Biotech Growth calls time on Covid-19 trade after Pfizer coup

Pfizer’s leap towards a Covid-19 vaccine has put an end to the race for treatments and to the coronavirus trade enjoyed by the pharmaceutical industry, says biotechnology fund manager Geoff Hsu.

Orbimed’s Hsu, who manages the £564m Biotech Growth (BIOG) investment trust, said shares in pharmaceuctical, healthcare, and biotechnology stocks had done well at the height of the pandemic as companies kickstarted programmes to find treatments and vaccines.

However, the announcement that Pfizer and its German partner BioNTech had created a vaccine with a 90% success, or efficacy, rate put the brakes on the Covid-19 trade.

‘[The Pfizer news] could reverse some of that momentum,’ said Hsu. ‘If the problem [of coronavirus] is solved and we have an effective vaccine, do we need a lot of treatments or alternative vaccines?’

He said a number of companies with Covid-19 programmes traded down as global markets rallied on the Pfizer announcement, adding that many of those companies had become ‘richly valued’.

‘We are at the tail-end of this trade,’ he said.

The trust does not hold Pfizer after Hsu and co-manager Richard Klemm decided last year to halve their exposure to large US pharma stocks in favour of smaller, racier biotechs. While BioNTech falls into the latter category, the fund managers do not hold it.

‘Generally speaking we have not chased a lot of Covid-19 trades because we were unclear whether the values were justified,’ he said.

Hsu can afford to be sanguine about omitting BioNTech. BIOG has enjoyed a very strong year following the re-weighting to small-caps. The shares are up 53% in 2020, ahead of the 42% rise in underlying net asset value, a performance that has restored its long-term returns after a tricky period. Over 10 years the trust has now delivered a total return to shareholders of  816%, well ahead of the 519% return from the Nasdaq Biotechnology index.

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The fund manager said from the revenue potential of the vaccine for BioNTech was still unknown and would be based on a number of factors such as other vaccines coming to market.

‘[BioNTech] may have to split the market with many other players or it might have the best efficacy and then the revenue potential is much greater,’ he said.

Pfizer has set the bar high with its vaccine, as the 90% efficacy rate is far higher than had been anticipated, and higher than the 70% rate delivered by the vaccine created by AstraZeneca (AZN) and Oxford University.

Hsu said that the Pfizer success was likely to mean ‘other vaccine players will achieve greater efficacy for their vaccines and we will see a multi-player markets’.

The pricing of the drug will also determine the potential for it. AstraZeneca has already said that its first batch of approved vaccine will be donated at cost so it will not make a profit.

Hsu said companies will make money from the vaccine in future if the coronavirus jab becomes seasonal, like the flu jab, but there are still questions over how long the inoculation lasts.

Pfizer has just 28 days of data for its vaccine – which is administered in two doses, the second being three weeks after the first.

‘That is a short amount of time,’ he said. ‘We do not know yet how long the vaccine will hold up and we will just have to wait for time to pass and track the infection rates of the people with the vaccine.’

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The fact Pfizer has just 28 days of data will help fuel concerns that vaccines are not be stringently tested enough and will be rushed through approval by the US Food and Drug Administration (FDA) in a bid to get life back to normal and salvage the economy.

Hsu (pictured) said there was some distrust in the new vaccine ‘because it has been developed in record time’ and it was ‘incumbent [on the drugs companies] to convince people that this is a safe and effective vaccine’.

‘The FDA will be careful about providing it and will make sure it is safe and effective,’ said Hsu.

He believes people will take a vaccine as they are ‘sick of wearing mask, and staying inside, and social distancing’ but early adoption would be for frontline workers in hospitals.

Hsu said the donation of vaccines will help improve the public image of the pharmaceutical and biotech industry as companies are ensuring they ‘are not pricing to profit from a pandemic’.

‘If I see the data and it looks good, and the FDA approve it, I would get [the vaccine],’ Hsu added.




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