Biotech gears up for the pandemic battle

Biotech is a theme within the investible universe available to Manulife Global Thematic Opportunities Fund. This article was first published by Pictet Asset Management in April 2020. The stocks discussed may not be representative of past or future holdings within the Fund.

The coronavirus has shone a light on the biotechnology industry. But can biotech firms strike the decisive blow against the pandemic?

Drawing on an impressive arsenal of new technologies and data, the biotech industry is in the frontline in the battle against the coronavirus.

A vaccine would of course be the clearest route to victory. And here, there is some hope. Perhaps the most promising avenue for research is mRNA, in which the body is essentially used as a “bioreactor” to produce a vaccine. Under the process, cells are given the molecular template (messenger RNA) needed to build viral proteins. These proteins then serve as the trigger for the production of antibodies.

While mRNA is incredibly clever, it is also completely untested. The first hurdle is to create an antibody response that is powerful enough. This is what is currently being examined in a phase one study, which alone will take one year. More traditional vaccines may be developed more quickly, but even these could take at least 12 months.

Different vaccine approaches

Type of vaccine approach How it works

Examples

Full inactivated virus Virus is inactivated with treatments like formaldehyde, then injected Sinopharm
Viral proteins Spike protein + adjuvant (immune system booster) are injected directly Novavax, Sichuan Clover Biopharmaceuticals, Dynavax, many others
DNA-RNA vaccines A construction plan for the spike protein is injected inside little lipid particles Moderna, CureVac, BioNTech (mRNA); Inovio Pharmaceuticals, others (DNA)
Viral vector vaccines A different virus that doesn’t cause disease is used as delivery system for construction plan for the spike protein JnJ, Institute Pasteur JnJ, Institute Pasteur
Source: Pictet Asset Management, Biocentury

A faster, if smaller scale, solution could come from therapeutics. Several biotechnology companies are working on creating lab-grown antibodies against the coronavirus. These antibodies are designed to be neutralisers, sticking to the surface of the virus like Velcro so that it cannot bind to cells and spread through the body. Once developed, these could then be given prophylactically to those most at risk. They could even be used to treat patients with the disease.

An alternative to creating antibodies is to harvest them from the blood plasma of people who have recovered from the coronavirus – a practice that met with some success during the SARS epidemic.

Targeting the virus and its consequences

Concurrently, scientists are developing or adapting a range of drugs to fight the pandemic. The immediate priority is antivirals, which stop or slow the replication of the virus in the body. One of the most advanced – in terms of development – is Gilead Science Inc’s Remdesivir* – an intravenous drug originally intended to combat Ebola, but which is now being trialled in early treatment of the coronavirus, with clinical test results due this month.

Tackling some of the more serious complications that occur during the later stages of the virus infection is another area of research.

If the disease is not caught early, or effectively fought off, the immune system can go into overdrive and start attacking the body. Suppressing this immune overreaction – by blocking the so-called IL-6 receptor – is the focus of drugs for treatment of the later stages of the disease, such as Regeneron Pharmaceuticals’ Kevzara.* 

Risks and opportunities

All this is not to say the biotech industry can work at full capacity. It too is affected by efforts aimed at containing the pandemic. Conducting human clinical trials is much harder due to lockdowns, so many of these have been delayed. The commercialisation of new drugs has also slowed, as traditional face-to-face marketing is no longer possible. Production, meanwhile, is affected by the shuttering of factories and shortages of raw materials – some of the major manufacturing sites for ibuprofen, for example, are located in China’s Hubei province and Italy’s Lombardy region. Furthermore, the strain in financial markets will make it harder to raise new capital, which is particularly pertinent for younger, less established biotech companies.

Finally, even though coronavirus treatments will capture headlines and boost sentiment, the companies involved will feel obliged to keep pricing as low as possible, so they – rightly – will not be blockbusters for corporate profits.

As an investment, the biotech industry can be volatile – drugs can succeed or fail, patents can be granted or lost. However, the sector has historically held up well during times of market turbulence and recession (including during the global financial crisis in 2008-9). That’s because demand for medicine is not driven by economic cycles.

The Biotech strategy at Pictet AM focuses on high impact, essential therapies, using a proprietary scoring system that looks at each drug in terms of the severity of the disease it targets, its effectiveness, how affordable and accessible it is (including reimbursement by insurance policies) and the competitive position in terms of comparable drugs in existence or in development.

The portfolio includes companies which focus on the treatment of rare diseases, oncology and central nervous system problems, among others. In recent weeks, portfolio managers increased allocations to some large cap, profitable companies with ample cash buffers to weather the storm. However, we are also alert to new investment opportunities. As the 12-month price-to-earnings ratio shows, the sector is the cheapest it’s been in years both in nominal terms and relative to the wider market.

* Gilead and Regeneron are part of the Pictet-Biotech portfolio.

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Pictet Asset Management

Pictet Asset Management

Pictet Asset Management

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