The industry has never been in the spotlight before. What investors need to know about Corona winners and the excellent long-term prospects of the crisis-proof sector.
Less than 100 days ago, on January 11, 2020, Chinese researchers uploaded the gene sequence of an unknown virus to the global web. Just five days later, the group led by Christian Drosten from the Berlin Charité published the first protocol according to which an infection with the pathogen known today as SARS- CoV-2 can be detected.
Ever since then, everyday life around the world has changed fundamentally. Scientists and companies in the healthcare industry outperform almost every day with services that previously seemed impossible. Drägerwerk's ventilator production doubled in February and will quadruple in the coming months. Qiagen is now producing extraction kits around the clock, seven days a week, to isolate the virus RNA from throat and nose swabs. To ensure that a vaccine is available as soon as possible, companies are trying to shorten the development, which normally takes ten to 15 years, to one tenth of this time. "There is no precedent for the speed at which we move," says Clement Lewin, who at Sanofi has been working on vaccines for two and a half decades.
The health sector has never been in the spotlight before . Investors now also want to bet on winners on the stock exchange. The industry has a lot more to offer: from extremely defensive companies to risky biotech companies with opportunities for millions of bestsellers, the sector is broadly diversified. At the same time, health is seen to be crisis-proof, and the demand for products and services is constantly increasing due to demographic developments. Read below what investors need to know about the current situation and long-term prospects, which stocks and sector funds are recommended.
The sector has demonstrated its defensive character several times in past economic weaknesses. Both when the dotcom bubble burst in 2000 and in the 2008/2009 financial crisis, healthcare companies' share prices fell less than the broad market. The comparison of profit trends in the MSCI World shows how immune the businesses of Pharma and Co were to the weak phases Healthcare Index and in the MSCI World: While the broad market suffered significant losses, there was only a small profit dip in the healthcare sector. Overall, the industry's profits have grown twice as fast in the past 25 years as in the overall market. The MSCI World Healthcare Index generated an average of ten percent income per year during this period, while the MSCI World Index, on the other hand, just under seven percent.
However, the corona crisis differs from the financial crisis. Operations that are not urgently needed, such as the use of artificial joints, are currently being postponed, and dentists often only treat emergencies. "Orthopedic companies will experience sharp drops in March and the second quarter," said Rudi Van den Eynde, fund manager at Candriam Equities Biotechnology. Dental implant manufacturers also suffer. "But the lost sales can be made up for," Van den Eynde is convinced.
Many clinical trials no longer admit patients; new drug tests are postponed to protect staff and volunteers from being infected with SARS-CoV-2. This can be a problem for unprofitable biotech companies that rely on capital injections in the short term. "For these companies, clinical data is the ultimate currency for their market value," said Bruce Booth, partner at the venture capital firm Atlas Venture. In extreme cases, no data means no fresh money. After all, according to fund manager Van den Eynde, the delay should last a maximum of a few months. "Well-funded and broader companies will easily cope with such delays".
New customers in the digital field
In other areas, on the other hand, business runs much more smoothly - with the chance of future profit increases. "This applies, for example, to providers of practice software and electronic patient files," says Andreas Bischof, co-manager of the nova Steady Healthcare fund . The company Compugroup Medical provides doctors, clinics and midwives with a platform for video consultation free of charge until further notice. "Of course with the ulterior motive that many will continue to use it when the crisis is over," said Bishop. Also online pharmacies like shop pharmacy can win many new buyers. This will pay off if - as decided on April 1 - all prescriptions in Germany must be issued electronically by 2022.
Internationally, digital offers are booming due to the corona crisis. The potential is evident in China, which is a few weeks ahead of the pandemic. "There, the rules were adjusted according to which prescriptions for prescription drugs are issued online and the funds are then sent out," reports Oliver Kubli, fund manager at BB Adamant Asia Pacific Healthcare. "The number of online consultations has also increased dramatically."
