What impact will Covid-19 have on the biotech sector? – Investment Week

Carl Harald Janson of the International Biotechnology Trust

After a torrid three weeks, financial markets stabilised in recent days in response to the stimulus packages announced both by central banks and governments.

This steadying of performance will enable investors to take a more rational and considered approach.

The impact of quarantines required to bring Covid-19 under control will have profound economic ramifications and while certain sectors will bear the brunt of this hardship, others will play a significant role in helping society to navigate this pandemic.

The race for a vaccine: The investment trust managers combating coronavirus

The biotechnology sector will be integral in developing both treatments and vaccines to control the disease. Some healthcare companies will contribute to the responses to this virus or maintain their existing drug sales while others will see their business models under threat.

One company that should help to control the pandemic is the US biotechnology giant Gilead. It specialises in anti-viral therapies and it has a number of drugs used to treat HIV and a blockbuster therapy for Hepatitis C.

Gilead's experimental drug, remdesivir, is currently undergoing multiple late-stage clinical trials as a potential treatment of Covid-19.

This anti-viral drug was previously tested in humans with ebola and has shown promise in trials of other diseases caused by coronaviruses.

If the drug is shown to be safe and effective for the treatment of Covid-19, it is likely to receive accelerated regulatory approval.

In addition, the company has considerable cash reserves which will help weather any adverse impacts if either remdesivir proves not to be effective or sales of its other drugs falter.

Concept stocks: An opportunity for short sellers

It is not only companies involved directly in the battle against Covid-19 which are likely to continue positively contributing to society.

Genmab has a drug used to treat multiple myeloma. As there is unmet medical need for this condition, patients will continue with this therapy, irrespective of a global downturn.

In addition, the company is profitable and cash generative making it a safe haven for investors.

Another such company is Vertex, which has an oral treatment for patients suffering from cystic fibrosis, enabling them to avoid visiting a hospital at this dangerous time.

This chronic condition will need continuous treatment, which protects the sales of this drug.

Contract research organisations will, however, struggle in the current environment as many clinical trials will be halted as the people operating these medical explorations go into lockdown.

Those companies with limited cash reserves will also be hit hard as they will quickly run out of funds and will find it difficult to raise additional money given the current uncertainty.

Companies providing drugs which are mainly used by the elderly but are not essential, such as treatments for glaucoma and osteoporosis, may see sales falter as this vulnerable patient population avoids doctors' surgeries.

In light of the current situation, the relationship between the healthcare industry and President Donald Trump's administration might change. His re-election chances are dependent on how the pandemic and the economic downturn is handled.

If re-elected, Trump is less likely to clamp down heavily on future drug pricing if the biotech sector has enabled him to control the crisis and get the economy back on track.

Nor is it likely that Joe Biden would, if elected, erode healthcare profit margins as the sector will have helped the US to win the war against Covid-19.

Carl Harald Janson is lead investment manager of the International Biotechnology Trust

A stabilisation in financial markets will help investors act more rationally and select those sectors making a positive contribution.

Biotechnology companies that can develop either treatments or vaccines should perform well, so should those companies whose drug sales will continue despite most healthcare systems being overwhelmed by the treatment of this virus

Bear points

xxxx

xxxx

Go here to read the rest:
What impact will Covid-19 have on the biotech sector? - Investment Week