As the country gears up to carry out two million vaccinations a week, you could be forgiven for thinking that investing in healthcare might be a smart move right now. But while it’s true that the extraordinary scientific advances of the last year have rightly made superstars out of women and men in white coats – the likes of Oxford University’s Sarah Gilbert and BioNTech founders Ugur Sahin and Ozlem Tureci – it hasn’t necessarily given a shot in the arm to those who have bought into big pharmaceutical businesses.
The sector was a standout performer in the first half of 2020, but it underperformed in the second, particularly in the UK.
Russ Mould, research director at wealth manager AJ Bell, says: ‘In terms of share price performance in 2020, the pharmaceuticals & biotechnology sector was ranked 23rd out of the 39 sectors which make up the FTSE All-Share Index, with an average 10 per cent price fall.
Shot in the arm: Smaller biotechnology businesses that can piggyback on recent innovations, manufacturers and even healthcare data firms, look smarter ways to benefit from healthcare
‘On a more global level, in 2020, healthcare ranked fourth out of the 11 ‘super-sectors’ which make up the S&P Global 1200 Index with a double-digit percentage gain.
‘But even here, healthcare lagged in the second half and it was the worst performer from July onwards, barring real estate.’
With AstraZeneca providing the vaccine at low prices and Pfizer’s Covid vaccine success already priced into its shares, investors must look elsewhere to benefit from the fight to beat Covid-19.
Smaller biotechnology businesses that can piggyback on recent innovations, manufacturers and even healthcare data firms, look smarter ways to benefit from healthcare.
THE BRITISH STAR FIRMS BEHIND THE ROLLOUT
As the vaccine rolls out, there’s good news for many businesses involved in its supply. One such company is Oxford Biomedica, a UK-listed business that will be a key part of the manufacturing chain of the vaccine developed by AstraZeneca.
Paul Jourdan, founder of smaller firms investment house Amati, is a fan of the business – which also has a patented way of modifying, deleting and inserting genes using a so-called ‘lentiviral’ vector.
Oxford Biomedica’s share price has more than doubled in value since March last year to nearly £10, mainly due to its involvement with the Oxford Covid vaccine.
Other UK beneficiaries will include those companies making and developing new Covid test kits, the need for which is unlikely to go away any time soon.
John Glencross is chief executive of Calculus Capital, a company which specialises in investing in early-stage companies. He is particularly excited by two British companies: vaccine developer Scancell and Manchester-based Genedrive.
Scancell has recently received an investment of more than £40million from US investor Red Mile, an early investor in vaccine star BioNtech. Glencross says: ‘Its vaccine targets the ability of the Covid virus’s spike to bind to cells and a second ‘N’ protein which induces a strong T-cell response. So it may give greater protection against new variants.’
Genedrive, he says, has designed a PCR point-of-care Covid test to detect a positive patient in about 15 minutes with detection limits meeting the sensitivity requirements of the UK’s Medicines and Healthcare products Regulatory Agency. Scancell and Genedrive are both listed on the London Stock Exchange. Scancell’s shares are trading at nearly 16p, compared with 7p at the start of 2020. Genedrive’s shares have risen from a low of 9p before the pandemic to 43p – a bonanza for any investor.
Sadly, Britain’s ability to manufacture its own glass vials for vaccines appears to have evaporated in recent decades, so there’s little chance to invest in this part of the vaccine supply chain. Those wishing to buy into international businesses could consider German-listed Schott, or Italian-listed Stevanato.
SECTOR WILL BENEFIT BEYOND THE PANDEMIC
As well as benefiting from the rollout of vaccinations, experts believe there are two other good reasons to be bullish on healthcare as an investment opportunity.
First, government spending on health is likely to increase while second, the stock market should favour the sector for the foreseeable future. Teodor Dilov, fund analyst at wealth manager Interactive Investor, says government spending on health is ‘likely to remain one of the big future trends in the healthcare sector’.
More government spending is good news for the healthcare sector, especially with the tailwind of an ageing population that will need more therapies and treatments even as the vaccination programme recedes.
Plus there is a bottleneck of elective surgeries that will need to take place, meaning that demand even for knee and hip replacement therapies will strengthen.
Experts are also heartened by the innovation and speed of vaccine development, and believe that the companies that can build on new scientific discoveries and ways of doing things will also thrive. +++
Roderick Wong, manager of the RTW Venture Fund, says there has been an ‘explosion in innovation’ that will only continue to benefit the healthcare sector. He adds: ‘The Covid vaccine experience brought much-needed attention to how quickly new medicines can be developed now genetic sequencing and new drug technologies like mRNA are transforming drug discovery. We think there are many areas of significant innovation that are exciting – for example, targeted oncology, gene therapy and molecular diagnostics especially when applied to cancer.’
Calculus’s Glencross is excited by the potential of many smaller British companies that have shown their mettle through the crisis. He says: ‘One positive that has come out of the pandemic is the renewed interest in the UK’s smaller biotechnology companies. They have demonstrated some incredible science and the ability to pivot quickly to meet the challenge, whether in vaccine development or testing.’
Jourdan suggests that investors watch keenly two parts of the healthcare sector: companies bringing artificial intelligence (AI) to bear on healthcare data, as well as gene-based medicine. He says: ‘Applying AI to medical data and digitising information is a growth area. Gene-based medicine is a huge area of focus for healthcare.’
FUNDS THAT TOP UP YOUR HEALTHCARE DOSE
Many investors already have exposure to healthcare stocks in their portfolios. For example, anyone holding a fund tracking the performance of the FTSE100 Index will have more than 10 per cent exposure to healthcare.
More targeted healthcare funds include exchange traded fund Xtrackers MSCI World Healthcare. This gives exposure to the world’s 156 biggest healthcare companies. The annual charge is 0.25 per cent.
For those wanting a specialist healthcare fund run by an expert fund manager, options include Polar Capital Global Healthcare and Axa Framlington Health.
Polar’s fund has key holdings in pharma giant Roche, insulin pump maker Medtronic and drug maker Sanofi. Among Axa’s top positions are vaccine makers Pfizer and AstraZeneca, Merck and Eli Lilly.
INVEST IN INNOVATION…BUT BEWARE THE RISK
For those wanting exposure to smaller companies specialising in biotechnology, there are risks. Most biotech firms do not make a profit and rely instead on fundraising rounds in the hope their drug might make it to market or be so promising that the company is bought by a larger rival. In reality, this strategy often fails, with drugs abandoned at all phases of clinical trials and firms struggling to get the funding they need. When it works, though, the rewards can be huge, but it’s best to rely on an investment fund with a diversified portfolio of healthcare stocks picked by an expert.
Candidates include investment trust Worldwide Healthcare Investment Trust, which Ryan Hughes of wealth manager AJ Bell describes as ‘providing a diverse portfolio of healthcare exposure – from big pharmaceuticals through to biotechs looking for cures to new diseases’.
Jason Hollands, a director of wealth manager Tilney, recommends Syncona for investors who ‘want to dive in at the deep end’ and get exposure to early-stage healthcare companies.
He says: ‘This is a London Stock Exchange-listed investment company that backs typically unquoted companies focused on critical health – from inception to taking them to market.’
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