Production doesn't keep up
Protective masks and clothing, meanwhile, cannot be produced as quickly as they are needed. The special boom in ventilators is reflected in the balance sheets of Drägerwerk, Getinge or Medtronic knock down. How strong, however, is currently difficult to estimate. No one apart from the manufacturers knows at what prices, for example, the large orders are being processed by governments. Are there discounts or surcharges paid? In the coming weeks, good communication from the companies will be required in order to meet excessive expectations from investors. But there is no doubt that something will get stuck if, like at Qiagen, the test kit production is increased by more than ten times. At the North Rhine-Westphalian molecular diagnostics company, however, the price potential seems limited by the takeover offer from Thermo Fisher at 39 euros per share.
But there are many large corona test providers, for example Biomerieux and the analysis specialist Eurofins. It can currently carry out a total of around 15,000 tests per day in Germany, Spain, the Netherlands, Brazil and the USA. The group also checks whether protective equipment such as masks or gloves meets the prescribed standards. Even Roche mixed with in this market. The Swiss also sell the drug Actemra, which is used for severe Covid 19 courses.
Hope for research
While these companies have had real sales increases for weeks, investors are primarily hoping for vaccine and drug manufacturers. It usually takes around ten years to launch a new drug. For security reasons, the process cannot be shortened indefinitely. Covid-19 therefore focuses on compounds that are either already approved for other diseases or that have already passed experimental stages in other indications. The latter applies to remdesivir, an antiviral drug that the US biotech company Gilead originally developed against Ebola.
Data from this time stipulate that remdesivir also works against coronaviruses in test tubes. Unfortunately, such a preclinical observation is no guarantee that the drug will also work in humans. The first results of the study should come in the next few days. The news portal "Statnews" reports that remdesivir has improved in a clinic in Chicago in just over 100 patients. Observations from China, however, sounded less optimistic. The infusion would certainly be used on a broad front even if its effectiveness was not outstanding. Pricing would be a tightrope walk for Gilead. The group is already hearing accusations of wanting to profit from the crisis. Countries like China or India could threaten to manufacture remdesivir themselves, disregarding patent protection,
Experts have little hope of the malaria drug chloroquine. While it would be very gratifying from an epidemiological point of view if the widely available and cheap chloroquine tablets could combat Covid-19, they hold little potential for investors because patent protection has already expired.
Antibody drugs that develop Regeneron and Vir, among others, are further away from potential approval. This could become a powerful weapon, but the first trials on patients will be in June at the earliest. At best, the funds would be available at the end of the year.
The world will probably have to wait a similar length of time for a vaccine against SARS-CoV-2. Moderna or Mainz-based Biontech are at the forefront here with their RNA vaccines. They are only injected with the "building instructions" for a virus part, the body then produces the molecule itself and develops an immune response to it. This has never been done before, but would have advantages in terms of production technology. Traditional vaccines are more complex to produce and are a strength of large corporations. Here, too, companies face moral pitfalls. Paul Stoffels, head of research at the US pharmaceutical giant Johnson & Johnson, recently said that if the company succeeded, the company would provide a billion doses of vaccine at cost price.
It is such factors that health fund managers stubbornly stick to their existing investment strategy. None of the experienced investors the editors have spoken to in the past few weeks are converting their portfolios in favor of Corona winners. "The corona virus is primarily not an investment case," say the managers of the Swiss investment company BB Biotech. Companies like Gilead and Regeneron, Vir or Moderna have already held many funds for a long time anyway - because they are convinced of their long-term opportunities.
No matter how the fight ends, the virus improves the industry's reputation and raises awareness of its importance. Experts expect increasing investments in the health system due to the pandemic in the next few years. "Aside from the lives that can be saved - building up the appropriate capacities and keeping them permanently available costs little compared to the burdens that are now being caused by the downturn in the economy," said fund manager Bishop.
Corona winners
Good chances of winning
The shares of the companies listed in the table are already traded on the stock exchange as clear beneficiaries of the corona crisis. However, the success of these companies is still associated with numerous uncertainties. For this reason, investors must expect strong price fluctuations for these stocks until further notice. Speculative.
Company : ISIN
Biomerieux FR 001 328 028 6
Biontech US 090 75V 102 6
Drägerwerk DE 000 555 063 6
Eurofins FR 000 003 825 9
Getinge SE 000 020 262 4
Gilead US 375 558 103 6
Moderna US 607 70K 107 9
Regeneron US 758 86F 107 5
Shop pharmacy NL 001 204 474 7
Vir US 927 64N 102 8
Source: Bloomberg
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