David Attenborough's 100th birthday highlighted our ageing population and the fact that we in the West are living longer and our populations are getting older.

While developments in medicine over the past 50 years have enabled us to live longer, we “haven't been as successful in finding ways to prolong healthy life”, says Harley Street wellness expert Aamer Khan.

It's now common for people to spend the last 15 years or more of their lives, around a fifth of their total lifespan, dealing with several chronic conditions at the same time.

Fortunately, we're beginning to get better at understanding and tackling at least some of the worst of these conditions. Breakthrough drugs and therapies are “addressing unmet medical needs in ways not previously possible”, says Daniel Lyons, portfolio manager on the healthcare and biotech team at Janus Henderson.

Our ageing population is at an inflection point

This gap between lifespan and what Khan calls “healthspan” – the number of years of healthy living not marred by chronic conditions – isn't just a problem for those directly affected. It also imposes costs on society. “If you look at a chart of average health spending by age, it basically goes crazy from around 75 onwards, rising almost vertically,” says Gareth Powell, head of healthcare at Polar Capital. With the number of 75- to 80-year-olds set to explode as the baby boomers enter their sunset years, this could prove to be very expensive for society.

Douglas Williams, a senior executive and board member for several biotechnology companies, argues that we're at an “inflection point” – if we don't find some effective treatments for age-related conditions such as Alzheimer's soon, then the conditions “could end up bankrupting the global healthcare system”.

The effort to find effective therapies is complicated by the fact that the conditions don't tend to be caused by a single factor, but rather have multiple triggers. Different conditions can also have a knock-on effect on each other. So even for a single family of diseases, “there's never going to be one treatment for everyone”, says Kiren Baines-Mortimore, the CEO and founder of Valaya Bio, a biotechnology firm tackling age-related degenerative neurological diseases. Instead, we are probably going to have to develop combinations of treatments that exploit multiple biological mechanisms. Any treatment of conditions such dementia will “need to be done in a very measured and multi-disciplinary way”, says Tony Banerjee, the founder and CEO of HarleyDoc.

All this will pose fiscal challenges for governments and healthcare systems, but there is a silver lining for investors. The rise in the ageing population, combined with the complexity of caring for their health, presents an “enormous opportunity” for drug and biotechnology firms, says George Viney, co-manager of the Trojan Global Equity fund. “The value of treatments that can ensure people live in a healthy and independent way for longer and reduce the need to spend huge sums of money to treat people in hospitals, will be huge.”

The challenges in treating cardiovascular disease

“Perhaps the key reason why healthcare costs balloon from 75 or 80 onwards is to do with the increasing amount of cardiovascular disease in that age group,” says Powell. This represents a huge “unmet need”, but the good news is that there's been progress in developing better medical devices, such as those that help with atrial fibrillation or repair heart valves.

Progress has been slower when it comes to drugs because “it's so incredibly expensive to develop drugs for heart disease, as you have to do massive trials”, as Powell points out. Heart disease is classified by regulators as a chronic ailment, rather than an immediate threat to life, such as cancer, which means that regulators are much less tolerant of any side effects. Healthcare systems may also be reluctant to pay for the drugs. Research in this area has been hindered by the fact that patents on blockbuster drugs expire, lowering prices for patients, but making drug companies less interested in investing.

Yet Powell is optimistic that, after “dropping off the radar a bit”, interest in treating heart disease has begun to pick up again, and progress is being made. He points to the recent buzz around Lp(a), a type of cholesterol that has been linked to clotting, inflammation and the build-up of plaque in arteries. There is “strong evidence that people with Lp(a) have a higher risk of heart attacks” and several companies have had promising results from drugs that lower the levels of Lp(a) in the bloodstream.

Huge promise from weight-loss drugs

Another big contributor to problems with an ageing population is obesity, which in turn feeds into a number of other conditions, perhaps most obviously diabetes. Diabetes is one of the biggest areas of healthcare spending for the elderly, with £1 billion a year spent by the NHS on treating diabetic foot ulcers alone, says Khan. Diabetes is also associated with a much higher risk of Alzheimer's disease, “to the extent that some people call Alzheimer's type-3 diabetes”, says John Todd, professor of precision medicine at the University of Oxford. Obesity is also seen as a risk factor for other conditions that disproportionately affect the elderly, including heart disease and cancer.

Until recently, progress in finding effective lasting treatments for diabetes and obesity was slow. Over the past five years, however, it has become clear that GLP-1 receptor agonists, such as Wegovy and Mounjaro, are “the breakthrough that we have been waiting decades for”, says Todd. The long-term effects of these drugs are still not clear, but at the moment the benefits seem to “outweigh any risks”.

There is also evidence that they bring “phenomenal broad-based health benefits that go far beyond just losing weight or tackling diabetes”, says Powell. Studies show that Wegovy can lower general inflammation throughout the body, boosting cardiovascular health “beyond that which you'd normally expect given the weight loss”. Evonne Sepsis of ESC Advisors notes that GLP-1s can even help reduce problems with the central nervous system.

Progress in treating Alzheimer's

The disease most often associated with an ageing population is dementia and the majority of cases are caused by Alzheimer's. There is an increasing amount of evidence that the disease is primarily caused by the toxic build-up of particular proteins, such as amyloids, says Neil Ward, the vice-president of Pacific Biosciences. If these proteins aren't cleared adequately, they can cause damage to cells in the brain, including those responsible for repair and regeneration.

Genetic therapies may one day slow this process significantly. But in the short run diagnostic blood tests using the rogue proteins as biomarkers could transform the treatment of the disease, says Giovanna Lalli, the director of strategy and operations at the self-funded UK medical research organisation LifeArc. LifeArc's own test is due to finish trials in around 2028. If all goes well, this will do away with the need for the scans and lumbar punctures currently used to spot the disease, enabling quicker diagnosis and earlier intervention.

Early diagnosis will help, especially if drugs currently in development come to fruition. These show promise in helping the body expel the proteins, and in recent years two have been approved by the US regulator, the Food and Drug Administration (FDA).

They have shown only a limited impact on the disease so far and come with side effects, a result of the fact that the drugs do not easily reach the brain. However, trontinemab, developed by Roche, is in the late stages of clinical trials. It has been shown to be much better at crossing the blood-brain barrier, producing an “almost complete wipe-out of the amyloid plaques in a couple of months without major side effects”. Sepsis predicts similar progress in other disorders, such as Parkinson's, over the next decade.

The importance of a good night's sleep

One contributing factor that has been associated with Alzheimer's and dementia in general is poor sleep. Studies show a strong link between sleep problems and neurological disease. People who suffer from a lack of deep sleep in middle age are three times more likely to develop Alzheimer's, says Jane Rhodes, chief executive officer of biotechnology company AstronauTx.

This may be down to the fact that deep sleep is when memories are formed and when a process called “glymphatic flow” occurs, which “drives out all the metabolic waste that builds up during the day”, including the toxins and neurotoxic proteins that can build up and drive the development of diseases such as Alzheimer's and Parkinson's.

The amount of deep sleep you get declines with age, with elderly people sleeping only a fraction of the time that younger people do, which may explain why dementia and other conditions are more common in later life. Rhodes has high hopes for her company's drug, which she says will help “make everyone sleep like a 20-year-old”. It is due to enter clinical trials early next year.

Poor sleep in the middle-aged and elderly “could be the next obesity”, says Sepsis. The potential ramifications of treatments that improve the quality as well as the quantity of sleep could then be comparable to those of the GLP-1 weight-loss drugs. Given the “vast opportunity” for the sector that that represents, it's not surprising that from her work advising early-stage biotechnology companies, Sepsis has found that “there are definitely quite a few companies that have started to look at this area”.

Indeed, pharmaceutical giant Eli Lilly paid nearly $8 billion to get a foothold in the sleep treatments area by buying Centessa Pharmaceuticals. Current treatments are intended to help people fall asleep, rather than promoting the really important deep sleep, so there are big opportunities here, and they are not just limited to drugs. The solution to the sleep problem will entail a multi-pronged approach that includes improvements in diagnosis and the development of wearable technologies that measure how much good-quality sleep we're getting.

Boosting the immune system

Another source of problems in an ageing population is the weakening of the immune system. As we get older the number of viruses that we have encountered accumulates. This isn't usually a problem. In fact, it's generally seen as a good thing and is one of the main reasons why adults get fewer colds than children do. Some of the viruses we encounter, however, such as the one that causes shingles, can “reside in our brains in latent form for the rest of our lives”, says Todd. Sometimes they can get reactivated by other viruses, such as the herpes simplex (cold sore) virus, creating “neuronal damage, which can then cause or accelerate many of the cases of dementia, including Alzheimer's”.

An increasing number of studies show a strong link between vaccination for particular diseases and a reduced risk of dementia, says Todd. He points to a 2024 study that found that the shingles vaccine Shingrix increased the length of dementia-free lifespan by around 17%. Another study from 2025 found that giving people over the age of 60 the Arexvy vaccine, which protects against respiratory syncytial virus (RSV), cut the number of dementia diagnoses that they received over the next 18 months by a third. There is still a lot we don't know about how the immune system is involved in diseases such as dementia, but these studies show enormous promise for the future.

The best investments to play the theme

One of the companies at the forefront of the race to slow Alzheimer's is Eli Lilly (NYSE: LLY), which owns the only two drugs that have been approved to treat the condition, donanemab and lecanemab. It also has Mounjaro (tirzepatide), one of the major GLP-1s that have been shown to help people lose weight as well as tackle type-2diabetes and reduce general inflammation (including in the heart). It has recently developed lower-dose versions, as well as one that can taken orally. As stated in the main story, Eli Lilly has also recently moved into medicine for poor-quality sleep. Its revenue has more than doubled since 2020 and is expected to keep growing by around 15% a year, more than justifying the fact that it trades at 23 times 2027 earnings.

The other company that dominates the weight-loss market is Novo Nordisk (Copenhagen: NOVO.B), which makes Wegovy (semaglutide), the other major GLP-1 drug. As with Mounjaro, studies have shown that it can not only treat obesity – with recent studies suggesting that high-dose versions can help people shed more than a quarter of their weight – but also help a range of conditions, including cardiovascular ones. The firm also has a wide range of obesity and diabetes drugs in the pipeline. Sales are more than double the level they were in 2020 and earnings have tripled, yet the shares trade at only 14.2 times 2027 earnings and yield 3.8%.

Polar Capital's Gareth Powell is particularly keen on NewAmsterdam Pharma (Nasdaq: NAMS), which specialises in drugs that treat heart disease. The firm is currently losing money, making it a relatively risky bet, but it stands to make big gains if its flagship drug, obicetrapib, which is in late-stage clinical trials, is approved. Preliminary results suggest that it can lower levels of “bad” cholesterol, with some early indications that it could even be useful in certain patients at high risk of Alzheimer's by lowering the buildup of certain proteins linked with the disease.

Another small high-risk, high-reward drug company that specialises in heart disease is Cytokinetics (Nasdaq: CYTK). At the end of last year, its flagship drug aficamten was approved in the US for treating a particular type of cardiac disorder and was also given the green light in the EU and China. It is running additional late-stage clinical trials to see whether the drug could also be used for other heart patients. It has two other cardiac drugs, omecamtiv mecarbil and aficamten, in advanced trials, and is doing some interesting work aimed at treating neuromuscular disorders.

Daniel Lyons of Janus Henderson particularly likes medical technology company Boston Scientific (NYSE: BSX). It has a strong record of making devices that are “less invasive, easier for doctors to use and gentler on older patients”. Around two-thirds of the firm's revenue comes from cardiovascular devices, which improve blood flow, fix faulty heart rhythms and support the heart without the need for major surgery, which is especially helpful for the elderly. The firm's total sales have more than doubled since 2020 and continue to growth strongly, yet the stock trades at only 14 times 2027 earnings.

Gene-sequencing company PacBio (Nasdaq: PACB) is involved in the quest to find the genetic and epigenetic causes of ageing. It recently won a contract to sequence genomes for the Long Life Family Study being carried out by the National Institute on Ageing. It will track families with a history of long-lived ancestors over multiple generations to try to identify the causes of long life. PacBio has also won other large-scale contracts and its management expects the firm to become profitable in late 2027 or early 2028.

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J. Craig Venter was a “risk-taking outsider” who “brought speed, competition and controversy to one of science's biggest races”, says The New York Times – the quest to decode the human genome. A former surfer and Vietnam veteran turned medical researcher, Venter combined a brilliant scientific mind with the single-minded drive of an entrepreneur. Having decided in the 1990s that the US government's $3 billion Human Genome Project (HGP) was moving at a snail's pace, he took the gamble that “he could enter the race late and beat it with a much faster method”, launching a private company, Celera Genomics, as his vehicle. A decade later, he made another significant breakthrough, creating the world's first synthetic bacterial cell.

“The idea of commercialising the genome was extremely unpopular in the scientific community,” says The Telegraph. Nicknamed “Darth Venter”, he was demonised by critics. But Venter relished the controversy – “flashing his Learjet, yacht and Rolex, and his ability to raise $1 billion on the New York stock market in a single day” when he floated Celera in February 2000 at the height of the biotechnology boom. Celera pioneered a technique called “shotgun sequencing”, says Chemistry World: the idea was to randomly cut up the genome into fragments, sequence them, and then use a supercomputer to work out how the pieces related to one another. The method was faster and cheaper than the HGP's approach of slogging systematically through the genome. Indeed, the privately backed company took two years to achieve what the HGP had been trying to do for 14 years, says The Times. “The scramble ended in a photo finish” with the two sides jointly announcing their success at a press conference presided over by Bill Clinton in 2000. Crucially, by publishing the full sequence, the HGP undermined Venter's plans to register patent rights.

J. Craig Venter was a brash entrepreneur

Often described as “the alpha male of US science”, J. Craig Venter was an extremely competitive character, noted the Financial Times in 2007. Born in 1946, into a military family and brought up in Millbrae, California, he was an unruly youth who dropped out of high school to become a surfer before being called up to serve in Vietnam in 1967. Venter returned to the US with a new interest in medical research, earning a degree in biochemistry from the University of California, followed by a doctorate, says The Telegraph. He began working on gene sequencing in the 1980s at the US National Institutes of Health, later co-founding the nonprofit Institute for Genomic Research, with his then-wife, genomicist Claire Fraser.

J. Craig Venter was not an easy man to work with, says Chemistry World. Just over a year after his human genome coup, he was fired by Celera because of internal conflicts, but continued to drive genome sequencing forward via a new non-profit, the J. Craig Venter Institute. Having banked a considerable sum from listing Celera, he continued creating firms – and landing in trouble over them, says The Guardian. He co-founded Synthetic Genomics to advance the technology in vaccines, biofuels and medicines. In 2013 he launched Human Longevity Inc, only later to be sued by the firm, says The Times, “over allegations that he pilfered its trade secrets, poached its staff and sought to lure away its investors”. He was diagnosed with prostate cancer in 2016.

By the time of his death last month aged 79, Venter was worth tens of millions of dollars. But he missed out on the bonanza that synthetic biology now promises in “myriad applications”, says The Telegraph. Maverick to the end, he was regarded by detractors as an “opportunistic maniac” – and by admirers as a plucky “genius” who challenged the research establishment and “should have been given a Nobel Prize”.

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“Nothing is as complex as cancer, which is aptly called the emperor of all maladies,” says Servaas Michielssens, head of healthcare at asset manager Candriam. The emperor has been expanding his dominion. The number of cancer cases has been on the rise recently. That's partly due to populations ageing, but is also a result of the fact that they're getting fatter. Worryingly, the average age of onset of some conditions, such as colorectal cancer, is getting younger and younger as a result, says healthcare investor Paul Major.

The earlier you catch the cancer, the better chance of survival and the less money that healthcare systems have to spend treating patients, says Moritz Dullinger of Pictet Asset Management. There is “a tremendous amount of excitement” among researchers about work to find new ways to detect cancer early. Cancer diagnostics is expected to improve in the years ahead, as Joseph Cordi, co-manager of the Impax Asset Management US Large Cap Strategy fund, points out.

Cancer diagnostics – “liquid biopsies” showing big promise

Most systems, especially in the US, are “set up for sickcare, not healthcare”, says Maryann Selfe, a global wealth and investment strategist and author of The Billion Dollar Blindspot: Why Women's Health Is the Investment Opportunity of Our Time. Diagnosis is therefore largely “reactive”, with the responsibility placed on patients to go and see their doctors when they have symptoms. But for many cancers, that may be too late – by the time symptoms have emerged, the cancer may have become untreatable.

Even the few proactive cancer screening programmes that currently exist have their limitations. Mammography, for example, has been proven to help spot breast cancer early, but it “doesn't necessarily spot all types of breast cancer equally well”, says Simon Vincent, chief scientific officer at Breast Cancer Now. That's especially true of lobular breast cancer, which accounts for around 15% of all breast cancers. Not everybody takes up the offer of going for mammograms – all the four parts of the UK are not currently meeting their targets – and the offer is limited to specific age ranges. Overworked GPs may be reluctant to order tests for those outside these groups.

Amanda Rice, founder and CEO of Chick Mission, who has survived cancer three times, has experienced such failings first hand. She went to the GP in her 30s concerned about her symptoms, but was dismissed by her doctor, who thought that at her age it was unlikely to be anything serious. She had to do a lot of pushing to get the tests she needed before she was formally diagnosed with breast cancer. Had she not been so persistent, she would probably have accepted her doctor's reassurance or skipped the additional tests because they were “so painful, invasive and costly”.

The limitations of traditional cancer diagnostic methods have led to a search for blood tests that can diagnose cancer. These “liquid biopsies” test for “circulating tumour DNA” (ctDNA), which are small fragments of DNA released into the bloodstream by cancer cells. The aim is to come up with tests sensitive enough to pick up even tiny amounts of such DNA and hence catch the disease at an early stage, says Major. Some tests screen for mutations associated with individual cancers, but the ultimate goal is to produce a “multi-cancer early detection test” (MCED) that can identify a range of cancers and which you can take every few years.

A big challenge is that any test needs not only to be sensitive enough to detect the presence of disease at an early stage, but also have the specificity to avoid large numbers of false-positives, which would clog up healthcare systems and cause patients unnecessary stress. It must also be affordable. Meeting all three criteria is tough. Diagnostic firm Grail's Galleri MCED recently failed in a large trial, which found that its test “wasn't quite effective enough and produced too many false-positives for the NHS to use”, says Major.

Despite these setbacks, there is optimism that liquid biopsies will become “incredibly valuable”, especially for cancers where there is no specific screening programme, or for ones that currently go undetected until they've started to spread around the body, says Vincent. The market for liquid biopsies was already worth between $5 billion and $10 billion in 2025 and is estimated to reach $10 billion-$20 billion by the end of the decade, reckons Erin Xie, managing director and portfolio manager for health sciences at BlackRock.

Blood tests that screen for a wider range of potential signs of cancer are likely to be more successful in diagnosing cancer than those which use ctDNA alone, says Major. One company working on this is DXcover, which was spun out of the University of Strathclyde, Glasgow. Its MCED screens for proteins, lipids and carbohydrates as well as DNA to detect whether cancer is present, its CEO Matthew Baker explains. Trials have suggested that such tests can detect malignant brain cancer with a sensitivity of 86%, even though only a small number of brain cancers shed ctDNA. They might also detect a broader range of cancers at the very earliest stages.

Some cancer diagnostic tests might not even need a blood sample. A test developed by Serox, for example, uses surface-enhanced raman spectroscopy to identify cancer in urine in under three minutes. That makes it much easier to screen, as getting samples will not require trained phlebotomists, as Serox's founder and CEO Cici Muldoon explains. Serox is working on a lateral-flow style stick that works in a similar way to a pregnancy test. Serox is still in the early stages of raising money and is working with John Radcliffe Hospital in the UK and Massachusetts General Hospital in the US.

From diagnosis to treatment

Detecting disease is “only part of the equation”, says Michielssens. Cancer diagnostic tests also have a role to play in directing treatment (companion diagnostics) and in detecting minimal residual disease (MRD) – the small number of cancer cells that may remain in the body following otherwise successful treatment. They can also help determine whether a treatment is working. For example, ctDNA is released when tumour cells die, so a sudden increase in levels of ctDNA immediately after treatment can indicate that the treatment is working.

Similarly, other more complex genetic tests, including those provided by companies such as PacBio, “can give an indication as to whether a patient's cancer is becoming resistant to a particular treatment”, says vice-president Neil Ward.

Another company operating in the area where cancer diagnostics and personalised medicine overlap is CanCertain, which has developed a test that enables clinicians to “pre-screen cancer treatments on the patient's own cells”, says its business development director Dharmesh Mehta. Circulating tumour cells are extracted from patients' blood and then exposed to potential treatments so that the oncologist knows in advance what is likely to work and what is likely to fail. CanCertain is working with The Christie NHS Foundation Trust in Manchester and the University of Leeds to test the technology.

Even if initial therapies treat the cancer successfully, patients typically have to undergo adjuvant treatments, such as chemotherapy and radiotherapy, to eliminate any lingering cancer cells. Patients are then monitored to see if there is any evidence that the cancer has come back, says Gareth Powell, head of healthcare at Polar Capital. Liquid biopsies may in many cases reduce the need for adjuvant therapy and enable quicker follow-up treatment if the cancer returns, says Powell. The fact that there are nearly 20 million cancer survivors in the US alone suggests that there is a great demand for accurate MRD tests, says Michielssens.

A revolution in scanning technology

Alongside the development of more efficient blood tests, imaging and radiology is also starting to undergo its own revolution. While the average MRI machine “isn't fundamentally different from the first machines produced by Peter Mansfield and his team nearly 50 years ago, they are lighter, can fit in smaller locations and don't need as much power”, says Lizzie Tuckey, managing director at imaging platform Scan.com. Advances in AI are also transforming the software that is used in the machines.

AI has made the process of taking a large number of images of the body and then combining them much more efficient, allowing radiologists to get away with fewer images without reducing the quality of the final image. This in turns means that each patient now needs to spend less time inside the scanner, which means that more patients can be scanned, bringing down costs. In the case of CT scans, the fact that the patient is in the scanner for less time means that their exposure to radiation is reduced. AI is also very good at spotting small changes over time.

One firm using AI to cut both the cost and duration of MRI scans is Ezra, part of Function Health. Ezra already offers comprehensive scans for most organs and tissues, which take only 22 minutes, “typically the time most other providers would take to scan a single major organ”, says founder and CEO Emi Gal. The firm hopes that by next year it will have reduced this time to 15 minutes and has set a medium-term target of five minutes for repeat visits.

Such a premium product comes at a price – Ezra's multi-organ scan currently costs £1,299 in the UK. But prices are falling and Gal indicates that he hopes to cut the US price to around $500 soon. Once this happens, having an annual MRI scan to track all sorts of changes in the body “could become something that everyone does, in the same way that we give smokers low-dose CT to screen for lung cancer, or give women who are over a specific age regular mammograms”.

Going forward, the technology is only likely to continue to make scans quicker and cheaper as we already see in the “explosion” in the number of patents filed (traditionally a good leading indicator of future development) and the number of devices approved. At the time of writing, the Food and Drug administration, the US regulator, has approved 1,451 AI-enabled medical devices, “of which around 80% are in the field of radiology”, say Robert Wiseman, Rob Sackin and Alexander Frank of Reddie & Grose patent and trade mark attorneys.

Improving the patient's journey

As well as improving medical imaging, Wiseman, Sacklin and Frank think that AI could help speed up blockages in “the patient's journey”, by making sure that patients get referred to the right specialists, that the proper tests are carried out, and that these tests are then analysed appropriately. The legal uncertainty surrounding software patents makes this sort of development less publicly visible, but they reckon that beneath the surface there is plenty of work going on in this area.

One company at the forefront of using AI to bring together the vast amount of medical information available to doctors is xCures, a service platform that “basically aggregates, organises and structures medical records”, says CEO Mika Newton. Instead of doctors “having to read thousands of pages of medical records and then manually input the information into their own system, the information can automatically be extracted, enabling them to see all the important information quickly”. The technology can, for example, convert unstructured records, such as scans and medical notes, into a more structured form.

In the longer run, speeding up the flow of information through the medical system could be helpful in cancer diagnostics, enabling researchers to find new connections between various symptoms and cancers that human researchers might be unable to spot on their own.

Only 5% of cancer patients are currently involved in some sort of clinical trial, so opening up medical records in this way (with appropriate consent) could speed up developments in both the diagnosis and treatment of cancer.

AI can also help hospitals and healthcare systems decide how to choose between the various cancer tests that are suddenly appearing on the market – many of which are built by small companies with very specific applications, say Flann Horgan and Mitchell Goldberg of NTT Data. NTT Data has recently developed a platform, in conjunction with the Royal Marsden Hospital and the Institute of Cancer Research, that helps researchers “evaluate lots of different algorithms without having to fly all over the world, and then integrate them into their workflow”.

