10 September 2020
At GAM Investments’ Weekly Equities Meeting held on 8 September, Christophe Eggmann and Jenna Denyes provided an update on the healthcare sector.
Equities – Healthcare
From a market perspective, news on potential vaccines is positive, but unfortunately this has had little impact on the healthcare sector. From April to August, the sector has significantly underperformed, trailing the S&P 500 by 14%. Investors have placed large sums of money into tech and cyclical sectors in anticipation of an economic recovery and healthcare does not fit into this category. Never ending speculation on the outcome of the US elections (Presidential, Congress and State) is also weighing on sentiment.
While headlines focus on the race for the White House, the composition of Congress has far greater significance for the pharma industry. We believe the best outcome for the sector, although unlikely, is a Republican controlled Congress (House and Senate) with Biden as president. This would lead to gridlock, likely benefiting the industry. The worst case scenario, in our view, would be both chambers of Congress controlled by the Democrats, again with Biden as president. Such an outcome would likely mean higher taxes on the pharma industry. There are of course several potential outcomes in between, including a continuation of a split Congress, which we regard as manageable.
The general infection situation has not changed substantially, with France on track to being the next country to achieve the dubious honour of new infection numbers being higher now than in the spring. Two countries in Europe are poised to enter the so-called second wave, while other countries, such as the US, remain decidedly in the first wave. The fatality rate, however, is dramatically lower than it was in the spring. We now have a wealth of information about the progress of the infection in patients, compared to the knowledge that we had earlier in the year, and hospitals are no longer as overrun as they were in the early days of the virus. Patient outcomes should improve, however the long-term impact of infection is shaping up to be more serious than anticipated. With that said, we should keep in mind that this is a serious health concern, and we should continue to follow whatever government regulations have been implemented.
Vaccine development is progressing rapidly, to say the least. Nucleic acid vaccines are currently the leaders in the Covid race. This is a type of vaccine where, to put it simply, we make our cells do the work. Essentially, we provide our cells with the instructions to make a certain protein, which the immune system will then recognise. This closely mimics the viral infection itself. Some of the benefits to this method include the immune system recognising the protein quickly, as well as the vaccine itself being quicker to produce and to adapt for future viruses. Nucleic acid vaccines could also be safer for immunocompromised people. From a technology standpoint, nucleic acid vaccines have been studied for several decades and are actively investigated in both the cardiology and oncology spaces, where people are exploring using these investigational vaccines to treat tumours and heart diseases.
Three leaders in the vaccine race are Moderna, Pfizer (BioNTECH) and AstraZeneca (Oxford University). All three programmes have gone through phase one and phase two clinical trials without any concerns raised for safety or efficacy. They have now moved into phase three, each of which is aiming to involve 30,000 people. These trials are event-driven, meaning that they will stop when certain milestones are reached, rather than stopping at a pre-determined time. Bearing in mind that each trial is taking place in countries with high infection rates, we will likely see data emerging from these studies very soon. Many countries have begun to pre-order vaccines, with estimates placing the number of pre-orders around five billion.
Despite the anticipation of “emergency use approval” at some point in 2020, the US Food and Drug Administration (FDA) has reiterated that guidance issued in June will be used to assess the safety and efficacy of the vaccine. For current trials, this means that only half the number of people who received the vaccine became sick to any degree, compared to those who got the placebo. In a somewhat unprecedented move, the main vaccine developers have announced that they will not share any data with the FDA until they are confident in the safety of the vaccine. Regardless of which vaccine wins the race, or which approval channel is used, neither data nor approval will translate into immediate access for the general population. Manufacture, distribution and administration challenges will see sequential roll-outs with high risk, front-line healthcare workers certainly to be prioritised.
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. September 2020.