What next for healthcare investing after Covid vaccine success?
With three Covid-19 vaccines proving effective, we ask fund manager John Bowler and Data Insights Unit head Mark Ainsworth what comes next as regards the pandemic, and what the future holds for healthcare investing.
We’d been waiting all year for a Covid-19 vaccine, when suddenly three came along at once. First up on 9 November was the news that Pfizer and BioNTech’s vaccine had over a 90% success rate in preventing infection. Next, on 16 November, was Moderna with news its vaccine was 95% effective. Oxford University and AstraZeneca followed on 23 November; their vaccine is 90% or 62% effective, depending on dosage.
This was the news everyone had been waiting for and stock markets gained sharply as investors began to look forward to a return to normal life.
Strong market reaction to vaccine news
Global shares, as measured by the MSCI Word index, gained 12.8% in US dollar terms in November. Some of the strongest gains were seen in industries such as hospitality, travel, and leisure, which have been largely shut in many countries due to restrictions designed to contain the virus.
The healthcare sector itself saw mixed share price reactions to the vaccine news.
“What we saw is that some of the companies offering testing and diagnostic services related to Covid-19 experienced share price falls," healthcare investor John Bowler said.
"However, the companies that benefit from elective procedures responded positively to the announcement. These companies include hospitals themselves and the orthopaedic implant companies which have been impacted by hospital shutdowns and delayed operations due to Covid-19.”
The speed with which vaccines have been found is very positive. Developing a vaccine would typically take ten years rather than 11 months. This is the result of many different institutions working together and making a vaccine their top priority.
Bowler said: “This is the first time I recall in 20 something years of following the healthcare sector that there has been this genuine collaboration between the various players - the commercial firms, the pharmaceutical and biotech companies, and the academic community - to come up with a solution.
“The consistent message from the larger companies in the industry is that they see it as a duty to provide a solution for society. Putting the best minds to work on the same problem globally has led to a very fast response to the situation.”
Pandemic not over yet
However, while news of three effective vaccines is very encouraging, they will take time to be fully approved, manufactured and distributed. That means the pandemic is not over yet. There are still lessons to be learned from the data around Covid-19 and how to limit transmission.
Mark Ainsworth, Head of Schroders’ Data Insights Unit, said: “There are three key things that I would draw out as what we've learned about this pandemic. First of all, the virus itself is clearly at least ten times more dangerous than seasonal flu. And so the extreme reactions the world went through are in many ways justified.
“The second thing is that it's clearly seasonal. Winter has people gathering indoors and that increases the likelihood of the virus getting into people's systems. That’s why the coming months still represent a big challenge for the northern hemisphere.
“And thirdly what’s been really interesting is the countries with the least bad health outcomes are the ones who have had the best economic outcomes. There’s been a debate over the year about saving lives versus saving the economy, but that's a false choice.”
Innovative technology has produced the vaccines
All three of the successful vaccines so far use messenger RNA (mRNA) to trigger an immune response in the body. This differs from traditional vaccines which contain either weakened viruses or proteins of the virus.
Bowler said: “Producing those proteins is a complex, iterative process that takes considerable time. What’s different with mRNA is that it’s almost like software that gets the body to make its own vaccine.
“The key benefit is the speed with which these companies were able to generate candidates to enter human clinical studies. Whereas typically it would take six to 12 months to develop a candidate that could start clinical trials, Moderna and BioNTech had candidates ready within a month. All you need is the genetic sequence of the pathogen.
“The development of these Covid-19 vaccines is a very encouraging proof of concept for companies like BioNTech and Moderna because their sole focus is the use of mRNA. They already have other vaccine candidates in development for diseases where it is very difficult to produce a conventional vaccine.”
But healthcare investing isn’t just about pharmaceutical and biotech companies.
The pandemic and consequent lockdowns have also forced change on how other parts of the healthcare industry works.
“Telehealth and the use of virtual communications already existed before Covid-19, but it's really proven its worth," Bowler said.
"I think it will continue to have a big role going forward in how companies do business in terms of developing and selling pharmaceutical products, and also in how doctors interact with patients.”
What does this mean for healthcare investing in future?
While the focus recently has been on the vaccines, the importance of public health capabilities in containing the vaccine should not be underestimated.
“Many of the countries that did a good job of controlling the outbreak are the ones that suffered very seriously from SARS several years ago," Ainsworth said.
"There's a real sense in which that experience galvanised those countries to invest in the ability to trace contacts and manage epidemics in the future.
“I would assume that many countries will conclude it is worth spending money every year to have a standing contact tracing capability. This would allow them to stop a virus before it got going, in the way that places like South Korea and Taiwan did.”
Pressure on government healthcare budgets is one of the three forces that Bowler sees shaping healthcare investing in the coming years. Another is demographics, as the baby-boom generation reaches an age when procedures like hip replacements and heart operations are required. And the third is new technology.
“There are pressing needs in terms of growing demand and the imperative to become more efficient," Bowler said. "Digital systems that can remotely monitor patients look set to be an area of growth.
“Continuous glucose monitors for diabetics are a good example; they are a convenient way to monitor the patient and are linked to AI enabled behavioural prompts that ensure better patient management and hence better outcomes. Their adoption is growing rapidly, but it's still very early in the adoption phase for this and many other types of healthcare technology.
“The budget issue is going to become even more acute for governments, given how much has been borrowed this year. I think that creates an extra impetus for better management of resources. This requires fresh thinking and the adoption of technologies that benefit the patient but also it benefit the healthcare system in terms of cost.”
Any references to securities, sectors, regions and/or countries are for illustrative purposes only and not a recommendation to buy and/or sell.
This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.