The best cancer diagnostic investments to buy now

Until recently, one of the leading players in the liquid biopsy market was Exact Sciences. It had several of its tests approved and had developed Cancerguard, a separate blood-based multi-cancer early detection (MCED) test. This year, the firm was acquired by Abbott Laboratories (NYSE: ABT). While liquid biopsy is only part of Abbott, which also sells medicines and cardiovascular devices, the deal gives Abbott a strong foothold in the area. Indeed, Grégoire Biollaz of Pictet Asset Management points out that Exact Sciences with its high-teens revenue growth adds a faster-growing segment to Abbot's Diagnostics division. Abbott trades at 17 times expected 2027 earnings and pays a yield of 2.5%.

A purer play on liquid biopsies is Guardant Health (Nasdaq: GH). It has already had a blood test for colorectal cancer approved – a more convenient alternative to the current stool-based test. The colorectal test is, however, really “just a proof of concept” for Guardant's more ambitious medium-term plans for further MCED tests, says healthcare investor Paul Major. Guardant is also developing tests that will help guide treatment as well as one to detect residual levels of cancer. It isn't yet making any profit, but its revenues more than tripled between 2020 and 2025.

Major is also a big fan of Adaptive Biotechnologies (Nasdaq: ADPT). It has already developed clonoseq, a test approved by the US regulator to detect the presence of residual tumour cells in lymphoid cancers. It can be used to inform decisions around treatment, sparing many patients unnecessary chemotherapy, and is also used by many drug companies in clinical trials to evaluate the effectiveness of drugs. Like many biotechnology companies, it is currently losing money, but sales are rocketing. Major believes that it is a prime takeover target for a large company looking to acquire its core technology.

The leading imaging company in the US is RadNet (Nasdaq: RDNT). As Polar Capital's Gareth Powell explains, RadNet has found a way to undercut hospitals, which means that many US insurance companies will try to get patients to use the company's services. It has been investing large sums in developing AI that can read scans, which has been validated in clinical studies, and the firm is in the process of rolling it out. The stock trades at a pricey 57 times estimated 2027 earnings, but revenues have essentially doubled between 2020 and 2025. It is expected to keep on growing strongly.

Siemens Healthineers (Frankfurt: SHL) is “in a very good position” when it comes to producing MRI and CT scanners, say Dullinger and Biollaz. Siemens also makes a wide range of medical devices and its laboratory division will benefit from any rise in the volume of blood tests being carried out. Sales have grown by two-thirds between 2020 and 2025 and the stock trades at only 15 times 2027 earnings. The yield is 2.9%.

Finally, Dan Buckley of Daytrading.com likes Illumina (Nasdaq: ILMN). It provides a lot of the infrastructure necessary in the use of genomics in diagnosing cancer and the use of diagnostics in informing treatment. The stock trades at 23 times 2027 earnings.

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Andrew Van Sickle: Healthcare is a broad term. Could you start by outlining what exactly is in the MSCI World Healthcare index, the benchmark for your fund?

Sven Borho is the co-founder and managing partner of OrbiMed, and portfolio manager of the Worldwide Healthcare Trust.

Sven Borho: It captures every single part of the industry. You have the big pharmaceutical groups; more innovative smaller-cap pharma and biotechnology firms; generic drugmakers; medical-device makers; and service providers. These are the big health-management organisations (HMOs) in the US (the health insurers) and private hospitals. The index is diversified across the US, Europe and Japan, although it doesn't capture healthcare in emerging markets.

Andrew Van Sickle: It's often said that “health is wealth”, and investors have traditionally been able to count on both structural growth and income in this sector. But the index has had a difficult decade. What has gone wrong?

Sven Borho: One problem is that the price of pharmaceuticals became a political football, creating years of uncertainty. Drug prices were a key theme in the presidential election between Hillary Clinton and Donald Trump. We got a form of drug-price controls under Joe Biden, and the regime was tightened when Donald Trump returned to power.

The other key headwind was the rise in interest rates over the past few years. That hampers growth stocks, such as smaller biotechs, as dearer money reduces the present value of future profits. The S&P Biotechnology Select Industry index went nowhere between mid-2015 and mid-2025. The S&P Health Care Select Sector index gained 60% over that period, compared with 300% for the S&P 500 or 400% for the Nasdaq.

Andrew Van Sickle: Is the drug-price threat receding now?

Sven Borho: Yes, the sector knows where it stands now, so the uncertainty discount has started to recede. Trump was irritated that US drug prices were higher than elsewhere. He has now cut a deal with the sector, whereby the government will pay lower prices for future drugs and for current ones being delivered to Medicaid and Medicare programmes. The deal is being done with most-favoured nation (MFN) pricing, whereby prices will match those offered to a basket of other developed countries.

Meanwhile, mergers and acquisitions (M&A) are on the rise as big companies try to compensate for major drugs going off patent. When a drug reaches that stage, prices collapse by 98% as generic competition takes its toll. Merck's Keytruda, for instance, a cancer drug with annual sales of $30 billion, goes off patent in 2028. Each of the Big Pharma companies will see a large product go off patent between 2025 and 2028. This coincides with the Trump government's pricing deal, so the sector is facing a double whammy.

History shows it is impossible to rectify a pipeline gap like this through internal research and development (R&D) alone. So the big names will go shopping, acquiring the right to develop a drug from smaller firms with promising products, or buying them outright.

Big Pharma wants products with annual sales potential of $3 billion and above. If you're a speciality pharma firm or a biotech with a drug boasting that kind of potential, you're on someone's shopping list. That is why 30% of our portfolio is in biotech companies, with a heavy focus on those most likely to be bought out. Overall, 12% of the portfolio comprises a “basket” of the stocks most likely to be bought out.

Andrew Van Sickle: Returning briefly to drug development, what proportion of drugs successfully move from discovery to approval?

Sven Borho: The percentage hasn't changed much over the years: one in ten make it from pre-clinical trials through to regulatory approval. This is the biggest bottleneck in the sector. One can't speed up the process, which takes ten, even 15 years. Patients need to be on a drug for a certain amount of time, for instance.

And costs have risen sharply. Traditionally, it would cost around $1 billion to bring a drug to market. These days, it's north of $2 billion. Getting one person enrolled in a clinical trial can cost $300,000. Compliance and regulatory requirements, along with the general inflation trend, have driven up expenses.

Andrew Van Sickle: What effect could AI have on the sector?

Sven Borho: It is likely to help us come up with more compounds to test, but that will just add more potential treatments to the bottleneck building up before the clinical testing process. It is in the areas of diagnosis and treatment of disease that AI will be transformative. Given how it can amalgamate data – including your blood tests and MRI scans, say – and compare new information to it, it should become far better than a GP at diagnosing and treating disease. It may not be too long before people don't see a GP at all.

This should massively reduce costs – as should robots performing surgery. I think manual surgery will be a thing of the past in the not-too-distant future. Already today, you could have a physician operating in London on a patient in New York with a medical robot. One of our favourite companies, therefore, is Intuitive Surgical, which manufactures robotic surgeons.

AI should allow us to get a grip on healthcare expenditure; 12% of total healthcare spending (which in the US comprises a fifth of GDP) is on drugs, a proportion that hasn't changed over the years. Hospitals, surgeries, GPs and so on account for the rest. There should now be deflation in that 88%, counteracting the expense of the ageing of the population.

Andrew Van Sickle: What impact will weight-loss drugs have?

Sven Borho: People tend to think of the cosmetic element, and of course that spurred early adoption, but the big story is the impact on chronic diseases linked to excess weight, notably the big ones: cardiovascular disease, cancer and diabetes. Data suggests these treatments cut your chance of contracting Type-2 diabetes by 80%.

There are spillover effects in other areas – sleep apnea, for instance, or hip and knee surgeries, the odds of which dwindle if you are walking around with 20% less body weight. The next stage of the boom will be increasingly common oral treatments rather than injectables, with Eli Lilly the leader in the subsector. Weight-loss is a thriving division for other big names, but for me the most interesting way to play weight-loss drugs is Structure Therapeutics.

It focuses on oral treatments for obesity and related diseases. It has an oral obesity treatment about to enter phase III (the final stage of clinical trials) and it is second only to Eli Lilly's. It should hit the market a year after the pharma giant's treatment (which is supposed to arrive this month). The group will probably be acquired. Weight-loss treatments will be the largest drug category for years to come.

Andrew Van Sickle: Tell us about your fund and its top-three holdings?

Sven Borho: We launched it in 1995; I have been in the sector for 35 years. The trusts's net asset value (NAV) enjoyed a compound annual return of 13.5% from the fund's inception until the late spring of 2025, eclipsing the benchmark index's 11.3%. The secret to our success is an enduring focus on innovation – the highest-growth companies. We've always been agnostic about where those companies are, so we are widely geographically diversified. Our overweight position in biotechnology compared with the benchmark again highlights the concentration on innovation.

Eli Lilly, AstraZeneca and Boston Scientific are the top-three beyond our M&A basket. The last is one of the fastest-growing and best-managed medical-devices firms, a long-term compounder with 15% yearly growth in earnings per share. Eli Lilly is a bet on the weight-loss theme. AstraZeneca is the second-fastest growing pharma group in the world, mostly driven by oncology. We like to identify the fast growers, even in the large-cap segment. Intuitive Surgical and Boston Scientific are the fastest-growing medical-technology firms.

It's worth highlighting our holding in China's Jiangsu Hengrui Pharmaceuticals too. It's worth 5% of the portfolio and provides access to the extraordinary innovation in the Chinese pharma sector. Jiangsu has an R&D pipeline of approximately 150 projects, the second-largest in the world after Pfizer's 156. They have a competitive compound in practically every area.

What's more, going from the pre-clinical stage of the pipeline to phase one or two data (the stage at which you receive the first efficacy data in human clinical trials) takes them a third as long as Western companies and costs them 90% less. The scientists doing the work are just as qualified as in the West; many will have done their PhD or worked in a biotech here. Costs of R&D are much lower in China, as is the regulatory burden, especially when it comes to early stage trials.

Once they get to phase three of clinical trials, however, it gets trickier. A Chinese firm can't do those trials in Western markets. It has to licence the drug out to Western counterparts. The US regulator, the Food and Drug Administration, doesn't trust Chinese data, while there are also political sensitivities surrounding the process. As a result, Western firms' heads of R&D go to China to or three times a year to discuss such deals, which can be massive.

That is a transformative theme. At the epicentre is Jiangsu Hengrui. It is the Chinese biopharmaceutical equivalent of Nvidia. It is the biggest innovator. I mentioned that Jiangsu's number of R&D projects in clinical trials is second to Pfizer's, but if you include pre-clinical projects, it has the world's largest pipeline. I think it has another 500 projects. And the quality of its compounds is absolutely first-class.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

It is nearly eight years since healthcare and biotech investor Sam Isaly abruptly stepped down from OrbiMed, the managers of the Worldwide Healthcare Trust (LSE: WWH). In the 22 years in which he was lead manager, WWH achieved an annualised return of 16.8%, the highest in the investment trust sector.

Since WWH continued to perform well for the next four years, it didn’t really matter. However, there followed four years of dismal performance in which the share price fell 30% and underperformed the MSCI World Health Care index before a recovery in the last six months.

Meanwhile, Isaly began building a new funds business. Exome Asset Management now runs a little over $200million, with nearly half in its Worldwide Healthcare Partners (WHP) strategy, but has already built a formidable performance record. In the year to the end of November, the fund returned 70%, after achieving 88% in the previous six (despite two down years). He sees plenty of opportunities in the sector.

Focus on China’s emerging biotech industry

“Pharma is facing the largest patent cliff in history, with $300billion of sales at risk – 20% of the total market – between 2025 and 2030,” says Isaly. “Pipeline replenishment is necessary.” Larger companies will either need to innovate or acquire new products through acquisition. Hence, the WHP portfolio is heavily weighted to biotech.

To help innovation, the US Food and Drug Administration (FDA) has cut the review time for “breakthrough therapy designations” from 12 to two months. Nine companies have been granted this designation for pipeline drugs. This could allow drugs for ultra-rare diseases to reach the market without full clinical trials.

Isaly has also focused on China’s emerging biotech industry. China has passed the US in the number of clinical trials registered, with 1,903 in 2024 versus 1,499 in the US and 899 in the EU. Moreover, Chinese biopharma companies have proved willing to license out products, accounting for 60% of global licensing deals in the first quarter.

Hence WHP has a relatively high exposure in China. This includes Hong Kong-based Duality Biotherapeutics, which is developing “next-generation” antibody-drug conjugate (ADC) therapy to treat cancer and autoimmune disease. ADC is a therapy whereby a monoclonal antibody, able to evade the body’s immune system, is chemically linked to a drug. It binds to specific proteins found on cancer and other malignant cells, enabling the drug to enter the cell and kill it without harming other cells. Isaly calls Duality “high risk with no drugs yet on the market, but the best in its class and with a promising candidate for a particular form of lung cancer”.

California-based Guardant Health, a gene-sequencing-based diagnostics firm comparable to Illumina, is medium risk, he says. Its blood tests can detect signs of remaining cancer after treatment or identify it at an early stage. Isaly expects profitability in 2027.

Korean listed Celltrion, one of the world’s three major biosimilar companies, is least risky. Patent expirations open up the market for biosimilars – drugs which are very similar to existing patented ones. Celltrion “should become dramatically profitable in 2026”.

Hedge-fund strategy

Maybe Isaly will one day return as an investment trust manager. For now, he runs WHP as a hedge fund, with both long (159% of net assets) and short (71%) positions across 40-55 holdings. Isaly is supported by five highly qualified analysts, who also manage three smaller funds, including an emerging markets healthcare fund.

For eligible investors, WHP is open for investment monthly, with quarterly redemptions subject to 65 days’ notice. The management fee of 0.6% is low, but there is a generous performance fee. This may not be encouraging, but the best funds are often those that are hard to access.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Vaccines prevent the spread of disease and protect people from serious illnesses. The World Health Organisation (WHO) has designated the last week of April as “world immunisation week”, during which it promotes the power of vaccines. Since 1974, vaccines have saved 154 million lives worldwide and reduced infant deaths by 40%. The value of the vaccine market has increased by an annual 15% over the last five years. Vaccines work by stimulating the body’s immune system to produce antibodies that fight off viruses and bacteria. Since vaccines were introduced, diseases such as smallpox, polio and tetanus, which used to kill or maim millions of people, have become rare or extinct.

Edward Jenner, an English doctor, created the first successful vaccine. He discovered that milkmaids infected with cowpox were immune to smallpox. He then inoculated an eight-year-old boy, James Phipps, with matter from the cowpox sore on a milkmaid’s hand. James felt unwell for a few days, but quickly recovered. Then, two months later, Jenner inoculated James with matter from a human smallpox sore, but James remained in perfect health and thus became the first person ever to be vaccinated against smallpox.

British children now have a whole series of NHS vaccinations starting at eight weeks old – protection against diphtheria, hepatitis B, polio, tetanus, and whooping cough – continuing through early childhood and their teenage years, when they receive treatments against meningitis, HPV and sepsis. Over-65s are offered the annual “flu jab” as well as pneumococcal, shingles and respiratory syncytial virus (RSV) vaccines. Vaccines are also needed for pandemics, as Covid reminded us.

The rise of cancer vaccines

In addition to the traditional vaccines mentioned above, there is a promising new class of therapeutic vaccines that can treat diseases such as cancer. Cancer vaccines are different from the usual vaccines that teach the immune system to recognise a pathogen ahead of an infection. Instead, a cancer vaccine uses proteins produced by cancer cells – antigens – to provoke a strong response to existing tumours. In other words, they work by stimulating the body’s immune system to recognise and attack cancer cells.

There are three key mechanisms for doing this. The first is to deliver tumour antigens to dendritic immune-system cells (specialised cells with a tree-like shape). These present them to other cells in the immune system, which respond to the cancer. The second is to activate a particular type of immune-system T-cell (white blood cells crucial to fending off disease), which can attack tumour cells directly. The third is to target specific proteins absent in normal cells, but present in cancer cells. Many approaches are highly personalised and these include making use of mRNA technology, which primes the immune system to fight cancer cells. For some types of cancer, a less personalised approach is possible using antigens shared by many people.

Several clinical trials are in progress using cancer vaccines. For example, a phase-I trial (the first of three phases of clinical trials) of an mRNA vaccine produced by BioNTech started last year at University College Hospital in London for non-small-cell lung cancer. And a phase-II trial at Memorial Sloan Kettering Cancer Centre is in progress using a personalised mRNA cancer vaccine from BioNTech and Roche for pancreatic cancer, one of the most deadly of all cancers.

Research is also underway to identify new cancer vaccines with GSK, for example, which is investing £50 million into a three-year partnership with Oxford University to develop new approaches to cancer vaccines by delving into the pre-cancer biology. Several biotech and pharmaceutical companies now have cancer vaccines in their pipelines.

A few early cancer vaccines are already on the market. An example is BCG, made by Merck and used to treat early stage bladder cancer. And Adstiladrin gene therapy from Ferring Pharmaceuticals is used to treat bladder cancers that have progressed despite treatment with BCG. Provenge from Dendreon Pharmaceuticals, a vaccine made from a patient’s own dendritic cells, treats metastatic prostate cancer.

A burgeoning vaccine subsector

Fortune Business Insights predicts that global vaccine sales will rise from $85 billion in 2024 to $179 billion in 2032. The main drivers of growth are the increasing incidence of infectious diseases, higher funding for research and development (R&D) in the vaccine subsector and the emergence of next-generation vaccine technologies, such as the mRNA approach used for Covid vaccines. For example, the US Department of Health aims to accelerate the development of next-generation vaccines through public-private partnerships with an initial investment of $5 billion.

The global vaccine market was dominated by Covid vaccines in 2021, when they comprised 70% of the market by value, but this figure dropped to 28% by 2023 and 15% in 2024. Aside from Covid vaccines, the three largest ones by value in 2023 were those for seasonal flu, PCV (against pneumonia, meningitis and ear infections) and HPV (which tackles sexually transmitted HPV infection, genital warts and certain cancers such as cervical cancer).

A WHO report highlights global patented vaccine-market shares by company for 2022, excluding Covid vaccine sales. The market shares of the top six vaccine companies are Merck (with 24%), GSK (21%), Pfizer and Sanofi both (15%), CSL of Australia (3%) and SII, the Serum Institute of India (2%). There are 45 other companies, most with market shares well below 1%. The subsector is very concentrated: in 2023 (and including Covid), just five companies accounted for 79% of the global market by value, with seven firms (the six above, plus Moderna) making up 84%. The US is by far the largest market for vaccines by value.

In addition to the large pharmaceutical companies mentioned above there are others with smaller vaccine interests as a percentage of total sales, such as Novartis and AstraZeneca. Then there are several much smaller vaccine companies. These include Novavax, Sanaria, Inovio Pharmaceuticals and Bavarian Nordic, together with Moderna and BioNTech, which pioneered mRNA Covid vaccines, but are now using mRNA technology to develop cancer vaccines and treatments.

The top five vaccine companies

Merck, GSK, Pfizer and Sanofi have the largest vaccine sales, while CSL’s are much smaller. Last year’s sales provide the best guide to companies’ relative standing in the vaccine market and to their vaccine sales as a percentage of total sales. Merck had 2024 vaccine sales of $13.5 billion, 21% of total sales. Pfizer produced vaccine sales of $13.2bn (excluding Covid ones), or 20.7% of total sales (29.1% if Covid vaccines are included).

GSK’s vaccine sales were $10.3 billion, or 25.9% of its total, and Sanofi’s vaccine sales reached $8.3 billion or 20.2% of its total. CSL has vaccine sales of only $1.4 billion (20% of total sales). In 2023, the four vaccines with the largest global sales by value excluding Covid were HPV, PCV, seasonal flu and shingles, in that order. GSK makes all four types, as does Merck, although its shingles vaccine (a joint development with Sanofi) has been superseded by GSK’s Shingrix. Pfizer makes PCV and Sanofi just makes the flu treatment.

Promising pipelines of pharmaceutical companies

The number and quality of vaccines under development in pharmaceutical companies’ pipelines helps us understand which players are likely to gain market share in future years. We start with the four largest vaccine companies. GSK was first to market with a RSV vaccine in 2023. It has just presented a new one to regulators, while it also has two others in phase III (meningitis and varicella) and ten in phase II. Merck has HPV and pneumococcal vaccines under review for approval, a cancer vaccine in phase III and two in phase II (dengue fever and cancer). Pfizer has three vaccines in phase III (Covid, Streptococcus, Lyme disease) and four in phase II. Sanofi has four vaccines in phase III (yellow fever, pneumococcal, rabies and flu for over-50s) and five in phase II.

Moving on to some of the smaller companies mentioned earlier, some of them have surprisingly strong pipelines. Clinical trials have established that Sanaria (a non-profit group) is developing a gene-edited malaria vaccine giving 90% protection. Moderna and BioNtech are using their mRNA platforms to develop new vaccines. Moderna has its own Covid and RSV vaccines on the market, but it has pruned its pipeline, with two projects terminated in November 2025.

BioNtech’s successful Covid vaccine was marketed by Pfizer and BioNtech is now using its mRNA technology to develop cancer immunotherapies as well as vaccines for infectious diseases. BioNtech is primarily focused on cancer, with eight cancer vaccines in over 20 phase-II and phase-III trials. BNT113, in phase-III trials for head and neck cancer, is the most advanced of the group. For infectious diseases it has four early phase trials (Mpox, TB, shingles and malaria).

The other smaller companies have modest pipelines. Novavax has a Covid vaccine on the market with Sanofi, a malaria with SII and four phase-II or -III trials (all Covid and flu). Inovio has Covid and HPV treatments in phase-III trials. Bavarian Nordic has six products on the market, but only one phase-II trial (equine encephalitis).

Where to look now in the vaccines market

Since vaccines only account for 20%-26% of the sales of the four largest companies, it is important for investors carefully to assess companies’ other products and the pipelines backing them up. The riskiest company is Merck, since its successful cancer drug Keytruda accounted for 46% of 2024 sales, but its primary patent expires in 2028. Furthermore, while Keytruda’s sales were up 18% over 2023, total sales excluding Keytruda were down 1% from 2023-2024.

Merck’s future will therefore depend on two potential growth drivers: acquisitions and the success of its 20 oncology drugs and vaccines in phase-III trials. These could yield several blockbuster products (products with annual sales over $1billion) over the next few years. The risk for investors lies in the possibility that these two routes may not prove to be as successful at driving growth as Merck hopes.

GSK’s productivity with respect to R&D has improved greatly over the last several years and it now benefits from a diverse pipeline covering four areas: oncology, HIV, infectious diseases and respiratory, immunology or inflammation problems. There are five drugs and two vaccines in registration with 15 drugs and seven vaccines in phase III. Bepirovirsen, a potential cure for hepatitis B, is completing phase III. GSK now projects that its revenue in 2031 will be £40billion, up from £31.4billion in 2024.

Pfizer’s large size (2024 revenue reached $63.6billion) gives it economies of scale and a powerful distribution network, which together constitute an enduring competitive advantage. The firm now focuses on four areas: oncology, inflammation or immunology, vaccines and internal medicine. However, it invests just 17% of revenue in R&D compared with Merck’s 27.9%. Eli Lilly has much smaller revenues of $45billion, but nevertheless invested more than Pfizer in R&D: 24.4% of revenue. Pfizer’s low R&D investment could account for the large number of product enhancements in its new drug pipeline – for example, two-thirds of its phase-III trials in oncology are product enhancements.

Sanofi’s 2024 revenue was €41.1billion ($48.1billion), up 6.5% from 2023, with R&D of 18% of sales. Sanofi focuses on immunology, rare diseases, oncology, neurology and vaccines with almost half the phase II and regulatory submissions highlights in immunology. Several programmes are carried out in collaboration with Regeneron Pharmaceuticals, which boasts Dupixent, an immunology drug with sales of €13.1billion in 2024, up 13.3% over 2023. Sanofi’s guidance for 2025 is for a mid-to-high single-digit sales increase.

Other large pharma firms with vaccine interests include AstraZeneca and Novartis. AstraZeneca’s 2024 revenue was $54.1billion, up 21% from 2023. It aims to deliver revenue of $80billion by 2030. It delivered the first Covid vaccine, has seasonal flu vaccines and vaccine manufacturing in Liverpool, the Netherlands, Belgium and Philadelphia. It also outsources manufacturing to firms in India (SII) and Germany. The company has scrapped its planned £450million expansion of its Liverpool vaccine-manufacturing plant because the Labour government reduced the investment incentive agreed with the previous government.

Novartis no longer focuses on developing vaccines itself, but instead supports production partnerships and manufacturing agreements with other companies. For example, it manufactured the mRNA Covid vaccine. SII, a private company, says it is the world’s largest vaccine manufacturer by number of doses. It primarily operates through partnerships with other pharma companies, such as with AstraZeneca over the latter’s Covid vaccine, and as a generic vaccine manufacturer. However, it has developed a small number of improved vaccines.

