Antimicrobial resistance: investment implications from farm to pharma

The cost of drug-resistant infections is potentially huge. Leading economists estimate resistance could contribute to 10 million deaths per year at a cost of $100 trillion by 2050 if no action is taken.

Yet the food and drug industries and investors do not yet factor in fully the implications and opportunities.

With a growing number of bacteria able to survive in the presence of antibiotics, it becomes increasingly difficult for doctors to cure patients with infections. Antimicrobial resistance (AMR) has been accelerated by the misuse and overuse of antibiotics in humans and animals.

For instance, globally, 480,000 people develop multi-drug resistant tuberculosis each year, and in 2016, news broke that bacteria were developing resistance to colistin, a ‘last-resort’ antibiotic.

AMR could fundamentally undermine the value of industries tied to conventional antimicrobials as lawmakers crack down on their excessive use and availability. Here, we briefly look at the implications for the healthcare and food industries and highlight potential risks and opportunities.

Sector implications: healthcare industry

While the healthcare sector has not borne the blame for antibiotic resistance, this sector is the supplier of antibiotics for both human and animal use, and ultimately will face restrictions in how rapidly this product area can grow.

Even though access to antibiotics is growing in developing markets, indicating higher volumes, we believe this growth will be restricted, and the costs heavily controlled.

We find that incumbent manufacturers of antibiotics – particularly those that supply the farming industry – will face the biggest obstacles.

On the opportunity side, innovative drug companies could reap imminent financial rewards for inventing new classes of antibiotics - already scientifically challenging - but will likely face stricter marketing restrictions.

We see the greatest opportunities for companies providing either alternatives to antimicrobials (such as vaccines and probiotics) or peripheral services (such as diagnostic testing for infections, and cleaning services - given the role hygiene plays in spreading infection).

Where the risks and opportunities lie for investors

Sector implications: food industry

A large body of academic research highlights the farming and food industries’ roles in the AMR challenge, the increased regulatory pressure and heightened scrutiny from consumers will have an impact on company policy.

Those most likely to be affected include food producers that are reliant on antibiotics to control infection, as they could face additional costs to upgrade farming practices.

Companies providing additives to animal feed will be well placed to benefit however, as they take the opportunity to innovate and expand nutrients to reduce the reliance on antibiotics.

Retailers and restaurants are also being affected by rising consumer awareness and many are already strengthening supply chain policies restricting the use of antibiotics.

How Schroders is engaging on antibiotic stewardship

Given the substantial cross-industry investment impacts we have identified, we have sought to understand how companies are approaching and managing AMR risks and opportunities, and encouraging further data disclosure that will enable us to value the impacts in our models. This is vital: the resistance threat is not yet on corporate risk radars for 70% of the 10 companies with the largest US antibiotic sales.

Our engagement questions for healthcare companies centre on:

  • Product areas affected by the AMR trend
  • Sales, marketing and pricing disruptions
  • Approach to R&D
  • In-house knowledge of the latest policy developments
  • Impact of the O’Neill review on risk discussions
  • Assessment of the collateral impact of AMR on demand for other therapies, devices or treatments which are dependent on antibiotics

We have also supported collaborative engagement initiatives aimed at food companies in the antibiotic supply chain, led by non-profit programme Business Benchmark on Farm Animal Welfare (BBFAW).

Resolutions filed by shareholders on AMR have also started to creep into food company AGM ballots this year. The resolutions request timeframes be set on removing non-therapeutic use of antibiotics in meat supply chains.

We supported the resolution filed at Sanderson Farms but voted against at McDonald’s given the company is already committed to phasing out antibiotics.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 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. For your security, communications may be taped and monitored. 

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James Brennan

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