Due to the Covid 19 crisis, pharmaceutical companies have recently become the focus of investors. Can investors profit from the corona crisis and the medical trend?
The market for drugs
Over the last two decades, the turnover of the global pharmaceutical industry has risen sharply from USD 390.2 billion to USD 1,250.4 billion between 2001 and 2019.This trend is driven by many achievements in biotechnology. The growing understanding of diseases and applications from genome research has led to many innovations that make it possible to treat or cure diseases such as AIDS, diabetes and also some types of cancer.
Global trends such as demographic change, increasingly unhealthy nutrition and environmental pollution are also leading to growing demand in the health sector. Pharmaceutical companies will therefore still have plenty to do even after Corona and should be able to profit from new achievements and social trends.
The pharmaceutical market is dominated by the United States, which ranks first with sales of almost USD 491 billion in 2019 and accounts for 48% of the global pharmaceutical market. Second place is occupied by China with sales of USD 134 billion, while Germany only achieved sales of USD 52 billion in 2019.
Business model of pharmaceutical companies
Basically, pharmaceutical companies usually earn only 25 years on their drugs, after which the patents expire. In contrast to other patents, which have a term of 20 years, the pharmaceutical industry is granted an additional five years to compensate for its high research costs. After patent expiration, other companies can produce so-called generic drugs - drugs with the same active ingredient. This usually leads to a sharp price reduction, so that the resulting sales of the drug slump sharply.
In addition, the sales of pharmaceutical companies often consist largely of so-called blockbusters, drugs with annual sales of over one billion USD. In this respect, the companies often become financially dependent on the sales of their blockbusters and can fall into a sales hole after patent expiration. For pharmaceutical companies it is therefore particularly important to fill their pipeline with continuous innovation.
Pharmaceutical stocks are often regarded as stability factors for the depot because the demand for medicine remains relatively constant even in times of economic weakness, as the costs are usually covered by insurance companies.
Two ETFs with different approaches are very interesting here:
The accumulating ETF physically replicates the MSCI World Health Care Total Return Net Index. Like most Health Care ETFs, the fund has a high US weighting of almost 66%, which is understandable given the market.
The iShares is a riskier ETF that tracks global companies that generate at least 50% of their revenue from innovation. The fund tends to include smaller companies and is therefore more volatile, but with higher expected returns.
Corona vaccine - Player
Many companies are in the race for a corona vaccine. Most likely, several of them will enter the market and there will be several winners. In total, the corona vaccine market is estimated at USD 35 billion, but it is questionable whether the vaccines will be profitable in the long term.
The partnership between the German biotechnology company BioNTech and the American pharmaceutical group Pfizer has recently made headlines.
The vaccine has to be administered twice within three weeks and is expected to cost a total of approximately USD 18.
After the third test phase, the vaccine has an efficacy of 95% and is expected to have few side effects. 3.8% of the test persons are said to have suffered from fatigue and exhaustion, 2% had headaches.
According to the companies, the vaccine will be available within a few hours of receiving approval. Unfortunately, the vaccine has to be stored at -70°C, so delivery is a challenge.
BioNTech has made a loss of 210 million Euros in the third quarter of 2020, but BioNTech still has cash and cash equivalents of 990 million Euros and is therefore well cushioned.
A deal with the European Commission has already been finalized and a purchase agreement with BioNTech and Pfizer for an initial 200 million vaccine doses has been signed. If the vaccine is approved, a lot of money will flow into the coffers.
Moderna is also working hard on a vaccine and the EU has also already signed a framework agreement for 160 million vaccine doses. The vaccine has an efficacy of 94.5% and has a fixed price of 25 to 37 USD per dose. Unlike the vaccine from Pfizer and BioNTech, it requires only one dose, which would be at least four billion. Also, no serious risks have been demonstrated with the vaccine from Moderna. A decisive advantage is the much easier storage, as the vaccine can be kept for six months at -20°C and even remains stable for up to 30 days at normal refrigerator temperatures. Moderna expects to be able to submit an emergency approval within the next few weeks.