What to buy

Of the companies mentioned in the previous sections, seven in particular are worth examining as potential investments. These seven fall into two groups. The first – four lower-risk companies – consists of AstraZeneca (LSE: AZN), GSK (LSE: GSK), Pfizer (NYSE: PFE) and Sanofi (Paris: SAN). The second, a riskier collection, consists of Merck (NYSE: MRK), BioNtech (Nasdaq: BNTX) and Moderna (Nasdaq: MRNA). The latter two are loss-making.

AstraZeneca has a forward price/earnings (p/e) ratio of 18 and a forward dividend yield of 1.8%. The shares are up 88% in five years and the company intends to raise revenue by 48% between 2024 and 2030. GSK is on a forward p/e of 9.5 and a dividend yield of 3.5% and the share price has gained 35% over the last five years. It has a target of raising revenue 27% by 2030. Pfizer has a forward p/e of 8.4, a dividend yield of 6.9%, and the share price has dropped by 32% over the last five years (mainly because of falling profits from the Covid vaccine). Pfizer’s guidance for 2025 is for revenue in the range $61billion-$64billion – hardly impressive given that 2024 revenue was $63.6 billion. Sanofi has a forward p/e of 9.8, a dividend yield of 4.7% and the stock has gained only 6% over the last five years.

We have explained that the risk with Merck is of new oncology drugs failing to replace the massive revenues from its successful Keytruda cancer drug, whose patent expires in 2028. Merck’s forward p/e is 11.2 and the dividend yield 3.2%. The stock has gained 35% in five years. BioNTech has an interesting pipeline of potential cancer vaccines and continues to develop its Covid vaccine. It has a forward p/e of seven, no dividend and the share price increased by 16.8% over the last five years.

Investors looking for high-yielding dividend stocks may be tempted by Pfizer’s 6.9% forward yield at its recent price of $24.9, but those seeking growth with a reasonable dividend are more likely to go for AstraZeneca, with a yield of 1.8%. Astra is targeting a 48% revenue increase to 2030. Then there is GSK, with a yield of 3.5% and a cancer-vaccine partnership with Oxford University. Sanofi yields 4.7%.

BioNTech has a better pipeline than Moderna, with several conventional vaccines in development, together with its cancer vaccines and drugs that could become blockbusters. The firm could market them in partnership with selected big pharma companies with extensive distribution networks.

Merck, yielding 3.2%, has a large and interesting oncology pipeline and is less risky than BioNtech as it has a diversified set of products in vaccines (where it leads the field by revenue), animal health and drugs for diseases other than cancer. But the patent for its blockbuster cancer drug Keytruda expires in 2028. Your selection of investments from these six companies will depend on your appetite for risk, but could reasonably include two or three lower-risk companies and one of the two riskier ones.

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Healthcare and biotech stocks have had a rough run since the giddy heights of the Covid pandemic. But now could be the perfect time to consider investing in these beaten-down but high-growth sectors.

If you are considering where to invest for 2026, one dilemma might be where to look for growth.

Artificial intelligence (AI) stocks have led the field on that front for the last three years. But concerns over an AI bubble are giving some investors pause for thought, especially given how stretched some valuations have become.

Before AI stole the show, biotech stocks were all the rage among growth investors. Cast your mind back to the Covid era, and biotech companies like Moderna (NASDAQ:MRNA) were all the rage.

“Anyone that was in healthcare, whether they were producing PPE equipment or working on vaccines or organising testing, there was an explosion of need,” says Ben Preston, portfolio manager, Orbis Global Equity Strategy at Orbis Investments.

That led to an explosion of investment into the field. But once the pandemic ebbed, that meant too much capital in the system.

“That naturally creates the opposite side of the cycle where profits fall because there’s just not enough demand,” said Preston. “It puts investors off.”

But with valuations at historic lows, could now be the perfect time to invest in healthcare and biotech?

Why now might be the time to buy healthcare and biotech stocks

The post-pandemic drop-off in demand for healthcare and biotech has been compounded, in Preston’s view, by the rise of AI as the dominant growth sector.

An investor whose portfolio contains some value- or income-focused investments and some growth-oriented investments, who wanted to buy into the AI boom in the post-pandemic years, would likely have sold down their growth stocks – including biotech – in order to do so.

That has further depressed valuations.

Research in the US has also been hit by Trump’s withdrawal of funding from some universities, like Harvard, which have historically been at the forefront of research in healthcare and biotech.

“If you’re not putting enough money in to develop the new drugs that you need, that’s going to end up not being great for society,” says Preston. “You’re going to need to swing that pendulum back so that the research is being done.

While the US tends to dominate the discussion over healthcare and biotech, given it historically controls a huge amount of the market, the emergence of China is also a potential tailwind for the sector.

“We think now is an extremely exciting time to be in biotech, which is in the early innings of a potential multi-year recovery,” said Ollie Kenyon, senior director of RTW Investments.

“China is emerging as a major force in the sector. It has surpassed the US in total clinical trials and now accounts for 30% of global trial starts, compared to 35% for the US.”

AI tailwinds for biotech and healthcare

While healthcare and biotech stocks could function as an alternative source of growth for investors wary about valuations in the AI sector, they also stand to benefit from the technology.

“We see the healthcare sector as a prime beneficiary of AI-enabled technologies when it comes to furthering innovation,” said Gareth Powell, fund manager of the Polar Capital Global Healthcare Trust (LON:PCGH).

In particular, AI has the potential to improve the success rate of clinical trials, which is one of the biggest sources of costs and uncertainty for biotech companies.

“The historic returns on research and development have been really underwhelming across pharma,” said Preston. “It’s really expensive to do these tests and trials.”

AI offers the potential to filter down prospective treatments to a handful of likely candidates.

Google’s DeepMind, for example, released the third generation of its AlphaFold model in November 2024. This uses AI to predict the structure and behaviour of proteins based on their component amino acids, and is available to research scientists all over the world.

How to invest in biotech and healthcare

If you think that biotech and healthcare could be one of next year’s top sectors to invest in, one approach is to buy a fund or investment trust that invests in the space.

As of 11 December, the five largest healthcare and biotech-focused investment trusts by market cap are:

• Worldwide Healthcare Trust (LON:WWH)
• RTW Biotech Opportunities (LON:RTW)
• Syncona (LON:SYNC)
• Polar Capital Global Healthcare
• International Biotechnology (LON:IBT)

In terms of individual stocks, Preston picks out Danish biotech company Genmab (Copenhagen:GMAB) which produces ‘bispecific antibodies’ – molecules that are able to bind both to pathogens and to the antibodies the human body produces, enabling the latter to more effectively track down the former.

Its flagship drug, Darzalex, will see its patents expire from the end of this decade and early next; as such it is currently heavily discounted by the market. Genmab currently trades at approximately 12 times its projected earnings.

But based on the cash flows until then, as well as the pipeline of treatments that Genmab has in development, Preston believes the stock is attractively priced.

“Effectively, you’re paying very little for the future pipeline,” he said.

You can also explore these FTSE 100 pharmaceutical stocks for further inspiration.

It’s been a tough two decades for UK-listed firms. BP, Shell and HSBC have dropped out of the ranks of the world’s largest listed companies. Britain’s current largest firm, AstraZeneca, doesn’t even make the global top 40. At the same time, the reputation of British universities has gone in the opposite direction. “We now have more universities in the global top 10 than we had 20 years ago,” as Robin Bagchi, chairman of the London Technology Club, points out. UK universities “continue to punch well above their weight in terms of producing world-leading research”, which is an important economic asset, says James Witter, head of Sarasin Bread Street. More than 2,000 active start-ups have been spun out of UK universities. Little wonder that a sovereign-wealth investor has said that British academia is “our equivalent of Gulf oil”.

The cutting edge of the 'golden triangle' UK universities

Such economic excellence is built on a foundation of “incredible institutions that are focused on applying science and technology to solve fundamental problems”, says Ed Bussey, CEO of Oxford Science Enterprises. He puts Oxford University at the top of the list of such institutions, pointing to the fact that every year Oxford comes up as one of the leading research universities, with a history of more than 70 Nobel prizes in a wide range of disciplines. “When I go out to lunch, I’ll be standing in a queue and the person behind me will be a world leader in this, and then I’ll be walking back to the office and another will walk past me and they’re the Nobel winner in another area.”

Such a concentration of elite academics can help create an environment that ends up being worth more than the sum of the individual academics involved. Having a “cosmopolitan and multinational” atmosphere “attracts other great minds” – and a lot of investors willing to put money into early stage enterprises stemming from Oxford research. This in turn creates a “virtuous circle” where the quality of research attracts capital, which in turns encourages more talented academics to move to Oxford.

Andrew Williamson, managing partner of Cambridge Innovation Capital, emphasises Cambridge’s reputation and heritage as a major competitive advantage in attracting the best scientific talent. “We’ve existed for nearly 800 years, which means that we’ve been doing this for longer than almost anyone else in the entire world,” he says. It has leveraged its infrastructure and culture of “cutting-edge science” to create links between “the academic world, the start-up world and the biggest global technology companies”.

Oxford and Cambridge are not the only points of excellence in British academia. Commentators increasingly talk about the “golden triangle” of Oxford, Cambridge, and Imperial and UCL, rather than just “Oxbridge”. Indeed, as Bagchi notes, when it comes to science, technology, engineering and mathematics (STEM) subjects, “some recent rankings put Imperial College London near the very top of the global table, ahead of Oxford, Cambridge and Harvard”. University College London has also had a lot of success when it comes to creating interesting spin-outs – DeepMind is one example.

UK universities beyond the golden triangle

The golden triangle may be the most visible sign of British scientific excellence, but there is “some really great science coming out of the other UK universities” too, says Doug Quinn, partner at DSW Ventures. As Quinn’s colleague, Mira Androniciuc, notes, there are key specialised laboratories in other UK universities that outperform the general laboratories in the golden triangle institutions. “There are clearly opportunities out there.” But sadly, these are not yet producing a strong pipeline of new firms. There were around 600 early-stage investments in the golden triangle in 2024, but only 250 in other universities. The regions get around a fifth of the total investment that the golden triangle gets, says Quinn. But the gap is mainly due to inexperience and should narrow as the teams outside Oxbridge and London do more deals. Already, there have been more than 100 spin-outs from Manchester University, which now has a well-established technology transfer office.

Indeed, a “Northern arc” is starting to emerge as a serious challenge, led by the four universities of Liverpool, Leeds, Manchester and Sheffield, says Duncan Johnson, CEO of Northern Gritstone. Johnson notes that these four institutions alone employ around 16,500 researchers and have the UK’s largest research budget at around £770 million, which is bigger than those of Oxford, Cambridge and London. Northern Gritstone, which has first refusal on the commercial opportunities from research produced by the Northern arc, has been able to raise £362 million from individuals and institutions.

Henry Lane Fox, CEO of Founders Factory and chairman of the Creator Fund, singles out the University of Southampton as particularly strong when it comes to quantum and high-performance computing; the University of Glasgow as a leader in chemistry; and Edinburgh when it comes to robotics. Overall, around half of the deals that Lane Fox and his team evaluate, and around a third of those that they end up investing in, come from outside the golden triangle, "and both numbers are growing”.

Lane Fox is so enthusiastic about the quality of academic research in the UK as a whole that, in an attempt to grab the most interesting idea at an earlier stage than his competitors, his Creator Fund is now targeting doctoral students at universities across the UK. Similarly, Chris Wiles, Director of Private Equity and Venture Capital at Foresight Group, has set up a network of regional offices, including in Edinburgh, Leeds, Manchester, Cardiff and Exeter. Another source of world-leading research comes from the various research institutes that are funded by the UK government, but not affiliated with any specific university – the nuclear research facility at Culham Campus, for example, run by the UK Atomic Energy Authority (UKAEA), as well as the Harwell Science and Innovation Campus in Oxfordshire.

Rethinking commercialisation in UK universities

As well as producing some of the best research in the world, British universities are generally much better at turning their research into companies and products than they were even a few decades ago. “Every university around the world is on a journey when it comes to commercialisation,” says Williamson. Over the last 20 years, the UK government has made a particular effort to encourage universities to make commercialisation and “knowledge transfer” key to their mission. This began with universities setting up knowledge-transfer offices, principally focused on the licensing of technology. Over the past 10 to 20 years, that model has evolved and is now creating spin-out companies based on the technologies that the academics have created. Academics and students have become more entrepreneurial and “want to set up their own firms to commercialise their tech, rather than stay as academics and simply license it to third parties”.

Arnab Basu, founder and CEO of Kromek, which specialises in radiation-detection technology, agrees that things have changed for the better. When he set up Kromek two decades ago from research he pioneered at Durham University, “spin-outs were not the flavour of the day, and we had to do everything ourselves, from agreeing a licensing agreement with the university, to finding investors and then raising additional funds”. Today, the support system for entrepreneurs, in terms of both money and advice, is much more developed. Many smaller universities have also realised that forming partnerships with similar institutions is a good way to gain experience quickly.

There has been a change in attitude within academia over the past 15 years, says David Grimm, a partner at AlbionVC. Launching start-ups was previously seen as “a bit grubby and commercial”, but now founding a start-up has almost become a precondition for becoming a professor. The latest report into spin-outs, produced in conjunction with analytics firm Beauhurst, reveals that investment in UK spin-outs reached the record level of £3.35 billion in 2024. This compares with £1.16 billion in 2019, as Moray Wright of Parkwalk Advisors points out.

Lowering the “university tax”

But just because UK universities have upped their game doesn’t mean that there isn’t plenty of room for further improvement. MoneyWeek spoke to several venture capitalists, and nearly all of them pointed to universities’ desire to cling on to as much of the company spun out as possible as a big problem. It is, of course, reasonable for institutions to try to get the best return for what is, after all, their intellectual property, says James Paton-Philip, partner in the corporate team at law firm Hill Dickinson, but too often this “university tax” can make investing unattractive for investors and for those founding the company in the first place, especially given that the founders’ stake will end up being diluted further as they raise more cash.

Universities do have a tendency to be too aggressive in negotiations, agrees Grimm, and to take too long to reach an agreement, which can be a major problem in the fast-moving world of technology, where multiple firms are trying to bring similar products to market first. “I’ve known of several major cases where ideas for start-ups have failed on the launch pad because the negotiations got so involved that by the time they were settled the opportunity had passed.”

The good news is that this is becoming much less of an issue thanks to pressure from the government to reduce the share institutions demand and to standardise terms. The 2023 Independent Review of University Spin-outs has helped speed up the process, says Grimm. AlbionVC has, for example, an agreement with UCL where the university agreed to take just a flat 5% stake in any software start-up spun out of it. The first company AlbionVC spun out under the new conditions took much less time to set up. UCL isn’t the only university to do this, says Bagchi. Imperial now takes a flat 10% share from its spin-outs, and Oxford has reduced its share by more than half from 50% to 20%.

The British Microsoft is coming

The UK may be “world class at research, and very good at creating early stage companies, but there is still room for improvement when it comes to scaling up”, says Greg Smith, CEO of IP Group. Northern Gritstone’s Johnson agrees that our tech sector still “struggles” when it comes to raising large sums for expansion. From his own experience, he’s found that raising amounts in the region of £200 million is still a big ask for British tech firms, whereas those in Silicon Valley can raise such sums with a single phone call.

The lack of domestic capital willing to back tech firms means that too often UK start-ups are either forced to rely on overseas investors, or sell themselves to larger US tech companies, says Wright. He emphasises that such investment represents a vote of confidence in the capabilities of the UK research base, but such external investors and larger tech companies also “have their own agendas, which don’t necessarily align with the interests of the UK”. He points to DeepMind, the AI company spun out from UCL that was acquired by Google in 2014 for £400 million, and which “would now be worth more than £10 billion – maybe even more than £100 billion – if it had remained private”.

Google’s purchase of DeepMind may have deprived Britain of its very own OpenAI. Yet the fact that it, and others, such as OrganOx and Oxford Ionics, have fetched “significant sums” will “undoubtedly draw more interest into this area, and encourage more university researchers to launch commercial enterprises”, says Sarasin’s James Witter.

Such successes are also helping to build the necessary environment in the UK “of investors, lawyers and financial services intermediaries”. So, provided pension funds and institutions are willing to invest more, “there’s no reason” why we can’t build a British tech company on the scale of Microsoft, says Paton-Philip. Smith believes “unequivocally” that several large British tech firms will emerge within the next decade. We look at some of the most promising places to put your money below.

Spin-outs from UK universities: where to invest

Companies such as Oxford Capital, Parkwalk Advisors, Foresight Group and AlbionVC all offer investors with deep pockets access to venture-capital trusts. Those of more modest means might like to consider IP Group (LSE: IPO), a listed FTSE 250 company that has been investing in spin-outs from UK universities for the last 25 years. Over this time, it has supported around 500 companies, creating an estimated 10,000 jobs. At the moment, the group has 62 firms in its portfolio, spanning “deep technology”, life sciences and clean-energy technology (cleantech). The stock trades at only seven times estimated 2026 earnings and at a sharp discount to the book value of its assets.

One of IP Group’s most successful clean-technology investments was in fuel-cell and hydrogen-power technology company Ceres Power (LSE: CWR). Originally spun out of Imperial College London, IP Group stepped in to rescue the company after a failed trial, taking an active role in its management before eventually selling its stake for a large profit in 2020. Ceres Power is not currently making any money, but it continues to grow, with sales tripling between 2019 and 2024, and it is expected to be a big winner from the spike in demand for clean energy created by the data-centre boom.

One of Cambridge Innovation Capital’s many success stories is Bicycle Therapeutics (Nasdaq: BCYC). It was founded in 2009 by Cambridge Enterprises (Cambridge’s commercialisation body) and uses technology developed by Greg Winter, winner of the Nobel Prize for chemistry in 2018, to develop drugs that can target and treat solid tumours that cannot be reached by conventional drugs. It is not making any money yet, but has several promising drugs in development. The most advanced of these is zelenectide, which is in advanced trials as a treatment for metastatic urothelial cancer (the hope is that it will also prove effective in treating other cancers).

Autolus (Nasdaq: AUTL) was founded by Martin Pule, who leads the “CAR-T” research programme at UCL’s Cancer Institute, with the help of UCLB (UCL’s commercialisation arm). Its products modify white blood cells to help the body’s immune system fight cancer. The company is not making any money, but its therapy Aucatzyl has recently been approved for use in the UK, US and EU for treating acute lymphoblastic leukaemia, with the hope that this can pave the way for similar treatments being approved for a wider range of cancers in the near future.

As noted in the main story above, Kromek Group (Aim: KMK) was originally spun out of Durham University by Arnab Basu. The company specialises in making radiation detectors that use cadmium zinc telluride (CZT) semiconductors for use in medicine and security. The company has already secured contracts with GE, Siemens, Philips and Canon, and with the help of funding from the US and UK governments, it is developing devices to detect biological pathogens. The stock trades at 18 times expected 2026 earnings. With revenue more than doubling between 2020 and 2025, that looks like good value.

Investors with an extremely high tolerance for risk might want to consider micro-cap Quantum Base Holdings (Aim: QUBE). It was founded by Robert Young of Lancaster University and uses quantum technology to produce product codes that are virtually impossible to counterfeit. With counterfeiting being a significant problem for global brands, the commercial potential seems huge, although the company is currently losing money.

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They say health is wealth, but healthcare investors might disagree. The sector has had a tough time over the past few years. Policy noise in the US has been a major headwind recently, but even before that investors’ focus was drawn elsewhere as areas such as technology raced ahead. “For the 30-year period from 1989-2019, the US healthcare sector closely tracked technology returns, and with considerably lower volatility,” notes Michael Cembalest in a research paper for JPMorgan. “Things have changed since then.”

The MSCI World Health Care index has delivered five-year annualised returns of less than 6%, lagging the broader MSCI World index at 13%. The MSCI World Information Technology index has delivered 17% over the same period. Sentiment about the sector has soured further in 2025 – and it is easy to understand why. The US is the world’s largest healthcare market and when Donald Trump was inaugurated in January, he promptly appointed a vaccine-sceptic as his health secretary. This set the tone for what was to follow.

There are three key threats: efforts to control drug pricing, tariffs and possible tax changes. There is little doubt the sector is trading cheaply. The question is whether it offers good value in light of the risks.

Three big, beautiful policy risks

Donald Trump thinks US customers are being ripped off when it comes to drug pricing. He told reporters that a friend in London pays $88 for a weight-loss treatment that costs $1,300 in New York. So earlier this year, he published an executive order demanding “most-favoured nation” prices for US customers – an attempt to bring US prices in line with the lowest costs offered elsewhere. Pharmaceutical companies have been threatened with “every tool in the federal government’s arsenal” if they refuse to step up. The threat is vague, but has nevertheless created nervousness.

The majority of global pharmaceutical profits come from the US market – around 70%, according to the University of Southern California. Rather than cutting prices in the US, companies could simply decide to pull out of less lucrative markets, reducing access to drugs for patients and denting pharmaceuticals’ profits.

The second threat is tariffs. Trump is keen to boost US manufacturing and is using tariffs as a way of doing so. He has announced a 100% levy on imports of branded or patented drugs from 1 October, although manufacturers that are building a site in America will be exempt. Tariffs aren’t the only tax investors need to consider either. The Trump administration also has an eye on corporate income-tax loopholes that pharmaceutical companies have been exploiting. Pfizer paid zero in federal taxes in 2019 despite selling $20 billion of drugs in the US, according to an investigation from the US Senate Finance Committee. This was due to round-tripping – a mechanism whereby income from US sales is treated as foreign for tax purposes. Ways of achieving this can include using offshore manufacturing or shifting intellectual property rights to tax havens. “We’re going to try and fix a whole bunch of these tax scams,” said commerce secretary Howard Lutnick, speaking on a podcast in March.

Is this all as bad as it sounds?

Some of the risks might have been overstated. Look at “most-favoured nation” pricing. There is scepticism about whether Trump will actually be able to implement it on any kind of scale. In his first term, he tried to control the price of a handful of drugs covered by Medicare, but was blocked by a federal judge. Wide-sweeping price controls this time would almost certainly require the support of Congress – something Congress doesn’t seem to have the appetite for.

Meanwhile, pharma companies have been making moves to try and get ahead of tariffs. The measures that kick in from the start of October only affect companies that aren’t building a site in the US. In recent months, scores of companies have been making commitments. In July, Swiss and UK giants Roche and AstraZeneca both pledged $50 billion in investments in the US over the next five years, building and expanding research and development and manufacturing sites. AstraZeneca said its goal is for 50% of revenue to be generated in the US by this date.

US pharma companies have also made big commitments to domestic manufacturing. Earlier this year, Eli Lilly pledged an additional $27 billion for four new plants, and Johnson & Johnson announced a $55 billion investment over the next four years.

While this will help the industry navigate tariffs, it is possible that some companies will lose tax advantages by moving their manufacturing facilities to the US. Karen Andersen, research director at Morningstar, says analysts have been building a ramp up in tax rates into their models over the next few years as the reorganisation goes through.

Healthcare stocks are going cheap

Headwinds in the sector mean valuations look cheap. The MSCI World Health Care index is trading at around 16 times its forecast earnings, compared with 20 times for the MSCI World index. Individual names are trading on lower multiples. “Pharma stalwarts such as Merck, Pfizer and Bristol Myers Squibb trade at forward price/earnings (p/e) ratios of just eight to nine times, and biotech trades at one of the largest valuation discounts in the market,” notes Cembalest. The question is whether it is worth it given the risks.

On the one hand, we are starting to get a better sense of how Trump works. Recent stockmarket reactions have been less pronounced as a result. In July, Trump sent letters to 17 pharmaceutical companies threatening repercussions if they didn’t adopt most-favoured nation pricing. Investors largely shrugged off the news. Markets have also taken the latest tariff announcement in their stride. “Investors see more bark than bite,” says Lale Akoner, global market analyst at investment platform eToro. The objective of tariffs is to force supply chains onshore in the US – not to raise prices at the pharmacy counter. “European pharma gets nudged to localise, while US firms gain a policy tailwind.” That said, valuations are likely to remain suppressed for as long as the policy outlook is uncertain. Consider most-favoured nation pricing. Trump’s plan sounds overly ambitious, but “the problem is that the impact is so big that it’s a difficult risk for the market to ignore, no matter how unlikely it might be,” says Andersen.

Is investing in healthcare stocks worth the risk?

One fund manager who has been investing in the field for 25 years told me that every time there is nervousness around pricing in the US, the sector underperforms. “Before buying more of this stuff, investors need clarity on the earnings forecast,” says Gareth Powell, head of healthcare at Polar Capital. We could get more certainty over the coming months. The deadline given to pharma giants for complying with Trump’s price demands was 29 September. Further detail on tariffs has already emerged, but there are still questions about how regions with pre-existing trade deals will be treated.

