A COVID-19 vaccine might not prove to be a watershed moment for the pharmaceutical industry, but there are plenty of other opportunities, Capital Group says.
The race is on to find a vaccine against COVID-19, but will the first company to find it strike gold?
Jonathan Knowles, Equity Portfolio Manager at Capital Group, doesn’t believe so.
“My guess is that the drug companies are going to be reasonably well-behaved here and they are not going to try to make a lot of money out of COVID. I think they will do this almost pro bono,” Knowles said during a webinar for the Investment Innovation Institute [i3] last week.
My guess is that the drug companies are going to be reasonably well-behaved here and they are not going to try to make a lot of money out of COVID. I think they will do this almost pro bono
He illustrated his argument with the example of Johnson & Johnson, which has already produced 100 million doses of a vaccine it is testing, even before it has any idea of whether it is going to work or not.
“Johnson & Johnson have already made 100 million doses of their vaccine in Belgium. They don’t even have the results yet, and if it doesn’t work then they obviously have to destroy the 100 million they have produced so far and probably the next 100 million, before they have that data.
“But it shows you how the drug companies are really stepping up and trying to help here,” he said.
The reason for the company to produce so many doses of a vaccine that might not work is that it will significantly cut down the development time when it does prove to be effective.
“[They do it,] so there won’t be a three-month delay; they already have 100 million doses,” he said.
Opportunities in Biotech
Knowles is not only an equity portfolio manager, he also holds a PhD in immunovirology from the University of Liverpool, in the United Kingdom. He believes that there are other areas in the pharmaceutical and biotechnology sectors, where investors could put their money to better use.
One of these areas is diabetic drugs.
“I think there is going to be a paradigm shift in diabetes treatment,” Knowles said. “In the old days, diabetics would test their blood sugar by putting a little prick in their thumb and take a little bit of blood and put it in a test kit and then work out how much insulin to give themselves and probably slip out before a meal and inject themselves in the bathroom and come back.
“I think the days of that happening are numbered.
“I think over the next ten years we will see a shift to continuous glucose monitoring. These are little patches on your arm, which you stick on. They last about two weeks and it measures the concentration of sugar in what is called the interstitial space.
“It transmits that knowledge to your mobile phone and then your mobile phone will communicate with a pod which is attached to your abdomen and that pod will administer the correct amount of insulin. It will adjust it up and down, depending on where your sugar is.
“I think you are going to get much, much better control of diabetes.
You would have noticed that the mortality rate has dropped quite a lot with the second wave happening in Europe. I think in part it is the use of dexamethasone, which is a steroid
“And diabetes is an enormous cost to the healthcare system. It is the main cause of amputations, renal disease, heart failure, it is a big cause of blindness, impotence… There is a huge range of diseases associated with it and a huge number of people have diabetes.
Another interesting area is pet drugs. Knowles has invested in a company in the United States, which is one of the largest animal drug companies in the world.
“They’ve got a really interesting franchise in [drugs for] dogs with bad skin,” he said. “This is a really common problem. They have two drugs that are leading the way there and they are selling around US$ 800 million of those two drugs and it is growing at 20 per cent a year. They can have a US$1 billion dog skin franchise!” he said.
Despite his reservations on whether pharmaceutical companies will be able make money from a COVID-19 vaccine, Knowles is optimistic about the efforts put into the research. He is particularly enthusiastic about two approaches.
“You would have noticed that the mortality rate has dropped quite a lot with the second wave happening in Europe. I think in part it is the use of dexamethasone, which is a steroid,” Knowles said.
“There was a big trial in the UK, where they showed it worked and now it is used globally. It is a very cheap drug. But that seems to help in certain forms of COVID, where people’s immune system overreacts.
“The other treatment which I think is very encouraging and which is very exciting would be monoclonal antibodies. These are basically synthetic antibodies, which are made in the lab and they target COVID.
“You can make them target anything you want. Several of the best-selling drugs in the world are monoclonal antibodies.
“Regeneron, which is the one that has been used on Donald Trump, is a dual antibody. It acts on two different bits of the coronavirus. And the data there looks pretty good.
“My guess is that it will be pretty widely used,” he said.
More details on the webinar featuring Capital Group’s Jonathan Knowles are avaiable in the recording below.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.