to a few of the major players like GlaxoSmithKline and CSL, which are both providing their expertise and technology to companies and academics. A recent note from Berenberg described the battle against COVID-19 as a marathon not a sprint: the US government assumes a pandemic will last 18 months or longer and could include multiple waves of illness, so only a vaccination can meet the ultimate goal of global eradication.
Creating vaccines has traditionally been a long and expensive process, however, taking eight to 15 years and carrying R&D costs in the region of $1 billion (£0.8 billion). The most integral part of any product lies in the approval process and manufacturing, with 70 per cent of production taken up by quality control and testing. Not to add further distress to an already worrying situation, it should be noted we still have no approved vaccines for SARs (2003), Zika (2015) or MERs. With Ebola, it took Merck five years to develop its vaccines and they only received approval at the end of 2019.
Looking at what a company like GSK is doing to fight coronavirus, we see its work in adjuvant technology as key. When added to a vaccine, this can help patients’ immune systems generate a greater response, creating more antibodies and longer-lasting immunity and minimising the dose of antigen needed. Glaxo is sharing its work in this field with several companies attempting to create a vaccine and Australian healthcare company CSL is doing similar things with its own adjuvant technology, partnering with local university research.
Elsewhere in the vaccine world, the market has got excited about mRNA options in recent times and we continue to explore opportunities in genetic therapy. Our UK holding Oxford BioMedica, identified as a key enabler in this space, has just joined a UK consortium to develop and manufacture a potential vaccine.
From a broader perspective, however, the key companies involved here are smaller and not yet profitable, with names including Moderna, BioNTech and Translate Bio – all of which have partnerships with bigger players. The current situation should provide an excellent time for them to demonstrate and attempt to prove their technologies to us all.
Simplistically, the traditional way vaccines work is to inject a dead version of the virus into a person so their immune system is primed and knows what to look for when the real virus hits them later. In comparison with mRNA vaccines, you introduce the genetic code to create the proteins or steps required to help fend off the virus when it arrives. Timelines for approval and use remain lengthy in this area as well however: when looking at the potential of giving a medicine to a significant proportion of the planet’s population, it is essential this is tested thoroughly beforehand.
Of course, we have to accept the final stage in the fight is dealing with the virus when people have it, and given the timelines for vaccines outlined above, our best hopes for relief in the shorter term are from drugs already in the market. They have already had safety trials, manufacturing sign off and approval, and while some may require further clinical trials, these are likely to be less onerous relative to starting from scratch.
Options in this space typically fall into two categories, immunosupressives and anti-virals. The former includes products such as Roche’s Actemra and Sanofi/Regeneron’s Kevzara, both antibody therapies approved for inflammatory diseases. Patients ill with COVID-19 suffer from an overactive inflammatory response in their lungs: according to the World Health Organisation (WHO), around five per cent of patients reach a critical stage of the disease requiring oxygen support. Actemra and Kevzara work by inhibiting the pathway involved in inflammatory responses of the immune system and do not directly target the virus.
Anti-virals have been more in the news, with US firm Gilead’s Ebola drug Remdesivir set to finish its first COVID-19 trial in April. Gilead is not in our portfolios and neither is Abbvie, whose HIV drug Kaletra was considered another possibility. There are also several generic drugs seen as helpful in the fight, including another HIV treatment Lopinar and two malaria products, Plaquenil and Chloroquine.
First approved treatments
Elsewhere, Japanese pharma company Takeda has said its blood plasma-derived therapy in development has the potential to be among the first approved treatments for the pathogen. While we do not own this stock in our funds, we hold the other two global plasma manufacturers, CSL and Grifols, and both are working on the same types of therapies.
When we can identify people who have successfully fought off the disease, we should be able to take a donation of their blood plasma. This will contain the antibodies required to help kill coronavirus and we can give this to people whose bodies need help to do the same. Chances of success look high here but capacity will be limited and may need to be restricted to seriously ill patients.
Healthcare and pharma can often be morally difficult sectors for investors and we would certainly not want to focus on ‘profiting’ from the fight against a disease that has already cost the world so much. But as we continue to stress, people need to be healthy enough to enjoy the fruits of a more sustainable world and this is likely to require major enterprise from these and many other companies as the world looks to avoid similar debilitating outbreaks in future. For now, we would urge everyone to keep safe, keep washing those hands and stay at home.
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