“Headlines about the imposition of 100% tariffs on branded drugs appear to contradict the previously discussed 15% cap for European firms,” say Ailsa Craig and Marek Poszepczynski, co-managers of the International Biotechnology Trust. Until these pieces of the puzzle fall into place, bargain-hunting in the sector requires bravery.

On the plus side, there have been some bright spots. Biotech investors point to pro-industry noise from the FDA regulator, including a pilot programme to reduce the review time on new drugs and therapies from 10 to 12 months to just one to two, if they meet certain criteria. This is a marked improvement from earlier this year when investors were worried that mass firings at the FDA would result in a slower approval processes.

Active investors can also adjust their portfolios to manage the risk associated with policy threats. “The way I would look at it is on a case-by-case basis,” says Andersen. Is the company particularly reliant on government reimbursement for one of its key products? Does it have a significant manufacturing footprint outside of the US? One way the International Biotechnology Trust is managing the risk is by tilting into rare diseases, with more than 30% of the portfolio allocated to this theme. “This tends to be much more similar in price in both Europe and the US,” says Craig, meaning therapies should be less exposed to Trump’s interference with drug pricing.

Where to invest

If you are looking for broad exposure to the sector, the Polar Capital Global Healthcare Trust (LSE: PCGH) is one to consider. The trust has large overweight positions in healthcare equipment and biotechnology. It is underweight on pharmaceuticals relative to the benchmark – a position driven by concerns about the impact of Trump’s pricing threats on mega-cap pharma companies. Those who prefer passive exposure could look at the Xtrackers MSCI World Health Care ETF (LSE: XDWH), although today’s volatile policy backdrop could better lend itself to active stockpickers.

The area that looks most interesting in my view is biotech. This is where most of the innovation happens, with big pharmaceutical companies swooping in to acquire biotech firms that are developing a promising drug. We should see more merger and acquisition (M&A) activity over the coming years as a significant patent cliff-edge is looming for big pharma. Drugs worth $180 billion in annual revenue (equivalent to 12% of the global market) will be coming off patent in 2027 and 2028, according to figures cited in the Financial Times. This is putting pressure on pharma companies to shop around for new products in the biotech sector.

The International Biotechnology Trust (LSE: IBT) gives exposure to this part of the market. The managers have had strong success identifying acquisition targets, with 30 portfolio holdings having been snapped up through M&A since 2020. Investing in biotech is a risky business, but the trust is heavily weighted towards companies with drugs in late-stage clinical trials, as well as those that have completed trials already and are waiting for approval from the regulator. This makes it a good pick.

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UK equities are having their time in the sun. The FTSE 100 recently hit an all-time high of 9,000, driven by a broad recovery in equity prices. To put it another way, the rally wasn’t just driven by a handful of outperformers. In fact, during the first half of the year, UK equities have done better than their US peers, reversing a decade-long trend of US outperformance. Since the start of 2025, the FTSE All-Share has delivered a total return of just over 9% in local currency terms. In US dollar terms, it produced a total return of 19%, significantly outperforming the S&P 500’s 6%.

According to numbers compiled by the wealth-management giant Schroders, the outperformance has been driven not by earnings growth, but by multiple expansion – a side effect of investors’ confidence improving. Over the first half, Schroders calculated the UK’s total return was driven by a 10% increase in valuation and a 2% return from dividends. Earnings, on the other hand, proved to be a headwind, taking 3% off returns as analysts pushed growth projections lower due to global uncertainty (mainly over tariffs).

UK equities: a growth story

Sentiment counts for a lot in markets and in the UK that has improved dramatically (albeit from a very low base) over the past six to 12 months. It might not seem like it, but the UK has experienced the strongest run of positive economic surprises among developed markets since January. According to Citi’s Economic Surprise Index (once again, from a very low base), sentiment around the UK’s trade-deal “hat trick” with the US, India and the EU seemed to reignite investors’ sentiment about growth. There’s also the tailwind of interest rates. Markets are pricing in several rate cuts by the Bank of England over the remainder of the year and into 2026. Lower rates should support domestic cyclical stocks such as retailers, housebuilders and builders’ merchants. These rate-sensitive sectors should also benefit as Labour’s efforts to drive investment in infrastructure and planning reforms start to yield results.

Despite the market’s strong performance so far this year, investors, particularly those in the UK, are still leaving in droves. According to equity fund flow data compiled by JPMorgan, over the last 12 months, around £32 billion has flowed out of UK equity funds, equivalent to 11.6% of starting assets under management. Investors seem to be selling into the rally, with outflows accelerating over the past few months despite recent market highs.

It might come as a surprise, but on a top-down basis, UK equities are a growth story. Estimates from JPMorgan have earnings per share in the FTSE 100 growing by 11.5% in 2025, before falling back to 2.5% in 2026. Schroder’s Intelligence, on the other hand, has earnings per share growing 3% this year and then 12% in 2026. Whichever way you look at it, that’s projected earnings growth in the mid-teens over the next two years. Based on that, the FTSE 100 is trading at an average forward price-earnings (p/e) ratio of 12. “This represents a 10%-15% discount to their 15-year medians and a substantial discount compared with the US market,” according to JPMorgan.

Dig deeper, and the valuation is even more compelling. “UK mid-caps trade at 12 times expected 2025 earnings, with earnings forecast to grow at around 15% year-on-year, indicating potential good value (a p/e ratio less than the growth rate). There’s potential for a re-rating if domestic growth persists,” the investment bank adds.

UK equities: key risks to avoid

There are compelling reasons to buy UK equities, but there are also plenty of risks to consider. JPMorgan makes it clear that domestic stocks are favoured over international exporters. Over the past four years, industrial energy prices in the UK have risen to the highest levels in the developed world, making it difficult for most producers to compete with their international counterparts. A significant portion of the UK’s industrial base has vanished as a result. It doesn’t look like this environment is going to change anytime soon.

Utilities also look risky due to political interference, high capital spending requirements and generally poor return profiles. Indebted consumer stocks, which will suffer if wage growth stagnates, should also be avoided. The major lingering risk for UK equities is the potential for further tax rises. The Labour government has been floating numerous potential tax hikes in the autumn Budget. With the country’s finances deteriorating and a complete lack of political will to cut spending, additional taxes are almost guaranteed. Additional taxes will have an impact on consumer spending and business activity. Based on the last round of tax hikes, which dented business confidence and squeezed hiring, investors do need to consider this risk on the horizon.

The valuation of UK equities compared with international peers has already led to a wave of takeover offers. As UK investors flee, international investors are seizing the opportunity to swoop in. The value is there, and private equity is capitalising on it. Real estate investment trusts (Reits) have become a particular area of interest. Assura, Urban Logistics, Care Reit and Warehouse Reit have all been acquired this year. Due to an interesting quirk in the law regarding stamp duty, it is often cheaper to purchase property through a company structure than to buy it directly. Shares attract stamp duty at a rate of only 0.5%, while corporate bodies buying certain types of property may face stamp-duty rates in the mid-teens. So, acquirers receive a tax benefit, as well as the opportunity to purchase property at a discount to its market rate. At the beginning of June, there had been more than 30 bids for companies worth more than £100 million, with an average premium of 45% across all sectors.

Aside from the real-estate sector, high-quality UK mid caps and small caps look attractive, trading at historically wide discounts to their US peers and with international revenue footprints. Banks offer dividend yields in the mid single digits with further capital returns likely as profits continue to grow and are still trading at relatively low valuations despite their shares rising to levels not seen since before the financial crisis.

UK equities: go for quality

So where should investors be looking for value? As ever, quality is key. A fascinating study on this topic emerged at the beginning of July in the form of a Panmure Liberum report, “Accounting red flags: high-quality stocks lead”. The research, building on academic studies and machine-learning applications, aims to help investors identify high-quality stocks, avoid corporate failures and enhance returns. The framework focuses on three main areas: accounting quality, audit risk and governance oversight. Companies were categorised into the top 30% (highest accounting quality) and the bottom 30% (lowest accounting quality) baskets (excluding financial and real estate companies due to issues arising from leverage). Over the past five years (ending June 2025), the report found that the top 30% quality basket in the UK outperformed the bottom 30% by an annualised 9%.

After analysing the data on reports from 2024, the analysts compiled a select list of UK equities that they believed met all the criteria they were looking for in terms of companies with the best-quality accounts. The list includes the likes of Associated British Foods, BT Group, DCC, Games Workshop Group, Halma, Mitchells & Butlers, National Grid, J. Sainsbury, SSE, Taylor Wimpey and Whitbread.

UK equities: promising healthcare champions

Panmure Liberum has also dived into the healthcare sector in the UK. Healthcare, biotechnology and pharmaceuticals are all areas of strength in the UK economy. They are among the most significant growth sectors globally, given the ageing population, advancements in medical technology and increasing wealth. Advanced Medical Solutions (LSE: AMS) sits in the sweet spot of UK value and is one of Panmure Liberum’s favourite plays. The company has a portfolio of “medtech” products, mostly developed in-house, focused on the surgical and wound-care markets. It was a small-cap champion and returned more than 1,000% between 2010 and mid-2018. However, the business struggled to grow into its valuation, and the stock is down around 30% over the past five years. Still, Panmure thinks this is the “best rerating story” in the medtech sector and looks “most obviously oversold” when compared with historic ratings. The company has made several strategic missteps over the past five years, which have hindered growth in the US market. Difficulty digesting a recent acquisition has also spooked investors. But while the market struggles to understand the business, private equity is waiting in the wings. A recent approach from Montagu didn’t generate an offer, but it put the company on investors’ radars. Panmure believes a fair price for the company is between 300p and 350p.

The investment bank also thinks animal genetics company Genus (LSE: GNS) is deeply undervalued. The company specialises in using cutting-edge science and technology, including genomics selection and gene editing, to enhance animal breeding. For example, in April, Genus received US regulatory approval for its product designed to provide pigs with resistance to porcine reproductive and respiratory syndrome (PRRS), a disease affecting farmers worldwide. This was a “hugely significant landmark” and is expected to lead to approvals in other jurisdictions. This treatment alone could be worth more than 1,000p per share, but much of the growth isn’t yet reflected in the company’s share price.

A wild card is CVS Group (LSE: CVSG). Investors dumped shares in the group, which owns veterinary practices across the country, when the UK regulator announced an investigation into market and pricing practices in May 2024. As investors have reevaluated their position, the stock has recovered and Panmure sees further upside. It notes that the regulator’s working paper on remedies was “relatively benign”. Initial findings are expected in September 2025, and final recommendations before January/February 2026. If the outcome of the investigation comes out as expected, analysts believe the stock could be worth around 1,600p based on historic profit multiples.

UK equities: mid caps

Berenberg has also highlighted some of the most attractive names in the UK mid-cap sector based on their growth potential. Genus is on their list, as well as electronics retailer Currys (LSE: CURY). At the beginning of the month, the company reported a 37% increase in adjusted profit before tax, along with the return of cash dividends, as the group’s cash balance rose to £180 million net at the end of the year. However, the stock is trading at a forward p/e below ten, which does not seem to consider the company’s growth potential. OSB Group (LSE: OSB) and Paragon Banking (LSE: PAG), two specialist mid-cap lenders, are also on the investment bank’s list of undervalued growth plays. The former is trading on a p/e of 4.8, while the latter is on 7.1 times forward earnings. Both have carved out a niche in the buy-to-let lending market, which, despite negative headlines, is still growing. Paragon recorded a 25% rise in new buy-to-let lending in the first half of its financial year, driven by growing demand from landlords, the firm announced at the beginning of June. OSB has had to deal with internal issues as well over the past few years, but these now seem to be behind the business. A series of updates providing evidence that the firm is delivering in the short-term will “help restore confidence”, noted Panmure in a recent note.

Other mid caps on Berenberg’s radar, all trading on a p/e of ten or less, include Kier Group (LSE: KIE), ITV (LSE: ITV), Mitie (LSE: MTO), Pets at Home (LSE: PETS) and IG Group (LSE: IGG). Kier and Mitie, in particular, are plays on the UK government’s ballooning spending bill; ITV is more of a break-up/ takeover play. IG, with its firm and growing foothold in global financial markets, is a true UK-based global champion, with a substantial growth runway ahead. One company that features on a lot of “best-buy” lists issued by the City’s top brokers is Babcock International (LSE: BAB). The defence firm is one of the major contractors for the UK’s nuclear deterrent, and the shares have more than doubled in value over the past year as the Labour government has reiterated its commitment to defence spending in the UK. The shares started the year at a discounted multiple of just 10.4 times forward earnings. Now, they’re closer to 20 times, which is a bit on the pricey side. That said, defence is a long-run, predictable business, suggesting Babcock deserves a premium valuation. JPMorgan has earnings growing 64% in 2025 and then 8% in 2026, with a 4.2% dividend yield.

Barclays’ favourite mid-cap is 4imprint Group (LSE: FOUR). The firm, which produces promotional products, is one of the investment bank’s top picks in Europe, with a potential upside of 68% to the 5,500p price target and a Barclays “quality” rating of 99%. The quality of the business is determined by its strong net cash balance (£148 million at the end of 2024), free cash flow (£103 million estimated for 2025) and return on capital employed of 77.7% in 2024. Despite these metrics, the stock is trading at an undemanding forward p/e of 12.7, with a prospective dividend yield of 5.1%.

UK equities: the best of the best

There are plenty of London-listed mid caps that look attractive at current valuations, but which ones really deserve a place in your portfolio? 4imprint seems to be one of the City’s top picks. Barclays has it as one of its top plays in Europe, and it’s one of a handful of businesses with net cash on the balance sheet. Berenberg thinks “4imprint’s highly cash-generative model and low appetite” for mergers and acquisitions suggests there is “scope for increased returns to shareholders through special dividends or buybacks”. It also thinks there’s plenty of scope for the group to expand its profit margins through economies of scale and general growth.

Genus is another firm that is universally backed by the City.

Deutsche Bank, Berenberg and Panmure have all flagged the stock as a “buy” following its winning US regulatory approval and due to rising demand for animal proteins. Babcock also has a strong following. It’s those long contract lead times that are really exciting. Berenberg puts it nicely: “Revenue guidance strikes us as conservative given the large pipeline of domestic and international defence contract opportunities, as well as the strong momentum as evidenced by the 11% average annual organic revenue growth achieved in the last three years”.

In the property sector, NewRiver REIT (LSE: NRR) has been flagged as an undervalued recovery play. As an owner of retail parks and shopping centres, NewRiver has faced a challenging few years, but the outlook is now starting to improve. “With rents still affordable and asset values near cyclical lows,” NewRiver’s portfolio is well placed to benefit from the normalisation in investors’ sentiment “and the hunt for high, stable income”, Panmure Liberum’s property team notes. The 9.1% dividend yield is fully covered and the company is trading at a 36% discount to the value of its net assets – appealing as bidders circle the sector.

Finally, there’s Mr Kipling owner Premier Food (LSE: PFD). This company has risen, like a phoenix from the ashes, over the past five years. Coming out of the pandemic, the group was overleveraged, burdened by onerous pension obligations and struggling to control a bloated cost base. It soon got costs under control, but debt and pensions remained an issue. In the past three years, it’s been able to draw a line under the pension issues and make a dent in the debt. It’s used the cash to reinvest in the business, reinstate the dividend, and is now looking for acquisition deals. After a strong few years, analysts weren’t expecting much in the way of excitement this year. They were wrong. A recent trading update beat low expectations and management reaffirmed profit expectations for the year. Growth will be driven by progress in new products and recent acquisitions. Both Shore Capital and Berenberg analysts tip the stock. It trades on a forward p/e of 13, compared with the peer group average of 17.

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Biotechnology companies have been a cornerstone of the pharmaceutical industry since the mid-1990s. Today, many of these firms have matured into profitable companies. We divide biotechs into three categories: profitable, revenue growth, and development-stage. This classification helps us identify solid investments with approved products that tend to perform well during economic downturns.

Revenue-growth companies are particularly compelling. These firms have successfully navigated the rigorous clinical development process and received drug approvals from regulators. While they are generating top-line sales, they have not yet turned a profit, making them medium-risk investments, as they still need to prove themselves on the market.

Around 70% of new drug approvals are now attributed to biotechs, a notable change from a time when pharmaceutical giants dominated this area through their internal research and development (R&D) departments.

The US leads biotech innovation, bolstered by robust funding and prestigious university hubs, but Europe also harbours strong contenders. We will highlight one European stock from each of our three categories.

Help for haemophiliacs

Let’s begin with Sobi (Stockholm: SOBI), a profitable Swedish firm specialising in haematology and immunology. It has a market value of $10.7 billion and generated sales of $2.5 billion last year.

A major portion of its sales stems from haematology, particularly treatments for patients with haemophilia, a lifelong clotting disorder that primarily affects men. It requires infusions of “clotting factors” VIII or IX to prevent uncontrolled bleeding.

The company recently launched Altuvoct, a groundbreaking therapy with a longer half-life, meaning patients can have a weekly injection rather than one every two or three days. This is especially convenient for active young boys prone to injuries that can trigger bleeding.

Thanks partly to a partnership with Sanofi, a leading French pharma conglomerate, Altuvoct’s sales are projected to exceed $1 billion, solidifying Sobi’s position as a formidable player in the biotech sector.

Ascendis Pharma (Nasdaq: ASND), a Danish company focused on treating rare diseases, is in our revenue-growth category. It is relatively large, with a market capitalisation of $10 billion. The firm boasts a unique technology platform that merges established biology with its unique sustained-release technology, which could be used for a variety of rare medical conditions.

It optimises therapeutic efficacy with far fewer injections, leading to a much better experience for patients. Analysts predict a path to profitability as early as next year, making it an interesting revenue-growth stock with the potential for profitability.

Lastly, we have UniQure (Nasdaq: QURE), a riskier stock. UniQure is a development-stage gene-therapy company from the Netherlands worth $700 million.

With $300 million in cash, UniQure is advancing its ambitious pipeline, notably targeting Huntington’s disease. UniQure’s gene therapy aims to silence the toxic Huntington protein responsible for neuronal degeneration.

Recently, the gene treatment was designated a “breakthrough therapy” by America’s Food and Drug Administration (FDA) – an encouraging sign. However, the inherent risks are considerable; if clinical trials do not demonstrate sufficient efficacy, it could lead to a dramatic decline in the company’s share price.

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The return of the “dire wolf” from extinction to the land of the living, thanks to the scientific wizardry of genetic engineering, captured the headlines earlier this month.

The magic going on behind the scenes may be less dramatic, but is no less impressive.

Genomics, or the applied use of genetics in medicine, is changing the way we diagnose and treat disease by tailoring treatments to the individual.

The development of gene therapies that directly treat diseases, rather than prevent their emergence, is also “rapidly advancing”, says Daniel Lyons, a portfolio manager on the healthcare and biotechnology teams at Janus Henderson Investors.

Early challenges in manufacturing and delivery have been overcome and research is ongoing with the aim of improving the potency and safety of treatments.

Costs collapse and knowledge advances

The potential of these developments for investors has grown rapidly as costs have collapsed in recent years, says Geoffrey Hsu of the Biotech Growth Trust. It cost the Human Genome Project $2.7 billion in 2003 to map the human genome (the base genetic material that provides a blueprint for our cells). Just four years later, the cost of sequencing an entire human genome had fallen to $1 million. Laboratories are now able to do it for just a few hundred dollars.

This has enabled the rise of several mega-projects that rely on the sequencing of a large number of individual genomes to “understand the underlying genetics of many diseases” better, says Neil Ward, vice president and general manager, EMEA, PacBio. His firm has itself been involved in sequencing the genome of 10,000 people who donated blood and tissue samples to Estonia’s national biobank. This is only the start, says Ward. Researchers around the world have expressed interest in carrying out similar projects.

Perhaps the most ambitious scheme is Britain’s Our Future Health project, a public-private partnership involving the NHS, drug companies and healthcare charities. The aim is to gain a better understanding of the risk factors behind various diseases – whether they have their roots in genetic, lifestyle, or environmental factors – by tracking the health of a large sample of people over time, says the project’s CEO and chief medical officer, Raghib Ali.

The project will rely on the genetic sequencing of blood samples given by the 2.4 million participants, with the aim of advancing our knowledge of the links between our genes and illness (Our Future Health is still recruiting, see ourfuturehealth.org.uk/get-involved).

Rapid improvements in diagnosis

The plummeting cost of sequencing is giving clinicians an important tool for detecting rare genetic diseases, says Ward. There are many such conditions, but they often affect only a handful of patients in any given year, and years can pass after a patient shows up with symptoms before they get a definite diagnosis. Genetic sequencing diagnostic tests can speed up the process substantially.

Our knowledge of the genetic basis of illness is still incomplete, so we’re not yet at the stage where we can rapidly diagnose every individual. And most current tests are designed to identify one condition at a time, so there can often be a frustrating and time-consuming process of trial and error. But researchers at Radboudumc in the Netherlands are looking to consolidate the various genetic tests available so clinicians can screen for multiple conditions at the same time and deliver definitive results in as little as a week.

Cheaper tests are also starting to make it cost-effective routinely to screen entire populations for more common conditions, say Ailsa Craig and Marek Poszepczynski, portfolio managers at the International Biotechnology Trust. Just a decade ago, the idea of routinely screening newborn children for genetic conditions was unheard of, but now many countries have some sort of programme in place. An example is screening for spinal muscular atrophy (SMA), which can now be treated before symptoms develop.

In fact, SMA is just one of a long list of genetic conditions that are now routinely screened for immediately after birth, says Hsu, including sickle-cell disease, cystic fibrosis and congenital hyperthyroidism. The number of diseases that are screened for as a matter of course will only grow, says Hsu, as our knowledge of genetics improves. The development of new treatments for these conditions will also galvanise screening programmes – “knowing that someone has a disease becomes more important once you can actively do something useful with that knowledge”.

There is also increasing interest in the potential of genetics to predict whether someone has an increased risk of getting a certain condition in the future that they don’t currently have. Screening programmes are already in place for those genes that have the strongest link to a particular disease. Women with a family history of breast cancer, for example, are now offered screening for the BRCA1 and BRCA2 genes, which raise the lifetime risk of getting breast cancer from 12.5% to around 70%, and also greatly increase the risk of ovarian cancer.

Soon we may be able to detect in more subtle ways the genetic factors that increase the risk of developing a particular disease, says Ward. The aim in Estonia, for example, is to use the information from the biobank to identify those who should be prioritised for cancer screening at an earlier age, as well as those who should be screened a bit later. Getting the timing right in this way should improve detection rates and save money. Within five to ten years, there will be genetic tests to give an indication of people’s propensity for certain types of cancers and their chances of developing conditions such as Alzheimer’s, says Ali.

The rise of personalised medicine

Genomics is also starting to help doctors tailor treatments to the individual. It has long been known that treatments that work for one patient might not necessarily work for everyone with the same condition, as Paul Major, portfolio manager with Bellevue Healthcare Trust, points out.

Until recently, the medical profession resigned itself to this luck of the draw, knowing that some patients would fare better than others.

Genetics should help us eliminate this element of chance and enable doctors to give individuals the drugs that will work best based on their genetic profile.

This can be incredibly important for conditions such as cancer. One drug may have similar overall effectiveness as another, for example, but be particularly effective in a certain subgroup of patient, says Major. Similarly, patients with a particular genetic profile may be at a much higher risk of side effects from a particular drug than from others.

Such considerations may rescue useful drugs from elimination in clinical trials – those that would have been discarded due to side effects or low effectiveness in the overall patient group, for example, could be repurposed if they show promise for a subset of patients.

Personalised healthcare can also zoom in on factors other than the genetic profile of the patient. An advance in the understanding of the genetics of the tumour, for example, is perhaps the most important factor in determining the best course of cancer treatment.

“As recently as 30 years ago, doctors tended to consider all cases of lung cancer as basically similar,” say Craig and Poszepczynski. “Today they realise that there are multiple types of lung cancer depending on the particular mutation contained in the genetic code of the patient’s tumour.”

As a result, it is increasingly common for doctors to take a biopsy of the tumour and send it to a laboratory to determine which type it is and hence which type of treatment is most likely to be effective.

The falling cost of genetic screening means that this is now increasingly common and the process can be repeated multiple times so that therapies can be adjusted as the disease progresses.

Redesigning the genome

Genomics is also giving rise to gene therapies that directly treat conditions. The method currently in vogue is that of using a modified virus to introduce a correct version of a faulty or missing gene into someone’s genome, as Craig and Poszepczynski point out.

This technique has been around since the 1990s, but at that time we “didn’t know much about where (or how) to insert the gene, which resulted in genes ending up in random places, leading to patients getting cancer rather than being cured”. More recently, the science has progressed, and the result is a better targeting of genes and a higher rate of success.

Gene therapies are also becoming much more durable. Just as in organ transplants, where the danger is that the immune system will see the organ as foreign and hence fight and reject it, over time our bodies can recognise that a gene has been inserted and try to get rid of it, say Craig and Poszepczynski.

The inserted gene then begins to work less well, which can lead to the return of the condition. Scientists are making progress at dealing with this problem and increasing the effective lifespan of genetic therapies.

Such advances are important because the industry is built on the idea that healthcare systems will be willing to pay a large amount of money upfront for a one-off course of therapy in the hope that this will save them from having to pay large amounts in the future for drugs to treat the condition, says Hsu.

Given that it can otherwise cost as much as $500,000 to treat someone in the US with severe haemophilia each year, even genetic therapies that cost in the millions can be cost-effective compared with treating the disease with drugs, but only assuming the disease does not recur.

Other types of genetic therapies are also starting to emerge, says Andrew Craig, author of Our Future is Biotech: A Plain English Guide to How a Tech Revolution is Changing Our Lives and Our Health for the Better. Crispr (clustered regularly interspaced short palindromic repeats) therapy holds out the prospect of better and more precise gene editing, which should, in theory, give us the ability to treat any genetic disease at its source. The process is currently expensive, but a Crispr treatment for sickle-cell disease was approved in 2023 and means that “what was previously considered a... life-threatening condition is now effectively cured”.

CAR-T therapy also promises to transform medicine. This involves genetically re-engineering the T-cells in patients’ immune systems so that they can better fight cancer. This has already produced some “pretty incredible results” in treating conditions such as acute lymphoblastic leukaemia, which primarily affects children, with a “remarkable” response rate of around 80%. Other treatments are also in development.

A strong pipeline of new therapies

There are some clouds on the horizon for the subsector. The recent departure of Peter Marks from the Centre for Biologics Evaluation and Research division of the US Food and Drug Administration (FDA) seems to have spooked some investors as Marks was seen as a “champion of innovative therapies, such as cell and gene therapy”, says Alex Hunter, global equity analyst at Sarasin & Partners.

Redundancies at the FDA and US National Institutes of Health also suggest that the environment for the development and approval of gene therapies may become “slower and temporarily more problematic”.

But these concerns are overblown, reckon Craig and Poszepczynski. New US health secretary Robert F. Kennedy Jr may have been “very vocal about vaccines”, they note, but he “hasn’t really said anything negative about gene therapies”.

In any case, the strength of the patient advocacy groups that campaign for those suffering from rare diseases such as Duchenne muscular dystrophy or Huntington’s means that “there would be a massive public outcry in the United States if the FDA tried to prohibit or limit access to gene therapy”.

The US is likely instead to accelerate and streamline regulatory pathways, and new gene therapies will continue to come to market, says Karin Hyland, a partner and deputy head of co-investments at Patria Private Equity Trust. This, in turn, will lead to “material advances in gene therapy in the coming years, alongside improved affordability and availability”.

Given that there are now 38 gene therapies currently approved by the FDA, compared with just five in 2000 when Hyland started investing in this area, and with more than 1,200 gene therapies now in clinical trials around the world, it’s clear that the only way is up for gene therapies.

The best investments to buy now

One company with promise in precision medicine is CareDx (Nasdaq: CDNA). Its genetic testing is the “gold standard” for surgeons wanting to match donated organs with patients in order to cut the chances of post-transplant organ rejection, says Paul Major of Bellevue Healthcare Trust. Its tests also inform clinicians that the body is starting to reject an organ, so doctors can adjust medications, which is important given the scarcity of donated organs. The stock currently trades at only 18 times 2026 earnings, despite revenue more than doubling between 2019 and 2024.

With the field of personalised medicine changing every day, it is “difficult and expensive” for hospitals and clinics “to keep up with this continually evolving technology”, says Paul Major. It therefore makes sense for them to outsource the genetic testing of tumours and blood to NeoGenomics (Nasdaq: NEO). The firm receives tissue and blood samples from hospitals, decides which machines and which tests to run on them, then sends the information back to doctors about the type of cancer, say, the stage at which it has reached, and the best treatment. The stock trades at 26 times 2026 earnings.

Two years ago, Krystal Biotech (Nasdaq: KRYS) had its gene therapy for dystrophic epidermolysis bullosa approved by the US regulator, say Ailsa Craig and Marek Poszepczynski. This genetic skin disease in children raises the chances of developing skin cancer. What’s particularly striking about the firm’s treatment is that it is applied in the form of a cream. Krystal has other gene therapies in the pipeline, including ones for other skin diseases and cystic fibrosis. Its stock trades at 14.5 times 2026 earnings.

Biotechnology firm UniQure Biopharma (Nasdaq: QURE) is currently losing money, making it a relatively riskier investment than the others tipped here. But as well as a treatment for haemophilia (in partnership with CSL Behring) that has already been approved, its gene therapy for Huntington’s disease is in late-stage trials, and the firm could potentially file for approval from the regulator in as little as 12 months, say Craig and Poszepczynski. This “could be a game-changing solution for a devastating disease”. Gene therapies for Fabry disease, epilepsy, ALS and Alzheimer’s disease are also in development.

Another high-risk, potentially high-reward option is MeiraGTx Holdings (Nasdaq: MGTX). The company is currently losing money, but Karin Hyland of the Patria Private Equity Trust thinks it could benefit from the move among regulators to accelerate approval of gene therapies, especially following its successful trials in the UK, which saw its gene-therapy treatment for blindness in children succeed in restoring their sight. It is also working on gene-based therapies for other conditions, including ALS, genetic obesity and Parkinson’s. The Parkinson’s treatment in particular showed promise in early clinical trials.

Oxford BioMedica (LSE: OXB) is particularly admired by Andrew Craig. The company was spun out of Oxford University in the 1990s, and it has developed a lentiviral vector used in CAR-T therapy. What makes it “such a good example of British scientific innovation” is that it has managed to bring the cost of making the vector down by 90%, “and has said that it expects to bring down the cost by another 80%-90% over the next few years”, says Craig. If it manages to achieve this, it could not only start to make money but also turn a significant profit.

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To some, Anne Wojcicki is an “eternal optimist”, says the Financial Times – a medical industry pioneer who “won’t give up on her dream of using DNA kits to discover new drugs”. But, following the descent of the once high-flying 23andMe into bankruptcy protection, plenty of others aren’t quite so charitable. After repeated attempts to take the ailing genetics-testing firm she co-founded private, Wojcicki has now resigned as CEO to pursue an “independent” bid, amid plenty of sniping.

The rancour of shareholders is understandable. In 2008, Wojcicki used “her charm and Silicon Valley connections” to orchestrate a series of celebrity-studded “spit parties” publicising her new DNA-testing start-up, says the FT. The stars “dutifully filled 23andMe’s test tubes with their saliva”. Wojcicki’s “relentless optimism and charisma” helped “wave aside customer privacy fears and regulatory scrutiny”.

Over nearly two decades, some 15 million people splashed out for the $99 kit to learn more about their ancestry or health. “Many now appear to regret that decision.” Recently, both the company’s website and its wobbly shares crashed as customers rushed to delete their genetic data before it goes up for auction. The shares have lost 99% of their value since 2021, when 23andMe went public via a “blank cheque” company owned by Richard Branson, and became “a $6 billion unicorn”. The company is already “locked in investor disputes”. The mood won’t improve if Wojcicki secures the assets, washed clean by the Chapter 11 bankruptcy process, at a bargain price.

Who is Anne Wojcicki?

The Wojcicki family is the closest that Silicon Valley gets to a royal clan. Anne’s sister Susan, the former YouTube CEO who died last year, famously rented her Menlo Park garage to Google co-founders Larry Page and Sergey Brin – the latter became Anne’s husband (they divorced in 2015). A third sister, Janet, is a professor of paediatrics at the University of California.

The sisters grew up in an intensely academic environment, says Business Insider. Their father, Stanley, chaired Stanford’s physics department; their mother, Esther, was an influential journalist and teacher, sometimes dubbed the “Godmother” of the Valley. Anne Wojcicki credits her parents with conferring “a taste of freedom” as well as scientific inquiry – honed by “a childhood roaming around” the Stanford campus.

After graduating from Yale with a biology degree, Wojcicki headed for Wall Street and spent a decade working as a biotech and healthcare analyst. “Weary” of Wall Street’s avaricious approach to healthcare, she “decided to disrupt the industry”, says BusinessWomen. The founding aim of 23andMe, which began life in 2006, was to empower people “to take control of their well-being”. Named after the 23 pairs of chromosomes in the human genome, the start-up swiftly became “a trailblazer in personal genomics”. The kit was Time’s “Invention of the Year” in 2008, and Wojcicki was later named by Fast Company as one of America’s most “daring CEOs”.

Too daring, perhaps, says Fortune. 23andMe presents a bad case of overreach. Having built one of the world’s largest DNA databases, it began leveraging the data in 2015 – moving into “the staggeringly expensive business of drug development”. Ultimately, the retail side of the business wasn’t enough to cover costs. Already ailing, the firm was nearly torpedoed by a high-profile hack in 2023, from which it has never really recovered. From the outset, Wojcicki had bold visions and is known for her persistence, says the FT. But rebuilding the company seems a long shot.

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BioPharma Credit (LSE: BPCR) is one of the more esoteric investment trusts listed in London. Biotech is a specialist sector that I usually wouldn’t touch with a barge pole. The risk of failure is very high, and even the experts are often wrong-footed by a surprising trial result, court case or even fatality. However, as is often the case, uncertainty and complexity create opportunities.

BioPharma lends money to small- and mid-sized life sciences companies. Most of the borrowers are public companies, and the trust is lending against their future cash flows, with the loans secured by asset values.

“For the most part, our borrowers are asset rich,” says Pedro Gonzalez de Cosio, co-founder and chief executive officer of Pharmakon Advisors, the specialist biotechnology investor that manages the trust. “They are a monopoly in treating a certain disease in a certain way. [They] have very high gross margins [and] very valuable assets, but most of these companies are at a stage where they are probably still investing more in launching the product… So they have these assets worth a lot of money, but they’re still burning cash.”

BioPharma isn’t the only player in its sector, but this type of specialist life-sciences lending requires experience and a strong pipeline cultivated by reputation and knowledge to succeed. Pharmakon has been around since 2009 and has invested nearly $10 billion so far through the trust and other private funds (BioPharma usually partners with another Pharmakon fund on its deals). “We’ve only had to put a company into default once,” says Gonzalez de Cosio, and even on this default, the fund has recovered more than 90% of its investment.

BioPharma’s portfolio is relatively concentrated. At the end of January, just over 60% of the portfolio was allocated to just three senior loans to three separate companies. However, the portfolio shouldn’t be viewed in isolation, says Gonzalez de Cosio. “I can guarantee you that [by] investing in us [you] diversify your portfolio because there is no other way that you can get access to these assets.”

BioPharma's early repayments

When BioPharma listed in 2017, it committed to an annual dividend of 7% or $0.07 on the $1 per share issue price. It has topped this return up over the past three years with additional special dividends. Over the past three years, the trust has paid out $0.33 per share, or an average of $0.11 per year. It’s been able to do this as the bulk (78%) of the portfolio is floating rate and because companies generally commit to additional payments if the bonds are repaid earlier than scheduled.

For example, in November 2022, Immunocore took out a $50 million senior secured loan, funded jointly by the trust and BioPharma Credit Investments V. The floating rate note was set for repayment in November 2028 and paid an interest rate of 9.75%. In November last year, it was repaid early. Immunocore had to pay a $1.5 million early repayment fee, of which the investment trust received $750,000, as well as accrued interest of $264,000.

In May 2023, BioPharma loaned $25 million to Reata Pharmaceuticals, which owned the rights to the first and only approved treatment for Friedreich’s ataxia (FA) – a rare inherited and progressive neurodegenerative disorder – in the United States. Three months later, Reata was acquired for $7.3 billion by Biogen. Reata had committed to pay two years of interest on the loan, so when the acquisition took place, it had to pay interest upfront as well as the principal and early repayment fees. BioPharma booked a 141% internal rate of return.

BioPharma offers something different from a unique asset class. Currently, it is trading at a double-digit discount to its January net asset value (NAV) of $0.975. It paid $0.10 in regular and special dividends last year and in 2023, and while the special payouts are not guaranteed, that amounts to a trailing dividend yield of 11%.

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Obesity is a growing global problem and a real threat to the health of individuals. It is not just an aesthetic issue, but also a serious health concern – it is, to be blunt, very hard to be overweight and healthy, says Ali Khavandi, consultant interventional cardiologist at the Royal United Hospital Bath.

In the US more than 40% of adults are classified as obese, which has created a “health crisis” as a result of rising healthcare costs and reduced productivity in the workforce.

Obesity is even affecting military recruitment, making it a “pressing issue” for governments, says John Plassard, senior investment specialist at Mirabaud Group.

There is good news, however. Governments are trying to encourage healthy eating. And the latest generation of weight-loss drugs seem to be highly effective. These drugs promise to shrink our waistlines and fundamentally alter our relationship with food, says Plassard. That has major implications for the food industry.

Weight-loss drugs are a game changer

The big breakthrough has been the development of so-called GLP-1 receptor antagonists, such as semaglutide, which are sold by Novo Nordisk under the brand names Ozempic and Wegovy (similar drugs are sold by other companies, such as Eli Lilly). These were originally designed to be a treatment for diabetes, but have been repurposed as weight-loss drugs because they mimic the gut hormones that give rise to feelings of satiety, hence reducing appetites and calorie intake. The popularity and impact of these drugs is such that restaurant owners have started to notice changes in ordering patterns – diners are already tending to opt for smaller portions, says Roel Houwer, a product manager at asset manager VanEck.

The drugs are a game changer, agrees Khavandi. They have only relatively recently appeared on the market, meaning we don’t yet know much about their long-term effectiveness and side effects. But there is no doubting their popularity. Patients who aren’t eligible for treatment on the NHS are buying the drugs privately from online pharmacies, which are themselves “struggling to keep up with the demand”. Some people only use the drugs for a short period before stopping, usually because of stomach problems or because they baulk at the thought of being reliant on a drug they have to inject.

But most people do stick with them, not least because the drugs kickstart a virtuous cycle “where you lose weight, so you feel lighter and maybe have less knee or joint pain, which in turn gives you more energy, so you lose even more weight”. Their use is only likely to rise as health systems make more people eligible for treatment and new forms of the drug are developed that have fewer, or more manageable, side-effects.

Is this the end for junk food?

Interestingly, the new drugs lead not only to a reduction in the amount of food that people eat but also to an improvement in the quality of the food they choose, says Carl Hazeley, chief analyst at fintech firm Finimize. A study by Walmart, one of the largest retailers in the US, found that stores with a pharmacy where people were able to pick up prescriptions for weight-loss drugs saw smaller food baskets passing through the tills, and healthier, less calorific food choices. It seems, therefore, that people on weight-loss drugs shift away from junk food towards healthier options.

This shift should be nudged further by the growing regulatory pressure on the industry to improve the quality of food. In the UK, for example, there has been a push by the government to get companies to reduce the amount of sugar and salt in their products, as well as to “crack down on junk food in general”. Shops in the UK cannot, for example, put sweets on display near the till, a rule which came into force in 2022, and there are restrictions on advertising that promotes junk food. The US is behind the curve on such measures, but “the push provided by the weight-loss drugs will hopefully prompt food producers to move away from empty calories”.

Other studies of consumer buying patterns confirm that the weight-loss drugs are having an impact at the till, says Martin Frandsen, a portfolio manager at Principal Asset Management. One showed that weight-loss drugs reduce overall grocery spending for most people, but that the impact is particularly large for low-income households. This group “ends up spending 8%-9% less on groceries, with big reductions” on the amount spent on “chips, savoury snacks, sweet bakeries and soft drinks as well as frozen food”.

Opportunities in healthier grub

Sounds like bad news for junk-food producers. But it might be a boon for other food companies. The same studies suggest that those on weight-loss drugs “actually end up spending more money on fresh produce and yoghurts”, says Frandsen. A rise in the amount of fresh produce consumed may seem logical, but why yoghurt? It may be that the drugs, as previously noted, are having a negative impact on the stomach and causing nausea, and so people are choosing things to eat that are soothing.

There is also evidence that the drugs boost sales of protein-rich foods, says Jeneiv Shah, portfolio manager for Sarasin Food and Agriculture Opportunities Fund. This is because those who take the drugs often exhibit muscle as well as fat loss and foods high in protein, along with regular exercise, build the muscle back up. This means there is going to be a big rise in demand for products that are “ready to drink”, such as protein shakes, and for foods such as yoghurts that have been enriched with protein.

All such trends will have a knock-on impact further up the supply chain of the food industry, says Frandsen. If people are buying more fresh produce, then you will also need to have better inventory control systems, for example, as fresh food has a much shorter shelf life. That could be a great opportunity for companies involved in creating such systems. Similarly, since yogurts tend to have other ingredients added, such as vitamins and probiotics, the rise in the amount consumed “will be good news for some of the leading ingredient players in the market”.

Desire dampeners

The primary purpose of the new generation of weight-loss drugs is, of course, to get people to eat less, but there is some evidence that they also have the potential to “make a profound impact on broader lifestyle choices in other areas – for example, by influencing alcohol and tobacco consumption”, says Dasha Fomina, an equity research analyst at William Blair Investment Management. Studies “suggest a particular decrease in the desire for sweet alcoholic beverages”, she says. Hazeley also points to preliminary studies that indicate they may be a desire dampener when it comes to bad habits.

This development comes against a backdrop of “a slow-burning downward trend” in drinking among young people, which “started 20 years ago”, says Aarin Chiekrie, an equity analyst at Hargreaves Lansdown. “Compared with previous decades, young people are now less likely to drink alcohol, and if they do, they start drinking at older ages, drink less often and consume smaller amounts.” Evidence for this can be seen not only in surveys of consumption but also from the fact that pubs are suffering. The number of pubs in the UK fell from 55,400 in 2010 to 46,800 ten years later.

But it’s not all bad news for the drinks companies, says Chiekrie. Consumers are definitely buying less alcohol overall, but many are shifting to a “buy less, buy better approach”, and a lot of companies are “pivoting their offerings to cater to this”. Premium and craft drinks brands, for example, “remain strong”, and there is a growing demand for alcohol-free beers, “which are becoming more socially acceptable to drink at events, more available at bars and (crucially) much tastier to drink” than previously available alcohol-free offerings. An example is Diageo, which invested heavily in Guinness 0.0, its alcohol-free stout. This doubled its sales in Europe in 2024 and the drink became the number-one non-alcoholic beer in UK licensed premises.

We can see similar trends in Europe and the US, says Houwer. A study by the European Commission’s Directorate-General for Agriculture and Rural Development, for example, estimated that in 2021 the market for low- and non-alcoholic beverages (although virtually all of it is for the nonalcoholic kind) had grown to €7.5 billion in the EU alone. The leading producer of non-alcoholic beer was Germany, which accounted for nearly a third of the EU’s output in 2019.

The vegan revolution

As well as drinking less, younger consumers are also moving away from dairy and animal products, either for ethical reasons, such as concerns about animal welfare or the impact on the environment or because of the supposed health benefits of a vegetable-based diet. Many people feel that the health benefits of such a move have been oversold. “There’s a reason that most diets around the world have always contained meats,” says Khavandi, “and that’s because when you eat meat the animal has already done most of the work of extracting the nutrients from vegetable matter for you.” A purely plant-based diet, by contrast, is often a nutritionally deficient one, which is “why most vegans end up having to supplement their diet artificially”. Meat-substitute products also tend to be packed full of artificial flavourings, so, as Hazeley says, “you end up replacing a moral problem with a physical one”.

Still, it’s hard to dispute that there has been a big increase in consumers’ interest in alternatives to animal protein, as shown by the range of different products now available. “Just a few years ago the only real alternative to milk from cows was soy,” notes Frandsen. Now, however, “things have developed so quickly that there are around ten different types of alternative milk, and if you go into any large coffee chain you can easily find other alternatives, such as almond, oat, or coconut milk”. Indeed, around 15% of the “milk” now sold in the US is plant-based.

The market for plant-based alternatives to meat is a little more complex, says Frandsen. Some consumers want their meat substitutes to taste like meat, others don’t. This diversity “has made it harder for producers to achieve enough scale to reduce costs”, which is why he recommends investing in companies that specialise in adding ingredients to food, rather than those that sell the final product. Yet this too is a fast-growing market. The initial hype surrounding products such as Beyond Meat and Impossible Foods has slowed, says Lale Akoner, a strategist at eToro, but “alternative protein technologies such as precision fermentation (using genetically modified yeast and bacteria to grow specific ingredients) and cultivated (laboratory-grown) meat are poised to drive the next phase of innovation in the sector”.

In sum, a combination of the rise of the new weight-loss drugs, health-conscious consumers, regulatory shifts and breakthroughs in food technology adds up to a “fundamental transformation” for the food and drinks industry, says Akoner. The battle for market share will be “fierce”, with those resistant to change risking “obsolescence”, but those who recognise these trends and act accordingly are set to “thrive”. We look at some of the best options for investors who want to buy below.

The best investments to buy now

Most of the funds focused on anti-obesity drugs invest in the drugs themselves. A way to benefit more broadly from changes in consumers’ tastes is to buy an exchange-traded fund (ETF), such as the VanEck Sustainable Future of Food UCITS ETF A USD Acc (LSE: VEGI). The fund aims to provide “relatively diversified access to companies at the forefront of sustainable and innovative food solutions” by tracking the MVIS Global Future of Food ESG index, says Houwer. Major holdings include Danone (Paris: BN), which is the third-largest holding. As Hazeley points out above, the tendency of anti-obesity drugs to produce stomach discomfort in some users is leading to an increase in demand for Danone’s yoghurts. The firm trades at 17.5 times 2026 earnings and on a yield of 3.14%. The VanEck fund has an ongoing charge of 0.45% a year.

An active fund worth considering is the Sarasin Food and Agriculture Opportunities P Acc. It is managed by Jeneiv Shah and Colm Harney and invests in firms around the world that will benefit from the growth of the agriculture and food sectors. Many of its holdings will profit from the rise of anti-obesity drugs, including BellRing brands (NYSE: BRBR), the fund’s second-largest holding. It has seen its sales more than double between 2019 and 2024, makes a popular ready-to-drink protein shake, which can offset the muscle loss from anti-obesity drugs, and is sold by large US supermarkets and wholesalers, including Costco (the fund’s largest holding). BellRing trades at 25.6 times 2026 earnings; the overall fund has an ongoing charge of 0.98% a year.

Another company held by Sarasin’s fund (as well as VanEck’s ETF), and which should also be a big winner from the rise of anti-obesity drugs, is Kerry Group (LSE: KYGA), which sells specialist ingredients that make branded products tastier and more nutritious. The need to reformulate and redesign food products so they work alongside anti-obesity drugs is likely to boost demand for Kerry’s services, says Shah, which will constitute major “tailwinds” for the company. Kerry’s normalised earnings per share have jumped by nearly a third since 2020, and are expected to keep on growing. Its stock trades at a relatively modest 17.3 times 2026 earnings and a yield of 1.45%.

Another strategy is to focus on food producers that are “positioning themselves well in the evolving health-conscious market”, says Plassard. He particularly likes General Mills (NYSE: GIS), which is “adapting to consumers’ preferences for cleaner ingredients and lower-calorie options” by “aggressively expanding into organic, high-protein and functional nutrition”. General Mills has a solid record of sales growth of around 3%-4% a year, and has grown profits by more than 50% between 2019 and 2024, with a double-digit return on capital employed. Its shares trade at 14.7 times 2026 earnings and offer a dividend yield of 3.8%.

While anti-obesity drugs, and a more general millennial move away from drinking, may depress alcohol sales in general, a few drinks companies should still do well. Among them is Boston Beer Company (NYSE: SAM), which Akoner praises for “innovating in alcohol-free options”. Its strength in speciality and craft beers, which are also popular with younger consumers, should also ensure that it keeps growing. Boston Beer Company has seen its sales grow by 61% between 2019 and 2024, more than justifying the fact that its shares trade at 20.3 times 2026 earnings.

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Vertex Pharmaceuticals (Nasdaq: VRTX) specialises in treatments for rare diseases. It has eight approved medicines on the market. Seven of these are medicines for various types of cystic fibrosis (CF), a disease for which Vertex is the only drug company with approvals from America’s Food and Drug Administration (FDA).

It has been developing new CF drugs for 20 years and aims to offer treatments for every possible CF variant. It was the first company to receive FDA approval, in December 2023, for Casgevy – a genome-edited cell therapy for sickle-cell disease and another blood disorder, beta thalassaemia. These are serious illnesses requiring continuing treatment.

CF is a life-shortening, genetic disease causing thick mucus to build up in the lungs, pancreas and digestive system. There are 94,000 CF patients in the US, Europe, Australia and Canada. Symptoms include a chronic cough, shortness of breath, frequent lung infections (pneumonia, bronchitis), constipation and sinus pain.

For children it causes slow growth, clubbed fingers and delayed puberty. Sickle-cell disease causes extended painful episodes (sickle-cell crises); increased risk of infections; anaemia (leading to tiredness and shortness of breath); serious joint complications; swelling of hands and feet; and delayed growth and development in children.

Vertex Pharmaceuticals has a well-stocked pipeline

Vertex’s pipeline is well-stocked, with four new drugs in Phase III-clinical trials (the final phase before regulatory approval) for type-1 diabetes, diabetic peripheral neuropathy, and two kidney diseases.

There are also Phase I/II clinical trials for CF, type-1 diabetes, polycystic kidney disease and myotonic dystrophy type 1 (serious muscular dystrophy).

In addition, there are eight research programmes covering all the disease areas mentioned above. They should enter clinical trials soon. Finally, Vertex has outlicensed a portfolio of programmes (two in clinical trials) to Merck Germany that are first-in-class treatments for multiple types of cancer. Merck should be a useful partner for these, since it already has three oncology drugs on the market and eight in clinical trials in its pipeline.

Journavx, Vertex’s nonopioid pain-signal inhibitor for moderate-to-severe acute pain, was approved by the FDA in January 2025. It is the first new-class pain medicine approved for 20 years and has a potentially large market, since 80 million Americans are prescribed a medicine for this type of pain.

Meanwhile, a recent clinical trial of VX-880, a stem cell-derived treatment for type-1 diabetes, has shown encouraging results after six months – nine of 12 participants no longer needed insulin, and two others displayed significant reductions in the amount of insulin required. Vertex received FDA approval for another new medicine in December 2024 – Alyftrek, a triple-combination treatment for CF.

Investment on the rise

Vertex’s results for the 2023 financial year show revenue of $9.9 billion, an increase of 11% from 2022 driven by Trikafta/Kaftrio for CF, which was up 16.4% to $8.9 billion. The US accounted for $6 billion with $3.8 billion from other countries.

Investment in research and development (R&D) in 2023 was $3.2 billion plus $0.53 billion of acquired R&D, giving a total of $3.7 billion compared with $2.7 billion in 2022, an increase of 39% to advance the pipeline. The $3.69 billion represents an R&D intensity (R&D as % sales) of 37.4%, compared with a typical pharmaceutical company’s intensity of 15%- 20% (the figure for Pfizer, for instance, is 18.3%).

At the 2023 results announcement, the group projected that 2024 revenues would reach between $10.6 billion and $10.8 billion, but the 2024 results reported revenue of $11.02 billion, which gives growth of 12%. With Casgevy’s buildup, two new drugs launching in 2025 and three others likely to complete Phase-III trials in 2026, further growth is likely over the next few years.

A steady rise in profitable growth

Vertex has a market value of $122 billion with a recent share price of $476. The average estimate of earnings per share (EPS) for 2025 is $18.50, up from $14.05 in 2023. The share price is well below fair value, calculated by discounted cash flow of $708, probably because full-year 2024 EPS were a negative $2.08.

The reason for the loss in 2024 is that Vertex agreed to acquire Alpine Immune Sciences in April to gain its expertise in protein engineering and immunotherapy.

In addition, Alpine brings povetacicept, a pipeline drug for IgA nephropathy (a serious kidney disease) which entered its Phase-III clinical trial in late 2024 and has the potential to benefit patients with other serious autoimmune kidney diseases.

The acquired R&D from Alpine was $4.5 billion and this tipped Vertex into a loss of EPS $13.9 per share for the second quarter of 2024. Even though the third and fourth quarters showed a profit, the overall result for 2024 was still a loss of $2.08. EPS are expected to reach $17.90 in 2025, rising to $20.40 in 2026 and $23.40 in 2027.

Thanks to the growing revenue from CF, Casgevy’s build-out and further launches of new products in 2025 and 2026, Vertex now seems set for steady profitable growth. There is no dividend. At the recent share price of $476, the forward price/ earnings (p/e) ratio is 26.6 for 2025, falling to 23.3 for 2026.

The share price ranged from $448 to $517 in the second half of 2024, so the current price of $476 offers a reasonable entry point for a growing and profitable specialist in rare diseases.

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The demographics of developed countries are undergoing significant change. The percentage of the population aged over 65 is on the rise. The figure is already 29% for Japan, 24.5% for Italy, 19% for the UK and 16% for the US. The UK percentage is up from 11% in 1951 and projected to rise to 25% by 2050. The proportion of those aged 80 or over is set to double by 2063 to 6.3 million. Globally, there are expected to be 2.1 billion people over 60 by 2050.

The number of over-65s in G7 countries is increasing because of health education (there are fewer smokers, for instance), preventative healthcare, higher living standards, better diets, better public health and improved treatments for diseases and afflictions of old age. There has been a steady decrease in deaths from cancer and heart disease. Average life expectancy in G7 countries varies from 79.5 years for the US to 84.9 for Japan. But these average figures hide big differences between well-educated people and manual workers. A Spanish study found a ten-year difference between the two.

The large and increasing number of older people opens up growing market opportunities for health companies in three main areas: drugs to treat the diseases of old age, such as cancer and arthritis; replacement body parts, such as hip and knee joints; and aids for the senses, such as spectacles, hearing aids and treatments for degenerative eye diseases.

What are the leading causes of death?

The five main causes of death in the over-65s are, in order of importance, heart disease, cancer, stroke, respiratory diseases and Alzheimer’s. To these should be added obesity, since it raises the risk of heart disease (by 28%), cancer (by 20%) and Alzheimer’s (by 30%). The number of people with Alzheimer’s is predicted to double by 2040. In this article, we take as examples recent advances in the treatments for cancer, Alzheimer’s and obesity. We also mention arthritis since this can seriously limit the mobility and activities of the over-65s, with rheumatoid arthritis cases predicted to increase by 80% from 2020 to 2050.

Treatments for these four diseases are all growth markets. The cancer drug market is expected to grow from $210 billion in 2023 to $518 billion in 2032, with the Alzheimer’s drug market expanding from $4 billion in 2022 to $17 billion in 2030. The market for obesity drugs is expected to rocket from $6.6 billion in 2023 to $150 billion by the early 2030s. The market for arthritis drugs is set to swell from $25 billion in 2023 to $50 billion by 2030.

The most common cancers in the over-65s are lung cancer and prostate cancer in men, and breast cancer and colorectal cancer in women. Around 40% of breast cancers are diagnosed in women over 65. Advances in immunotherapies have given oncologists new drugs for lung cancers, such as Keytruda from Merck, Opdivo from Bristol-Myers Squibb, Tecentriq from Roche and Imfinzi from AstraZeneca.

Aggressive prostate cancer is difficult to treat, but a new drug from AstraZeneca (AZD5305) has proved very effective in clinical trials. The most common breast cancer in older women is hormone-receptor positive (HR+) tumours, for which a common treatment is Pfizer’s Ibrance. Some patients can be resistant to Ibrance, but recent trials show that AstraZeneca’s AZD4573 combined with Ibrance is effective in these cases. Roche also has drugs for HR+ breast cancer. Immunotherapies for colorectal cancer include Keytruda and Opdivo. Roche and AstraZeneca both have strong cancer pipelines.

Has there been progress in treating Alzheimer's?

No effective Alzheimer’s drugs were available and no new drug had been developed for 18 years until Biogen’s aducanumab was approved by America’s Food and Drug Administration (FDA) in 2021. This was quickly followed by a better drug called lecanemab, from pharma groups Biogen and Eisai. It was approved by the FDA in 2023 as it both reduces amyloid plaques (clumps of protein often associated with the disease) and slows the cognitive decline Alzheimer’s causes.

These were followed by last year’s approval of Eli Lilly’s donanemab, which is slightly more effective in reducing cognitive decline. Alzheimer’s causes psychotic symptoms in the over-65s, but the other main cause is psychosis schizophrenia, which is becoming increasingly common in this age group. There had been no news for treating schizophrenia for decades until a new and effective drug, Cobenfy (from Bristol-Myers Squibb), was approved in September 2024. Another promising new pipeline drug for schizophrenia from AbbVie failed its clinical trials in November.

Tackling obesity, eye disease and arthritis

Given that the risks of heart disease, cancer, diabetes and Alzheimer’s all increase substantially with obesity, it is concerning that 41.5% of Americans over 60 are obese. The advent of effective weight-loss drugs in recent years is therefore a step forward in reducing the risk of death. Weight-loss drugs were developed from drugs to treat type-2 diabetes, such as Novo Nordisk’s Ozempic, which, in a higher dose form, is sold as Wegovy for weight reduction.

Ozempic was FDA-approved in 2017 and Wegovy in 2021 and sales of both are currently limited by manufacturing capacity. Eli Lilly was the second company to enter this field, with Mounjaro for diabetes, approved in 2022, and Zepbound for weight-loss approved in 2023.

Age-related macular degeneration (AMD) is the main cause of vision loss in older people. AMD is now treated with drug injections, which used to be given monthly, but new drugs can be administered every two to four months, such as Roche’s Vabysmo for wet AMD (every four months) and Apellis’s Syfovre for dry AMD (every two). A new gene therapy from AbbVie (ABBVRGX-314) enables the eye to produce medicine on its own and should greatly reduce the need for injections.

Serious arthritis is common among the over-65s and can greatly limit activity and mobility. That is why AbbVie’s Humira treatment for rheumatoid and psoriatic arthritis, as well as for psoriasis, became the world’s best-selling drug and, in 2022, the first drug ever with annual sales over $20 billion. Its patent expired in 2023 so generic competition then reduced sales, but AbbVie has developed the new and improved drugs Rinvoq and Skyrizi, also for rheumatoid and psoriatic arthritis and psoriasis. They are rapidly increasing their sales and together racked up revenue of $4.8 billion in the third quarter of 2024, a year-on-year increase of 48%. Investment options among the pharma giants mentioned above include AbbVie, AstraZeneca, Eli Lilly, Novo Nordisk and Roche, all of which have well-stocked new drug pipelines.

Developments in hip and knee replacements

The next category of medical advances helpful to older people is that of replacement body parts, such as hip and knee joints, heart pacemakers, stents for artery repair, replacement heart valves and spinal repair systems. Medtronic is a major supplier of the last four items and many others. It provides pacemakers that are MRI-scanner safe, a range of stents, mechanical and prosthetic heart valves and systems for repairing compression fractures of vertebrae. Abbott Laboratories and Boston Scientific also provide stents, heart valves and pacemakers. The market for cardiac-implantable electronic devices (which includes pacemakers) is expected to grow from $28 billion in 2023 to $47.4 billion by 2030.

The prevalence of total hip and knee replacements increases sharply with age so that by age 80, 5.3% of Americans have hip replacements and 10.4% have knee replacements. The major companies providing replacement joints are Stryker Corporation, Zimmer Biomet, DePuy Synthes (Johnson & Johnson) and Smith & Nephew. Zimmer is the global market leader in the large joint-replacement market, followed by Stryker. The global market size is expected to rise from $20.5 billion in 2023 to $25.7 billion in 2030. Medtronic, Boston Scientific, Zimmer and Stryker are our top-four companies in the area of body-part replacements.

Expanding into the glasses and hearing aids market

Vision and hearing both deteriorate with age and around 85% of over-65s wear glasses, with only a small percentage choosing contact lenses. Hearing-aid use is lower, with 19.2% of men over 65 using an aid compared with only 10.6% of women. EssilorLuxottica is the global market leader in glasses with 150 brands, including Ray-Ban, Oakley, Prada and Swarovski. Its market share is 36% in Europe and 47% in North America. It is also the world’s largest maker of corrective lenses, with a 42% market share.

EssilorLuxottica has introduced a series of innovative products, including its Ray-Ban Meta smart glasses, Stellest myopia-management lenses and Nuance audio glasses, which are soon to be launched and incorporate a hidden hearing aid into fashionable spectacle frames. Prototypes were demonstrated at the 2024 Consumer Electronics Show in Las Vegas.

The global market leader in hearing aids is Sonova International of Switzerland, with brands such as Phonak, Unitron and Hansaton. Its global market share is 31%. The second-largest player is Starkey Hearing Technologies, a private company with premium products that incorporate AI into hearing aids to provide wireless connectivity, voice commands and health tracking. Demant and WS Audiology, a private company, are also significant players.

For patients who are profoundly deaf or severely hard of hearing, a cochlear implant rather than a hearing aid is required. The implant converts sound into electrical signals that are fed directly into the auditory nerve. Cochlear Limited, an Australian company and market leader, is said to make the most reliable implants, followed by Advanced Bionics, a subsidiary of Sonova. EssilorLuxottica, Sonova and Cochlear are potential investments in glasses and hearing aids.

How have the top players in the healthcare industry performed?

We have mentioned above several companies in different fields of healthcare, and we now look at their growth rates and financial performance. In alphabetical order within their categories, the main options are AbbVie, AstraZeneca, Eli Lilly, Novo Nordisk and Roche in pharmaceuticals; Boston Scientific, Medtronic, Stryker and Zimmer in medical devices; and finally Cochlear, EssilorLuxottica, and Sonova in glasses and hearing aids.

Bristol-Myers Squibb and Merck unfortunately both have blockbuster drugs nearing patent expiry – Bristol has three blockbuster patents expiring in 2026-2029 and Merck has Keytruda, which makes up 45% of total revenue, expiring in 2028. These patent expiries raise the risk for both stocks. The forward dividend yields of these 12 firms range from AbbVie and Roche at 3.5% to Lilly’s 0.8% and Boston Scientific’s 0%. We now summarise some key indicators for the 12 companies.

AbbVie has strong positions in immunology, aesthetics (Botox and next-generation fillers), oncology and neuroscience. However, revenue and profit were down in 2023 as AbbVie adjusted to the patent expiry of Humira. AbbVie has a market value of $301 billion, a forward price/earnings (p/e) ratio of 14.6, and a yield of 3.7%.

AstraZeneca is particularly strong in oncology, but also in the cardiovascular, renal, respiratory and rare-disease sectors. Since 2023, its operating profit has nearly doubled. AstraZeneca’s market capitalisation is £168 billion. It has a forward p/e of 13.9 and a yield of 2.2%.

Eli Lilly is the second company to win approvals in the new growth areas of obesity and Alzheimer’s. It is also strong in diabetes, immunology and oncology (following the acquisition of Loxo Oncology). Both revenue and operating profit were up approximately 20% from 2022-2023. Eli Lilly’s market cap is $672 billion, the forward p/e is 33 and the yield is 0.8%.

Novo Nordisk is a global leader in diabetes, obesity and rare blood and endocrine diseases; it is also exploring other areas. Both revenue and profit were up over 30% in 2023. Novo has a market cap of DKK2.7trn (£306 billion), a forward p/e of 20.9 and a yield of 1.7%. A decline in share price from June to November 2024 was caused by both second and third-quarter results not meeting analysts’ expectations, along with increasing competition from Eli Lilly and the prospect of other companies planning to enter the market.

Roche is strong in oncology, neuroscience, cardiovascular and rare diseases, and in diagnostics (this division comprises 20% of overall revenue). Roche’s revenue and operating profit were down by 8% and 12% respectively from 2022-2023, with the drop in demand for Covid tests and treatments, along with the appreciation of the Swiss franc, being the major culprits. Roche’s market cap is SFr214 billion (£192 billion), its forward p/e is 12.5, and it yields 3.6%.

Boston Scientific has seen strong growth in recent years, with revenue up 12% and operating profit up 19% in 2023. Boston has a market cap of $143 billion, a forward p/e of 34, and no yield. Medtronic, on the other hand, saw revenue rise less than 4% and operating profit fall more than 5% from 30 April 2023-30 April 2024. Medtronic has a market value of $110 billion, a forward p/e of 14.6, and a comparatively high yield of 3.2%.

Zimmer did rather better than Medtronic, with revenue up 6.5% and operating profit up 22% in 2023. Zimmer has a market cap of $21 billion, a forward p/e of 12.2 and a yield of 0.9. Stryker did even better, with revenue up 11% and operating profit up 29% from 2022-2023. Stryker has a market cap of $141 billion, a forward p/e of 26.9, and a yield of 0.9%.

EssilorLuxottica’s revenue was up only 3.7% and operating profit was up only 0.7% from 2022-2023. However, the first three quarters of 2024 saw revenue up 4% over the prior year, and the company said it expected revenue to accelerate from the three innovations mentioned above. EssilorLuxottica has a market cap of €108 billion, a forward p/e of 30.4, and a yield of 1.7%.

Sonova’s revenue and profit were down a little from 2022-2023, with headwinds from the strength of the Swiss franc and the loss of a contract with a US customer. Sonova has a market cap of SFr18.1 billion (£16.2 billion), a forward p/e of 22.8, and a yield of 1.4%. Cochlear, on the other hand, saw a 15% increase in revenue and an 18% increase in profit for the year to 30 June 2024. Cochlear has a market cap of A$20.1 billion (£10.2 billion), a forward p/e 47, and a yield 1.4%.

Where to invest now

The figures above suggest that Cochlear Limited (Sydney: COH), a growth company, is rather expensive, but consider buying it when the price is lower relative to earnings. EssilorLuxottica (Paris: EL), despite a fairly high p/e, has potential as its new innovations are marketed and sales grow. Boston Scientific (NYSE: BSX) has further growth potential, while Stryker Corporation (NYSE: SYK) is a better bet for growth than Zimmer. Medtronic (NYSE: MDT) is useful as a steady income stock with a decent dividend and a consistent history of increasing dividends.

Roche (Zurich: ROG) is another steady dividend stock. AbbVie (NYSE: ABBV) and AstraZeneca (LSE: AZN) are probably the safest pharmaceutical picks with modest p/es and decent yields with Novo Nordisk (Copenhagen: NOVO-B) and particularly Eli Lilly (NYSE: LLY) on much higher p/es, but potentially higher growth. Lilly has recently been doing well in the diabetes and obesity markets and has a higher p/e, but more diverse product range than Novo. However, keep an eye on clinical trial results for both since better-performing new diabetes and obesity drugs could enable either one to pull ahead.

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Shares in pharmaceutical giant AstraZeneca (LSE: AZN) took a hit last month after the head of the company’s Chinese business was detained. Reports suggested the Chinese government was looking into allegedly fraudulent practices in the division. The stock has now fallen by a fifth in three months. It’s not often that investors are presented with the opportunity to buy a great company at a discounted price. When these opportunities emerge, it usually pays to snap them up, as they won’t be around for long.

Investors seem to have panicked. While there is a risk that any investigation could lead to sanctions against the company, China only comprises 13% of the group’s top line, and the market isn’t as important as it once was. Growth is slower than in bigger, and frankly more lucrative, regions such as the US.

Revenue from the key US market made up 44% of the group’s total in the third quarter, rising 23%, compared with growth of 15% at the Chinese division. The market doesn’t seem to have taken this into account. And the stock is trading at just 13.6 times forward earnings. The five-year average is 19. The stock also offers a 2.3% dividend yield.

What's the outlook for AstraZeneca's share price in 2025?

Next year several developments have the potential to bolster the share price. Last May, AstraZeneca’s management laid out the goal of $80 billion in revenue by 2030 (exceeding the City’s consensus by $10 billion and nearly double 2023’s revenue of $45.8 billion) with a number of key programmes set to kick off in 2025. The company has identified seven new drugs in its pipeline that could yield $5 billion in sales by the end of the decade.

Next year, we’ll get the results of at least three of these potential blockbusters (two new cancer treatments and one for treatment-resistant hypertension). The company dominates the global oncology (cancer treatment) sector and is closely watched for major drug developments and breakthroughs.

Revenue from the company’s cancer-drugs business grew 21% in the third quarter, driven by sales of blockbuster medicines Enhertu and Tagrisso, while revenue from the respiratory- and immunology-therapies unit grew 24%. Management has earmarked these as vital areas in the company’s growth plan. Spending on research and development (R&D) has doubled since 2019 as the company ramps up development to keep its treatment pipeline full. The strategy, at this stage, seems to be working – the group stands in a league of its own when it comes to the number of potential blockbusters moving through the testing phase.

AstraZeneca is also recording further successes with existing treatments. Its drug Imfinzi was first approved in 2017 to treat bladder cancer, but has since been approved to combat a range of other cancers, including most recently a variation of limited-stage small-cell lung cancer.

Management has laid out plans to reach an operating income margin in the mid-30s by 2026, despite this increased spending. The company argues that operating leverage and cash from new treatments will help the business grow profitability and expand its margins while still investing for the future. The City seems to agree.

Huge opportunity for AstraZeneca

AstraZeneca’s current valuation looks attractive based on the outlook and management’s 2030 revenue target. The group is also a great play on the growing demand for healthcare worldwide. Over the next three decades, the number of elderly people aged 65 or over worldwide is projected to double to more than 1.5 billion in 2050, and this growth is expected to lead to a jump in cardiovascular diseases and cancer.

Deaths from these diseases are expected to increase by at least 40% by 2030 and account for almost 80% of all deaths in people aged 60 years or over. For AstraZeneca, which has carved out a niche in the oncology market, this presents a huge opportunity.

Should you buy AstraZeneca?

According to research complied by IQVIA, a leading global provider of advanced analytics and clinical-research services to the life-sciences industry, global spending on cancer medicine increased to $223 billion in 2023, $25 billion more than in 2022, and is projected to reach $409 billion by 2028.

North America makes up 48% of the market and is expected to lead the growth over the next decade. The US oncology market will more than double from $74 billion in 2023 to $180 billion by 2033, according to Nova One Advisor. AstraZeneca plans to invest $3.5 billion in the US by the end of 2026 to capitalise on this growth, expanding manufacturing sites in Maryland, Texas and California.

AstraZeneca isn’t the only company making huge strides in this market. Roche earns almost twice as much from oncology sales as AstraZeneca does, but the latter is catching up. AstraZeneca’s explosive jump in research and development spending stands in stark contrast to Roche’s, which has risen just 30% over the same time frame. The spending does not guarantee success, but money is everything in the rapidly developing world of oncology.

Next year will be a landmark one for the group as this spending starts to translate into growth. Right now, there’s an opportunity to buy the company’s future growth at a discount. Considering the firm’s pipeline, drug portfolio and growth targets, investors shouldn’t wait around for a better time to buy.

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Shares in big vaccine producers have slumped since Donald Trump asked Robert F. Kennedy (RFK) Jr. to lead the Department of Health and Human Services, says The New York Times. Kennedy, known for his “divisive” views on public health, including “scepticism” about vaccines (as well as pesticides and water fluoridation) is to lead “a huge department… whose regulations affect America’s food and medicine choices”.

How could RFK Jr impact the US healthcare industry?

Ironically, picking such a well-known vaccine sceptic may be a form of “political retribution” by Trump, who claims that the vaccine makers “sat on positive Covid jab test results until after he had lost the [2020] election”, says the Daily Telegraph. He furthermore accused the US Food and Drug Administration (FDA), which is also likely to be in Kennedy’s crosshairs, of not wanting to give him a “vaccine win prior to the election”.

Installing RFK Jr in an official administration role “may be difficult”, as his anti-vax views have been so extreme that they led to bans on YouTube and Instagram, says Robert Cyran on Breakingviews. That “might preclude confirmation even in a Republican-led Senate”.

However, even if he only ends up serving as a senior advisor, it would still give him “plenty of scope to target the pharmaceutical and related industries”. While RFK has said in interviews that “he wouldn’t take away anyone’s vaccines”, he reportedly wants to remove product liability protection from vaccines, a step that might have a “similarly harmful effect”.

Whatever role Kennedy eventually plays, even his presence within the administration could “erode public trust” in vaccines, “put up roadblocks to the approval of new vaccines and prevent the CDC from recommending any vaccines that make it through the approval process”, says Morningstar’s Karen Andersen. This, in turn, could mean that certain US states could “waver” in support of broad mandates for childhood vaccines. Still, any reduction in projected US vaccine sales would not be “long-lasting”, and so this should not provide “a significant hit” to drug companies’ valuations.

The industry hopes that RFK’s influence may be cancelled out by other “smart people” advising Trump, say Ian Johnston and Oliver Barnes in the Financial Times. They could restrain RFK, while there may be increased benefits from the stockpiling of certain vaccines for defence purposes.

Vivek Ramaswamy, appointed alongside Elon Musk to oversee a state efficiency drive, has also been a big fan of reducing red tape in the drug approval process, accusing the FDA of erecting “unnecessary barriers to innovation”.

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Current profits are not necessarily the best guide to selecting pharmaceutical companies for investment. This is because earnings may reflect strong but temporary sales of blockbuster drugs that are unlikely to continue, either because the drugs are about to come off patent or because of a short peak in demand for drugs treating a temporary condition, such as an epidemic. In these and other cases, the strength of a company’s pipeline is more important than its recent profitability because the late-stage pipeline determines future sales and profits.

For example, if a company’s last set of results depended heavily on sales of a blockbuster drug that is about to come off patent, future profitability will suffer as generic drugs enter the market following the expiry of the patent, unless there are comparably profitable drugs emerging from the late-stage pipeline. Drug giants Pfizer and AbbVie illustrate these two points.

Pfizer
Our first example is Pfizer, which benefited from massive but temporary sales of its Covid vaccine developed with BioNTech of Germany. This pushed its sales up from $41.7bn in 2020 to $81.3bn in 2021 and $100.3bn in 2022. But sales then fell back sharply in 2023, to $58.5bn. The share price followed this pattern, soaring from $27.50 in March 2020 to $59.50 in December 2021, but then falling to a low of $25.30 in April 2024.

AbbVie
A second example is AbbVie’s Humira for rheumatoid arthritis and similar immunological diseases. It was the world’s best-selling drug in 2022, with peak sales of $20.2bn – the first drug ever with annual sales over $20bn. Humira’s US patents expired in early 2023 and generics were launched. As a result sales in 2023 fell to $14.4bn and then to $5.1bn in the first half of 2024.

However, AbbVie had new patented drugs in its pipeline, including Skyrizi and Rinvoq, developed to treat similar immunological conditions to those targeted by Humira. This limited the damage to sales and the share price. AbbVie’s stock only fell from $162 in November 2022 to $135 in June 2023, but it had eclipsed $200 by October 2024. These and other examples show how important it is to examine a biopharma firm’s pipeline – particularly its late-stage pipeline – before deciding to invest.

A biopharma’s late-stage pipeline is most important since the probability of a new drug failing in clinical trials is much lower for the final stage-III trials. There is a 49% probability that a drug starting its stage-III clinical trial will get regulatory approval. The success rate is only 15% for a drug starting its stage II trial and only 10% for a drug starting its stage-I trial.

The market for weight-loss drugs

The recent interest in weight-loss drugs exemplifies the importance of late-stage pipelines. Financial research and investment platform Morningstar now estimates the market size for weight-loss drugs at $200bn by 2031, up from only $6bn in 2023. Weight-loss drugs therefore address a fast-growing and massive market. The scale of this market is emphasised by the most recent US national statistics, showing that 10% of Americans are severely obese and another 32% obese.

Novo Nordisk
Denmark’s Novo Nordisk was the first firm to launch a series of weight-loss drugs based on its long history of treatments for diabetes. Enter GLP-1 drugs (GlucagonLike Peptides).

The first new GLP-1 was Victoza (Liraglutide) for type-2 diabetics, which America’s Food and Drug Administration (FDA) approved in 2010. Experience with Victoza showed that it helped reduce appetite and therefore weight, so a version with a stronger dose, Saxenda, was developed and FDA-approved for weight loss in 2014.

The next development of the GLP-1 class of drugs was Ozempic (Semaglutide), FDA-approved for type-2 diabetes in 2017. A higher-dose version of Ozempic called Wegovy was FDA-approved for weight loss in June 2021. The demand for Wegovy has been so strong that Novo has been unable to keep up with it.

Eli Lilly
Eli Lilly was the second company to spot the potential of weight-loss drugs and its Mounjaro (Tirzepatide) was approved for type-2 diabetics in May 2022. A stronger version for weight loss called Zepbound was FDA-approved in November 2023. Tirzepatide is a combination of a GLP-1 and a GIP (Glucose-dependent Insulinotropic Polypeptide).

Keep an eye on clinical trials

Novo’s share price has tripled since June 2021 when Wegovy was approved for weight loss. However, stage III clinical trial results on Wegovy were released in May 2020 showing substantial weight reduction and Novo’s share price is up three-and-a-half times since then. Lilly’s recent share price is up over 43% from November 2023 when Zepbound was approved for weight loss. However, stage-III results showing substantial weight loss using Zepbound were released in July 2023 and Lilly’s share price is up 83% since then. So investors who noted the late-stage clinical trial results did better than those waiting for FDA approval.

The other key point about Novo and Lilly’s GLP-1 drugs is that recent clinical trials show that they have beneficial effects on other conditions as well as diabetes and obesity. Recent studies suggest GLP-1s reduce cravings for heroin and alcohol, and a May 2024 study showed that Ozempic reduces the risk of heart attacks and strokes regardless of whether patients lose weight. In March 2024 the FDA approved Wegovy for the reduction of cardiovascular risk in overweight or obese adults with established cardiovascular disease. And Novo is testing semaglutide for early stage Alzheimer’s.

These additional benefits of weight-loss drugs are likely to increase the size of the market. Both Novo and Lilly have two more obesity drugs in stage III trials and three in stage II trials. Both oral and injectable versions are under study and one each of the Novo and Lilly stage-II trials are of GLP-1/GIP drugs. Interestingly, Novo announced in March 2024 that a small stage-I trial of a new drug, Amycretin, showed a 13.1% weight reduction after 12 weeks compared with a 6% weight loss for Wegovy over the same period.

Other pharmaceutical companies are also now testing new drugs for the weight-loss market. Examples are Amgen (one in stage II), AstraZeneca (one entering stage II), Boehringer Ingelheim (one in stage III). Pfizer (one starting stage III) and Zealand Pharma (one starting stage II, one starting stage III).

The global market for cancer drugs 

More than 50% of all drugs in development are for cancer. Market research company Spherical Insights predicts that the global market for cancer drugs will rise from $190bn in 2023 to $565bn in 2033, a compound annual growth rate of 11.5%.

AstraZeneca
AstraZeneca has a strong pipeline of cancer drugs, which is why Pfizer bid for the company in 2014 but withdrew its offer after AstraZeneca’s board rejected it. Pfizer bid £55 a share in Pfizer shares and cash, but AstraZeneca’s shares were over £120 for most of May to September 2024. AstraZeneca has a particular focus on lung cancer, which accounts for a fifth of all cancers. The lung cancer drug market was worth $30bn in 2023 and is expected to more than double by 2032.

AstraZeneca’s oncology drug sales were worth $17.1bn in 2023, with over $15bn of that stemming from four key drugs, including Imfinzi (an immunotherapy for lung and other cancers). Imfinzi, in conjunction with chemotherapy, was granted priority review in the US by the FDA for non-small cell lung cancer and approved in August 2024.

Merck & Co.
By far the world’s top-selling cancer drug is Merck & Co.’s Keytruda, a cancer immunotherapy, which has been approved to treat several different cancers. Other companies with top-selling oncology drugs are Johnson & Johnson (J&J), Bristol-Myers Squibb and AstraZeneca.

Merck has 16 drugs in stage III and 17 in stage II. Of the 33, 10 are for lung cancer. J&J’s pipeline of oncology drugs has 20 drugs in stage III (15 for blood cancers, but none for lung cancer) and two in stage II. Bristol has nine in stage III and five in stage II; six of the total of 14 are for lung cancer. AstraZeneca’s oncology pipeline has 25 stage-III clinical trials with another 13 in stage II and 18 in stage I; 11 of the total of 38 are for lung cancer and nine for breast cancer.

Don’t forget Alzheimer’s

Alzheimer’s disease accounts for most cases of dementia. There were 55 million cases of dementia worldwide in 2020, but the figure is expected to rise to 78 million by 2030 and 139 million by 2050. New drugs have been approved over the last year or so which, while they do not cure the disease, do markedly slow cognitive decline and therefore give patients more years of useful life. The leading treatments are Lecanemab (Leqembi) from Biogen/Eisai and Donanemab from Lilly, which were approved by the FDA in 2023 and 2024 respectively.

The advent of these and other new drugs yet to be named is expected to drive the market for Alzheimer’s treatments from $2.2bn in 2020 to $22bn in 2030. Biogen has another Alzheimer’s drug in stage-II trials and further stage-III trials of Lecanemab. Lilly has two Alzheimer’s drugs in stage II, one in stage III as well as a further stage III trial of Donanemab. AbbVie has three Alzheimer’s drugs in stage II and is buying Aliada Therapeutics for its promising stage-I Alzheimer’s drug.

Where to look for pharmaceutical investments

It is safest to invest in large pharmaceutical companies. Smaller biotechs may have interesting new drugs in their pipelines, but these are often marketed using agreements with large pharma. Three criteria aid the selection of large pharmaceutical companies for investment.

• The first is that the company should have substantial sales in large and growing markets.
• Secondly, it should ideally have one of the leading drugs in one, or preferably two, of these markets.
• Thirdly, the company should display substantial investment in research and development (R&D) and a well-stocked pipeline in growing therapeutic areas where it already has a substantial market presence and preferably those where it has a leading drug by sales.

Many of the companies mentioned above satisfy these three conditions, with all investing 14% or more of sales in R&D (AbbVie & Novo invest more than 20%).

The first example is Novo Nordisk. It is the world leader in treatments for diabetes, the world’s fastest-growing major disease, and also in drugs for obesity, a fast-growing market expected to reach $200bn in the early 2030s. Novo has leading drugs in both fields and a strong pipeline of new drugs for both.

Our second example is Eli Lilly, which is also strong in diabetes and obesity and has one of the only two drugs approved to treat early-stage Alzheimer’s. Lilly also has drugs to treat cancer, immunological and other diseases.

The third example is AstraZeneca, which has successful oncology drugs on the market (two in the global top ten) and a pipeline strong in new drugs, particularly for lung and breast cancer, two of the most common cancers. AstraZeneca also has drugs for cardiovascular, respiratory diseases and immunology, together with a rare-diseases portfolio, a therapeutic area it entered with its acquisition of Alexion for $39bn in December 2020.

The fourth example is AbbVie, which for years dominated the market for immunology treatments (especially for rheumatoid arthritis) with the world’s best-selling drug, Humira. Immunology is still its best-selling area, accounting for half of sales. Its new immunology drugs – Skyrizi and Rinvoq – now notch up joint sales exceeding those of Humira, which from 2023 became subject to generic competition. AbbVie also has substantial sales in oncology, neuroscience and aesthetics.

The fifth example is Merck, whose Keytruda has been approved for several different types of cancer and is the world’s top-selling oncology drug. Keytruda currently accounts for about 45% of sales, with vaccines being the other large area. However, Keytruda’s key patent expires in 2028, so replacing it with new drugs from Merck’s pipeline is a top priority. Merck’s pipeline is dominated by new oncology drugs but also includes drugs for cardiovascular diseases, antiviral (HIV) illnesses, and new vaccines.

Assessing the potential

We now assess the five companies mentioned above for their potential as investments by looking at aspects such as growth record, price/earnings (p/e) ratio, dividend yield and target price compared to the recent share price.

Novo is growing strongly, with revenue up 83% between 2020 and 2023 and operating profit up 90% over the same period. Novo has a forward p/e of 28 and a forward dividend yield of 1.3%. The shares have gained 12.3% over the past year.

Lilly is also growing robustly, with sales up 39% between 2020 and 2023 and operating profit gaining 52% over the same period. Lilly’s forward p/e is a high 37.5 and the forward yield is a mere 0.6%. The share price is up 53% in a year.

AstraZeneca’s revenue is up 72% from 2020 to 2023, with operating profit up 123% over the same period. The forward p/e is 15.6 and the forward yield is 2.1%. The share price is up 7.8% over the past 12 months. AbbVie’s revenue rose 18.6% from 2020 to 2023, with operating profit up 6.3% over the same period. The forward p/e is 16.8 and the forward yield is 3.3%. The share price is up 42.7% over the past 12 months.

Merck’s revenue rose 45% from 2020 to 2023. Operating profit was up 230% from 2020 to $18.3bn in 2022, but then fell to $3bn in 2023 because of increased R&D expense, which rose from $13.5bn in 2022 to $30.5bn in 2023 for three reasons: a collaboration agreement with Daiichi Sankyo; two acquisitions; and increased expenditure on clinical trials of new pipeline drugs. The forward p/e is 10.5 and the forward yield is 2.94%. The share price is up only 2.1% over the past year.

5 pharmaceutical stocks with a range of risk profiles

These five companies, with their blockbuster drugs and strong pipelines, offer a range of risk/reward profiles and provide options for investors with various risk appetites.

Lower risk
The two lower-risk firms are AstraZeneca (LSE: AZN) and Novo Nordisk (Copenhagen: NOVO-B). AstraZeneca is growing strongly, has a reasonable forward p/e of 15.6, a dividend yield of 2.1% and is strong in cancer, particularly in treatments for major cancers such as those of the breast and lung. Current drugs are backed up by a strong pipeline. Novo is also growing strongly; boasts a prime position in diabetes and obesity; and has a strong pipeline in both these areas, as well as in cardiovascular and liver diseases. But it has a higher p/e of 28 and a lower yield of 1.28%.

Reasonable risk/reward
Eli Lilly (NYSE: LLY) is also growing strongly and has demonstrated the ability to be the second company to bring out new drugs in new key areas, such as obesity and Alzheimer’s, in addition to its presence in several established disease areas (diabetes, cardiovascular, immunology, neuroscience and cancer). However, it is riskier than Novo or AstraZeneca since its forward p/e is a high 37.5 and the yield is only 0.61%.

AbbVie (NYSE: ABBV) and Merck both have very successful drugs that are, or soon will be, off-patent. AbbVie’s Skyrizi and Rinvoq are replacing Humira; both grew revenue strongly in the second quarter of 2024. AbbVie also achieved double-digit sales growth in oncology and neuroscience. With a relatively low forward p/e of 16.8 and a dividend of 3.3%, it has a reasonable risk/reward profile.

High risk
Merck's (NYSE: MRK) forward p/e of 10.5 and yield of 2.9% are also attractive. Its combination of acquisitions and strong investment in pipeline drugs suggests it should be able to bring new cancer drugs to market by 2028 when Keytruda’s patent expires. However, the stock is risky: Keytruda accounted for over 45% of revenue in the second quarter of 2024.

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Heart disease may not feature as prominently in the press as other medical conditions, but in many respects, it is an even bigger problem, says Dr Ali Khavandi, consultant interventional cardiologist at the Royal United Hospital Bath NHS Foundation Trust. It “kills more than all cancers put together”. 

Heart disease is also a growing problem, imposing the “largest financial burdens on healthcare systems around the world”. Fortunately, mounting demand for better treatments is sparking a revolution in the way we treat the condition, with the biotechnology and medical technology sectors changing everything from the way that we tackle the underlying risk factors to developing better pre-emptive measures.

Heart disease: the causes and some cures

Heart disease has long been a huge problem in richer countries – 40% of the developed world’s population either has a cardiovascular condition or will develop one. However, it is increasingly also a problem for the developing world, says Khavandi. Note that “even in Africa more people now die of heart disease than of HIV, TB and malaria combined”. This is partly because longer life expectancies make an increase “inevitable” owing to the wear and tear on arteries as people age. 

For now, though, the more immediate concern is “metabolic syndrome”. This is the medical term for the health problems caused by bad eating habits, including eating too much ultra-processed food and drinking too much alcohol, and the lack of exercise associated with post-industrial life, which means that “most of us are carrying too much weight, especially around our vital organs”, says Khavandi. 

There has been a “huge amount of interest” in the medical community around the link between poor nutrition and heart disease, with the World Health Organisation estimating that roughly 80% of cardiovascular disease could be prevented by making lifestyle changes. 

Sadly, the message that being overweight can be bad for your heart doesn’t seem to be getting through to the wider population, who tend to view obesity in terms of “how it makes a person look rather than on their health”, says Matthew Renna, portfolio manager for the Harbor Health Care Ucits exchange-traded fund (ETF). Losing weight can also be difficult, while diet pills were traditionally “riddled with safety issues” and “didn’t work all that well”. But this has changed in the past few years with the development of the GLP-1 agonists. Originally developed to treat diabetes, these drugs work by enhancing the secretion of insulin, leading to “pretty significant weight loss” even in people without diabetes. 

Almost as soon as these drugs were developed people began wondering whether the weight loss they promoted would “have a benefit on cardiovascular health”, says Renna. Last year, this was answered conclusively when a large-scale trial by Novo Nordisk involving 18,000 people showed that the weight loss drug Wegovy “reduced adverse cardiovascular events (strokes and heart attacks) by 20%”. This “amazing” result means these treatments are no longer merely weight loss drugs but have become what Renna considers “a major advancement for the treatment of cardiovascular disease”. Overall, he says, this is shaping up to be “the largest pharmaceutical market we’ve ever seen”.

Other promising heart disease treatments

Although important, anti-obesity drugs aren’t the only promising heart disease treatments coming through the pipeline. Until about 15 years ago, statins, a group of medicines that can help lower the level of low-density lipoprotein (LDL) cholesterol (or “bad cholesterol”) in the blood, were a big money-spinner for drug firms, say Ailsa Craig and Marek Poszepczynski of the International Biotechnology Trust. However, as the patents on most of these drugs have now expired, big pharma is seeking “new targets”. PCSK9 inhibitors, which also reduce cholesterol, are one promising category, with Amgen and Sanofi developing some that “work incredibly well in those who can’t tolerate statins or where LDL wasn’t lowered enough”. 

Another group of drugs creating excitement among cardiologists are those targeted at Lp(a), another protein linked to heart disease. Around 20% of the population contains genes that lead to increased levels of Lp(a), even in otherwise healthy individuals. This may be because “in the distant past it actually conferred an advantage by helping the blood clot, useful at a time when there were no accident and emergency departments where you could go to patch up a wound caused by a bite from a sabre-toothed tiger”, says Craig. Unlike statins, which may even increase Lp(a) levels, these new drugs have been shown to inhibit the production of Lp(a). 

Daniel Lyons, portfolio manager on the health care and biotech teams at Janus Henderson Investors, believes that if clinical trials being run by Novartis and Amgen around the link between lower Lp(a) and heart disease work out, it could “open up a new multibillion-dollar market”. Lyons also notes there are some other interesting areas, with biotech companies such as Rocket “working on gene therapies for rare forms of cardiomyopathy [disorders affecting the heart muscle] such as Danon disease”. What’s more, several firms “are working on improvements in cardiac diseases related to ageing, like TTR amyloidosis, with new therapies likely to be approved in the near term”.

The rise of the robot surgeons

Sadly, drugs can’t solve every heart-related condition. Many patients require some form of heart surgery. This can be time-consuming, expensive, come with various risks and even if successful can involve long recovery times. One technology that is starting to transform heart surgery is the use of robotic devices. Paul Modi, consultant cardiac surgeon at the Liverpool Heart and Chest Hospital, believes that robot-assisted surgery is particularly useful in “intra-cardiac” procedures (those that take place inside the heart), including the repair of two of the four main valves. It is also increasingly useful in extra-cardiac surgery, such as bypass surgery that involves a single graft.

Modi thinks that using robotic machines in heart surgery has “big advantages for both the patient and the surgeon”. For patients, robot-assisted surgery “reduces the amount of trauma and cuts recovery times”. Indeed, traditional surgery, which involves cutting open the front of the chest and breaking the breastbone, typically requires up to seven days in hospital, followed by a two-or-three-month period recovering at home”. However, robotic heart surgery involves a relatively tiny incision, “allowing the patient to resume normal activities within two to three weeks”. The need for post-operative care, including blood transfusions, is also dramatically reduced, while infections “are almost unheard of”. 

Using a robotic system such as Intuitive Surgical’s Da Vinci also makes the surgeon’s overall job easier. The latest versions include “seven degrees of freedom”, which allows the user to manipulate the robot arm more precisely than ever before. Robotic systems also permit the surgeon to view the area being operated on in much more detail, with both three-dimensional vision and magnification of up to ten times on offer. 

What’s more, robotic surgery isn’t necessarily the final destination. Modi quotes his American mentor, Wiley Nifong, who likens the automation (and miniaturisation) of heart surgery to climbing Mount Everest. So, “if conventional surgery is the base camp, then keyhole surgery (without robots) is a higher camp, and robotic surgery is even higher”, while the summit will be completely endovascular surgery, with procedures carried out by inserting a device into the bloodstream via a single pinprick. 

“It’s becoming increasingly clear that using robotic systems in heart surgery, is delivering benefits for all stakeholders”, with the economic benefits, in particular seemingly “increasingly unassailable”, agrees Andrew Duncan, senior equity analyst at Killik & Co. Duncan accepts that the machines come with a high upfront cost, and the per-procedure expense is higher. However, this is far outweighed by the reduced need for post-operative stays in intensive care and extensive rehabilitation, as well as far fewer cases where the hospital will be required to repeat or redo procedures. 

Killik’s Duncan says the machines are improving all the time. He is particularly impressed by the idea of augmented reality (AR), which projects computer-generated information onto real-world video images. With good visibility vital to successful outcomes, the AR systems starting to appear “will guide surgeons by highlighting areas they need to focus on, as well as the areas which they should avoid”. Force feedback (the simulation of physical touch in the real world) on the controls linking the surgeons and the robotic arms is another technology that could improve precision.

How to improve heart disease diagnosis

Better treatments for heart disease are only part of the solution. Like other conditions, heart disease is much easier to treat if caught at an early stage, but worsens if not identified until later. The problem is that it tends to be difficult to diagnose, especially using traditional methods, such as simple observation. This can lead to seemingly healthy adults, who Dr Khavandi refers to as “middle-aged men in Lycra”, being underdiagnosed. It’s also a particular problem for women, “as their incidence of heart disease is actually equal to that of men, but they tend to present differently in terms of symptoms”, says Adam Fine, co-founder and CEO of Windham Capital Partners. “This leads to delays in treatment as well as heart disease being mistaken for other conditions.”

The good news is that “the same miniaturisation trend that is transforming heart surgery is also taking place in diagnostics”, says Fine. Devices are being developed that monitor the wearer’s vital signs, flagging up potential problems. This reduces the need for more invasive testing such as right-heart catheterisation, where a surgeon measures how well the heart is pumping by inserting a catheter threaded into the pulmonary artery. Such testing requires a local anaesthetic and is uncomfortable for the patient “as well as being expensive and time consuming”. 

Another non-invasive approach is to use an imaging device such as ultrasound, CT or MRI scans, or even simple chest X-rays. Sadly, human error and the limitations of the technology mean “many cases are missed”, says Mark Phillips, chief clinical officer of Annalise.ai. Set up only four years ago, with the aim of applying recent developments in artificial intelligence (AI) to medicine, Annalise has developed a system that identifies 124 different radiological findings on a typical chest X-ray. While it doesn’t replace a human radiologist, it reduces the time needed by the specialist by nearly half by flagging up areas of concern as well as prioritising cases in need of urgent attention. 

This is important as some types of heart problems “require immediate intervention, while others can be dealt with by a visit to the doctor and some medication. Indeed, while the device has been clinically verified “to be at least as good as a human radiologist”, Phillips points to analysis suggesting that in a quarter of cases, it can help diagnose cases of heart disease a year earlier than a typical radiologist. Within a few weeks of radiologists being introduced to the system, even those previously sceptical were saying “they needed this to do their jobs properly”.

Integrating data to improve diagnosis

As well as advances in diagnostic methods, there are also moves to break down “informational silos”, says Jason Alan Snyder inventor and founder of SuperTruth. His company aims to integrate the data from various sources such as wearables, scans, cardiograms and even patient histories “to enable medical professionals to diagnose heart disease much more accurately than if they were looking at just one measurement”. He thinks that combining multiple sources can, in some cases, give doctors an “unbelievable” ability to predict heart disease at an early stage. 

Snyder also thinks the increased integration of data and machine learning is improving the accuracy of diagnosing heart disease and making accessing medicine more convenient by encouraging the development of “telemedicine” and home-testing kits. Such kits, which analyse bodily fluids to see if they contain proteins consistent with heart-related inflammation, can prompt patients to come forward who think they might have a problem “but who otherwise wouldn’t want to trouble their doctors”.

How to invest in the battle against heart disease

While there are no exchange-traded funds (ETFs) that deal directly with heart disease, the Harbor Health Care Ucits ETF (LSE: WELL), due to be launched later this month, has several companies tackling it in its portfolio. They include Viking Therapeutics (Nasdaq: VKTX). Viking boasts an anti-obesity drug, VK2735, that showed strong results in a recent phase two trial (the second of three stages of clinical trials). It helped people lose weight, raising the possibility that it could become a major rival to the two main drugs now on the market. While Viking is still in the red, it has more than enough cash to help it get through the final stages of bringing the drug to market. 

Matthew Renna, portfolio manager for the Harbor Health Care Ucits ETF, also likes Rocket Pharmaceuticals (Nasdaq: RCKT). Rocket specialises in developing gene therapies for various rare and life-threatening conditions, split between blood diseases and heart problems. While it is expected to win approval for its treatment for the blood condition Fanconi Anaemia (FA), Rocket’s most promising (and potentially lucrative) treatment is RP-A501, aimed at the heart problems associated with Danon’s disease, which affects around 45,000 people in the US and Europe alone. RP-A501 is undergoing stage-two trials. Like Viking, Rocket is unprofitable but could reap big rewards once its drugs get approved. 

Amgen (Nasdaq: AMGN) is a more established biotech company. While its therapies are targeted at a wide range of conditions, one of its most lucrative drugs is Repatha, which aims to reduce the risk of heart attacks by lowering the amount of “bad” cholesterol in the blood. It also owns the GLP-1 anti-obesity drug MariTide, which has shown promise – and it only needs to be administered monthly, instead of weekly (as with the existing drugs). Amgen trades at 16.3 times 2025 earnings. 

With a 99% market share, Intuitive Surgical (Nasdaq: ISRG) is the undisputed leader in robotic surgery. With the savings from reduced recovery times making hospitals “extremely happy”, and “tens of thousands of surgeons now trained to use its systems”, Killik’s Andrew Duncan thinks that Intuitive has an “unassailable position” in the field of robotic surgery. While Intuitive trades at a pricey 63 times 2025 earnings, this has to be viewed in the context of sales that are growing at 15% a year, along with strong operating margins and a double-digit return on capital employed. There have also been rave reviews for the Da Vinci 5, the latest version of its robotic operating system. 

One established medical technology company that specialises in heart disease is Edwards Lifesciences (NYSE: EW). As well as making artificial replacement heart valves used in surgery, Edwards also produces monitoring software containing advanced algorithms that can predict the onset of hypotension (low blood pressure) during surgery. While sales have grown by around 60% over the past five years, and it produces a return on capital employed of just under 20%, it still only trades at 25 times 2025 earnings. 

Boston Scientific (NYSE: BSX) is a medical device maker that derives 66% of its revenue from devices related to heart disease and cardiovascular health – everything from equipment used in heart surgery to wearable monitoring devices which allow doctors to track the health of patients with heart disease. Boston Scientific has a strong record of growing sales, now rising by 8%-10% a year, while offering high returns on capital, which more than justifies a rating of 30 times 2025 profits.

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What do Roman Abramovich, Jim Ratcliffe and Peter Hargreaves have in common? You might be thinking of trophy assets like super-yachts or football clubs, but all three have been early backers of the hydrogen economy. The gas has been used for decades in industrial processes such as oil refining and ammonia production – to create fertiliser in agriculture, for instance. However, hydrogen does not occur naturally, except in stars; we can’t dig hydrogen out of the ground and burn it like natural gas. So more than 90% of the 70 million tonnes of the world’s current annual hydrogen production comes from burning fossil fuels.

The attraction of hydrogen is that electrolysers can split water molecules into hydrogen and oxygen. The gas can then be stored and converted to power via a fuel cell; the only waste product is water. Think of hydrogen not as an energy source, but as an energy carrier, like electricity. Elon Musk is not a fan, suggesting that it is “the most dumb thing I could possibly imagine for energy storage”, but governments and corporations have identified hydrogen as capable of delivering a shift from burning fossil fuels to renewable energy.

The gas is light and has much lower volumetric energy density than liquefied natural gas (LNG): it takes up a relatively large volume for a given amount of energy stored. It also freezes at a lower temperature, -253 degrees Celsius, compared with -162 for LNG. The upshot is that when producing hydrogen, transporting it, and converting it back to electricity via a fuel cell, the delivered energy can fall below 30% of the initial input, according to the International Energy Agency (IEA). As a result, most hydrogen is produced close to its end use.

Unlike with software, the investment required in tangible assets, such as storage tanks, refuelling infrastructure, and pipes will be vast. At the start of 2021 there were over 228 announced hydrogen projects with a capital cost of $300bn. In the past 12 months the US has announced $370bn worth of funding for clean energy, of which $9bn which will be for regional hydrogen hubs. There will be no hydrogen businesses founded in a garage in Silicon Valley.

Blue, green, turquoise and pink varieties

Despite being a colourless gas, the source of the hydrogen determines a whole colour spectrum: renewable solar or wind power (green); natural gas (blue and turquoise); grey, black and brown (fossil fuels without carbon capture); and pink (nuclear) all refer to how the gas is produced. Blue hydrogen uses natural gas but stores the greenhouse gases geologically, whereas turquoise hydrogen also requires natural gas, but is a different process with a solid carbon by-product, making it easier to capture. Today roughly 95% of industrial hydrogen production is grey, using techniques such as steam-methane reforming.

Established fossil-fuel companies like Shell, which operates a blue hydrogen project in Alberta, or Spanish utility Iberdrola, which is developing a green hydrogen plant with 100 megawatts (MW) of solar panels, are likely to be a major source of funding. In the UK, Cadent, backed by Australian investment bank Macquarie, plans to trial “hydrogen villages” in Whitby and Redcar, using hydrogen to heat 2,000 residents’ homes. Cadent will convert homes and install hydrogen appliances, then transport hydrogen by pipeline, with a natural-gas pipeline for households that opt out.

There are also competing electrolysers and fuel cells – some electric cars use hydrogen fuel cells. Aim- listed ITM Power makes electrolysers using proton exchange membranes (PEM). A drawback of PEMs is that they require precious metals such as platinum, but competitor AFC Energy has an alkaline fuel cell, using nickel in its electrodes rather than platinum, while Ceres Power Holdings, another hydrogen company, uses solid- oxide technology. Clean Power Hydrogen has developed a membrane-free electrolyser from easily available or recyclable materials.

Historically, the hydrogen sector has traded like a speculative asset such as a cryptocurrency. It recorded impressive returns in the liquidity-driven rally of 2020- 2021, but sold off in 2022, even as investors worried about energy security after Putin’s invasion of Ukraine.

A fund offering diversified access

Ceres, AFC Energy and ITM Power have been on Aim for more than a decade. More recently they have been joined by Atome Energy, Clean Power Hydrogen, Hydrogen Utopia and the investment vehicle HydrogenOne Capital Growth, backed by Ratcliffe.

A month ago, Melrose, the industrial manufacturing business, demerged its automotive, powder metallurgy and hydrogen-storage operations into a separately listed entity, Dowlais. HydrogenOne and Dowlais have a premium listing on the main market of the London Stock Exchange, rather than Aim.

HydrogenOne Capital Growth (LSE: HGEN) is an investment vehicle containing hydrogen-focused assets across the world. It listed in 2021 and since then has invested more than £100m in hydrogen assets, and £18m of cash as of the end of December last year. More than 82% of the fund’s assets are unlisted, while 3% comprise listed companies such as ITM Power and AFC Energy, covered below.

The group has been hit by the broad sell-off and now trades at a discount of about 50% of its December 2022 net asset value (NAV). As a fund, HydrogenOne is the most diversified way of investing in the sector. It may make more sense than concentrated investments in the fuel-cell or electrolyser companies below, where a clear winner has yet to emerge.

AFC Energy (Aim: AFC) is a "flex fuel cell" manufacturer of alkaline fuel cells, which uses nickel in its electrodes. There are competing methods of making hydrogen fuel cells, and AFC's alkaline fuel cells have much cheaper components than the proton exchange membrane (PEM) fuel cells that ITM Power (see below) makes. The downside is that its alkaline technology is less energy-efficient.

Recently AFC announced a successful field trial of its first prototype methanol fuel tower with Acciona, an engineering company listed in Spain. The company reported revenues of £2m in the year to 31 October 2022, and this is forecast by brokers to rise to £11m this year and then jump to £140m two years later, when the company is expected to break even.

Atome Energy (Aim: ATOM) is a green hydrogen company with projects in Paraguay and Iceland. The projects are in such far-flung places because their fuel-cell technology operates more effectively with a continuous power source, so electrolysis using solar and wind power are less suitable. Iceland has an abundance of hydroelectric and geothermal energy, and Paraguay has hydro. Atome doesn't make its own electrolysers, but is buying membrane-free electrolysers from Clean Power Hydrogen, which listed on Aim in early 2022. Powerhouse Energy and Hydrogen Utopia have a similar business model to Atome, except they hope to use waste rather than hydro or geothermal energy to produce hydrogen.

Atome is a spin-out from Aim-listed President Energy, which was involved in largely unsuccessful oil and gas exploration in Argentina. President, which has now changed its name to Molecular Energies, still holds a 25% stake. Peter Levine, Atome's chairman, who made his first fortune investing in Siberian oilfields, holds a further 23% of Atome shares.

FinnCap, Atome's joint broker, believes that the hydrogen company will need to allocate $660m to capital expenditure over the next five years, with a combination of debt and equity. That compares with a current market value of £35m, so management will need to convince investors of the viability of their projects in order to raise large sums.

A play on fuel cells and electrolysers

Ceres Power (Aim: CWR) has been listed since 2004 and makes solid oxide fuel cells and electrolysers. Its fuel-cell commercialisation is more advanced than its electrolyser, but it believes solid-oxide technology's high efficiency gives it an advantage over PEM and alkaline approaches.

Ceres' expertise lies in solid-oxide electrochemistry, but in terms of industrial scale mass-manufacturing it has partnerships with much larger companies. So the group has an asset-light, licensing model partnering with established companies including Weichai in China, Bosch in Germany, and Shell.

Revenues are forecast to more than double to over £50m in 2023, though the firm is still expected to make a loss for the next three years. Having raised £180m in 2021 it still has significant cash, so those forecast losses are manageable. After two decades of losses, investors will at some stage want to see that the promising technology can make a profit.

ITM Power (Aim: ITM) makes proton exchange membrane (PEM) electrolysers for grid balancing, energy storage and hydrogen production at Bessmer Park, Sheffield. ITM had net cash of £318m at the end of October 2022, having raised £250m of equity in 2021. Peter Hargreaves of Hargreaves Lansdown fame is a major shareholder, but ITM also has the backing of industry players such as Linde, one of the world's largest gas suppliers, which has invested £38m, and £30m from Snam, an Italian energy infrastructure company.

In October 2021, ITM and Linde announced the deployment of a 100MW electrolyser at Shell's Rhineland refinery, and they have signed two more 100MW deals with Linde for a site in Lingen, Germany. Sales are forecast to grow to £67m in the year to 30 April 2025, though the company is still expected to be heavily loss-making. However, its most recent set of results in January showed sales halving to £2m in the six months to 31 October 2022.

Following this disappointment Graham Cooley, CEO for 13 years, was replaced by Dennis Schulz, previously of Linde. The move follows several delays, blamed on supply-chain difficulties and rising costs, which have also seen the share price fall by 90% in two years. Even if sales do jump to £67m by April 2025, the market value of £460m reflects considerable optimism over the business model. Some hedge funds have taken a more pessimistic view: ITM Power is one of the most shorted stocks in London.

There has been a discernible change in the narrative over the past few weeks regarding Covid-19 vaccines and the companies (and their stocks) that make them. What could be instore for these companies in 2023?

From the Andrew Bridgen affair and questions in the House of Commons regarding the unusually high seasonal death rates to the publicity that came with “Novacc” Djokovic winning the Australian Open, to the sudden collapse of Thailand’s Princess Bajrakitiyabha, daughter of the King, and the resulting (likely fabricated) story that Thailand is nullifying its Pfizer contracts, the powers-that-be - and I’m still not sure who they actually are - seem to have lost control of the narrative.

The take-up of boosters was low and there is now widespread doubt amongst those who had the vaccine that they did the right thing, while those both pride and vindication amongst those who didn’t.

In a world awash with both censorship and misinformation (which is worse? - there is another thing I’m not sure about), it is difficult to know who or what to believe.

We do, however, have a price.

There is a truth to price. Price can change every day, many times per day, but the price of something, or should I say the price of a publicly traded asset, reflects all the available information about that asset at any given moment.

In that respect, there is a truth to price.

The price of Brent Crude Oil, currently $84, reflects all the available information there is about current and future oil supply, current and future demand, current and future government policy, net zero, global risk appetite and more.

All the information, opinion, and research, the truths, the half-truths and the lies, the ideals and the realities - everything is distilled into those two digits: 84 dollars.

And so today, with all this in mind, I thought it would be informative to ask - how are the vaccine stocks doing?

Covid-19 vaccines and profits

The main vaccine stocks are as follows:

1. Pfizer (NYSE: PFE) - although not a “pure” play (its share price is determined by the success or failure of many of its products and patents), it did bring the world’s most famous and controversial vaccine to market.
2. Biotechnology company BioNTech (NASDAQ: BNTX), which teamed with Pfizer to produce its vaccine, can be seen as much more of a “vaccine bellwether” stock. Its messenger RNA (mRNA) technology was critical to the Pfizer vaccine.
3. Moderna (NASDAQ: MRNA). The ticker’s on brand! Moderna was quick in the wake of Pfizer and BioNTech to win a US EUA for its vaccine. Unlike Pfizer and BioNTech, it doesn’t have to split profits. It’s also a ‘pure play” so a good bellwether.
4. Johnson & Johnson's (NYSE: JNJ) sold its vaccine at cost during the pandemic and it is so diversified with numerous other products that we can probably discount it as a vaccine bellwether. Still, we can include it on the list as it is a key player.
5. Likewise AstraZeneca (LON: AZN) -was an early winner in the vaccine race, but then it got embroiled in disputes with the European Union. Like Johnson and Johnson, it is also heavily diversified with other products and it also initially delivered the vaccines at cost. So, again, it is not a “pure play.”
6. There is the lesser-known Novavax (NASDAQ: NVAX), whose product is not as widespread as the others.
7. Ocugen (NASDAQ: OCGN), also not very well known, is partnered with an Indian drugco, Bharat Biotech, and has a vaccine authorised in India.
8. Finally, Vaxart (NASDAQ: VXRT), is developing an oral vaccination tablet.

At this stage of writing this article, I haven’t yet looked at a single chart of a “vaxco”, so I don’t know what I’m about to discover.

I’m going to post 4-year charts - ie going back a year before Covid - along with a 200-day moving average (200DMA) in green to help identify primary trends.

Let’s start with Pfizer (NYSE: PFE)

You can see the run it had since 2020. But, shorter term, it’s been falling like a boulder off a cliff since early December. It’s not seen any of the rally that accompanied the broader stock market since Christmas. It’s below its 200DMA and trending down.

On the other hand, it’s still at $43, above its October low, and well above its pre-Covid price in the low- to mid-$30s, so all is not lost.

That said, I do not like the look of that chart at all. I’m pretty sure its handle will no longer be a four but a three before long.

Next is BioNTech (NASDAQ: BNTX). This is a classic pop-and-drop.

This could just as easily be the chart of some crypto currency or junior miner. At $140, it’s 70% down from its $460 high, and it too is in a downtrend. There is support at $120 and it’s still three or four times higher than it was before Covid.

I wish I’d known about BioNTech in 2020!

Moderna (NASDAQ: MRNA) is next and like BioNTech, the other “pure vax play,” this is another pop-and-drop. Cynics would say pump and dump.

Gosh, this was a $25 stock in 2020. It went to $500. How fortunes can change.

Now it’s at $175, 65% of its highs, but above its 200DMA. The shorter-term trend is down, however.

Gosh, these vaxco stocks are volatile. As volatile as crypto. I don’t see the FCA warning against them, or indeed banning them though.

Johnson & Johnson's (NYSE: JNJ) is next. Like Pfizer, it’s not a pure play, but I do not like the look of this chart at all. Double tops and stuff.

It’s fallen off a cliff in 2023. What does the market know that I don’t?

It’s below its 200DMA and trending lower. You want to see that October 2022 low, just below $160, holding.

To be fair to Johnson and Johnson, and not wanting to get too sensational, it has previous when it comes to spiky, up-and-down action. See early 2022 for more details.

And so to AstraZeneca (LON: AZN) and this too displays the worrying, early 2023 chart sickness of the vaccine major. Not as bad as the other two though.

I’m going to give this one the benefit of the doubt and say it's a standard pullback to the 200DMA, which is rising, amidst an ongoing secular bull market.

Pre-Covid it was around 7,000p, so it’s about 45% up on the back of the pandemic.

If they’ve banned cryptocurrencies, why the FCA hasn’t banned speculating in the likes of Novavax (NASDAQ: NVAX), I cannot understand. Where’s the consistency? Surely that is what we want from our regulators.

In any case, this is one brutal chart, and it’s back where it was before Covid.

This was a $3 stock at the beginning of 2020. It went to $330. Somebody made a lot of money.

Now it’s a $10 stock. I make that a 97% drop. Somebody lost a lot of money.

By the way, here’s a chart of Novavax since its IPO in 1995. I don’t think I’ve ever seen anything like it.

Talk about hype cycles. Fortunes have been made and lost in this company over and over.

Remind me to buy it in about a year’s time at $5. It’ll be $150 or $300 a couple of years after that. (Then remind me to sell it).

Next, we have Ocugen (NASDAQ: OCGN). Cripes, it’s another one. From a buck to 18 bucks back to a buck.

I need to get more into biotech. It’s extraordinary.

And last up, Vaxart (NASDAQ: VXRT) is developing an oral vaccination tablet. I almost don’t need to post this one. You know what’s coming.

From below a dollar to $25 back to a dollar - and trending lower.

So what can we learn from all this?

One: vaccines are dead in the water.

Two: there might be something nasty lurking in the pipeline for Pfizer, and perhaps Johnson and Johnson. My guess is something legal.

People are living longer across most of the world. The average life expectancy at birth in the 38 countries of the OECD, an association of developed economies, increased from 67 to 80 between 1960 2020. Japan had the highest life expectancy in 2020 – 85 – while the UK’s was 81.

Educated professional people tend to live longer than average, with a 25-year-old American graduate surviving a decade longer than a high-school dropout. As people age they experience joint problems that reduce mobility to the point where artificial joints are required, especially hips and knees. Ageing baby-boomers and the obesity crisis (around 40% of Americans are obese) are the key drivers of demand.

The leader in the worldwide market for hip and knee joints is Zimmer Biomet (NYSE: ZBH), with 33% of the market, followed by Stryker with 22%. The UK’s Smith & Nephew is in fourth place with 11%. Zimmer originally took the walking frame invented in Britain in the late 1940s, made some minor improvements and called the result a Zimmer frame. However, their product range today includes high-tech hip, knee, shoulder, elbow and ankle joints, along with various diagnostic tests. Zimmer also used to cater for dental and spinal problems, but these lower-margin products were spun off as a separate company, ZimVie, in March 2022.

A Covid-19-induced backlog

Zimmer and other artificial-joint suppliers were adversely affected by Covid-19 since many joint-replacement operations were delayed while hospitals were overloaded with Covid-19 cases. These delayed operations form a substantial backlog, which should add to revenue over the next few years. The effects of the pandemic are clear in Zimmer’s revenue, which fell from $8bn in 2019 to $7bn in 2020, but recovered to $7.84bn in 2021.

Knee and hip replacements are its top product category, with 2021 sales of $4.5bn. The next-biggest subsector is products and services relating to sports medicine, extremities and trauma (SET), with $1.73bn. The dental and spine category (now spun off as ZimVie) comprised $1bn; other products were worth $0.6bn. About 60% of sales were made in the Americas.

Zimmer enjoys an enduring competitive advantage over potential rivals owing to its intellectual property (notably patents) and high switching costs for surgeons. Surgeons must overcome a substantial barrier if they want to switch from one supplier to another because of the time needed to train and develop expertise in using the new company’s tools and procedures. During his study time the surgeon will not be earning and is likely to work more slowly when doing operations. The patient outcomes may well be less favourable during this period and this could affect the surgeon’s reputation.

Most surgeons also develop a close relationship with their supplier’s sales representative, since they will have taught the surgeon how to use the various special tools and will often have assisted in operations. Surgeons often choose to use the supplier that they encountered during their residency and then remain with that supplier – this helps Zimmer, the market leader.

Zimmer invested $497m, or 6% of sales, in research and development in 2021. This large investment adds to its competitive advantage by enabling the development of new and improved products at a faster rate than would be possible for a smaller supplier with lower sales.

Zimmer’s ROSA robotics platform, for instance, assists surgeons in planning and performing complex knee, hip and neurosurgical operations. It has introduced the world’s first and only “smart” knee implant (it tracks a patient’s walking speed and step count), as well as a camera-based artificial intelligence system that tracks and monitors the timing of all the processes involved in an operation.

Increasing investment in innovation

Zimmer, which has a market value of $23bn, made an operating profit of $780m (10% of sales) in 2021, with net earnings of $402m. Adjusted net earnings (excluding amortisation of intangibles, restructuring and other items) were $1.55bn. Diluted earnings per share (EPS) totalled $1.91, or $7.37 on an adjusted basis.

Results for the first half of 2022 show sales up by 2.4% year-on-year (6.4% when exchange-rate fluctuations are accounted for) and full-year guidance increased to diluted EPS for continuing operations (excluding the spun-off dental and spine division) of $6.70-$6.90. Net debt at the end of the second quarter was $5.6bn, or around twice adjusted Ebitda. Zimmer has been steadily paying down its debt over the last few years.

Analysts’ estimates for 2023 are for EPS of $7.14, which, at the recent price of $109, gives a 2023 price/earnings (p/e) ratio of 15.3 (14.1 for 2024). The annual dividend is $0.96, giving a yield of 0.86%. Bryan Hanson was appointed CEO in December 2017 and has been re-energising the company after the operational problems it suffered in 2016/2017. He has spun off ZimVie, driven a restructuring programme to improve operational efficiency and invested in innovation for long-term growth (particularly in digital and robotic products); competitiveness is improving.

The recent share price of $112 is 36% below $175, the fair-value estimate by investment research platform Morningstar, making Zimmer a value play on the expectation of sales increases from a rise in joint replacements now that the pandemic is receding. The demand for joint replacements is likely to rise in developed countries as baby-boomers age and obesity spreads. In developing countries, too, life expectancy is increasing and people want to remain mobile for longer.

SEE ALSO:

• Healthy profits: how to make money from investing in medical technology
• How to invest in biotechnology: the healthcare sector’s high-growth area

Over the past week, GSK (LSE: GSK) shares have fallen off a cliff. The FTSE 100 company has seen its market value plunge 17% and recent spin-off Haleon (LSE: HLN) has followed suit, plunging 14%.

We don’t have to look far to understand why investors have been running for the hills. It all comes back to a drug called Zantac, an over-the-counter heartburn drug that was pulled from sale in 2019.

A legacy drug comes back to haunt GSK

GSK launched Zantac in 1981 as a prescription medication and it went on to become an over-the-counter treatment in the mid-90s. Now there’s a bit of a corporate paper trail to get through here to explain what happened next.

The drug was developed in a joint venture with a company called Warner Lambert. Warner bought out its partner, GSK in 1998, but was then acquired by Pfizer (NYSE: PFE). Pfizer sold its over-the-counter business (including Zantac) to Boehringer, which then sold this business on to French pharmaceutical giant Sanofi.

As a result, all of these pharmaceutical companies have some exposure to the drug, and, therefore, they have exposure to a growing volume of lawsuits that argue the drug causes cancer. Litigants also argue that Sanofi, Pfizer and GSK all didn’t do enough to warn customers of the risks of taking Zantac.

Haleon, which is an amalgamation of both GSK’s and Pfizer’s over-the-counter and consumer healthcare businesses, is the most exposed of all.

Its IPO prospectus stated that GSK and Pfizer have been named as defendants in more than 2,000 US personal injury lawsuits involving Zantac. However, the group has stated that it has indemnification obligations with both companies and has never marketed Zantac in the US suggesting the risk goes back up the chain to GSK and Pfizer.

The problem with all of this is the fact that potential liabilities are impossible to estimate. The US legal system is notoriously complex and litigious. What’s more, courts have been awarding ever larger sums to successful litigants and juries are siding with clamints in a thinly veiled fightback against corporate greed.

Johnson & Johnson (NYSE: JNJ) is facing billions in liabilities as courts have ruled in favour of plaintiffs who claim the company’s talc-based baby powder can cause cancer.

Meanwhile, in June 2020 German pharmaceutical and life sciences giant Bayer agreed to pay $10.9bn to settle 95,000 cases against the group arguing that the herbicide, Roundup, caused cancer.

The size of the award is a threat to GSK shares

While there’s a risk GSK, Pfizer, Sanofi and even Haleon could end up facing one of these large judgments, there has been some good news this week.

The first Zantac case was slated to come to trial on August 22, but the plaintiff has now decided to file a Notice of Voluntary Dismissal. GSK claims that it has “not paid anything in exchange for the voluntary dismissal,” and the group believes this is the best outcome as the “overwhelming weight of the scientific evidence” supports the conclusion there is no increased cancer risk from the drug.

This suggests GSK and its peers might get off lightly, but I think it’s too soon for investors to breathe a sigh of relief. GSK has been named as a defendant in as many as 3,000 personal injury cases filed in federal and state courts. With these numbers one thing’s for sure, the pharmaceutical giants face a long, expensive legal battle as they work through the outstanding cases. And if just one case gets through, it could set off another wave of litigation.

So it’s not really surprising that investors have hit the sell button first and are waiting to ask questions later. All of these companies are facing potentially billions of dollars of legal expenses in the best case, and even larger sums of money in the worst case scenario.

Still, I think it’s unlikely these legal wrangles will lead to either company’s demise. Lawsuits are just part of doing business in the US, and both firms will have plans in place to deal with the threat. All the stakeholders also have an interest in agreeing to a deal that both meets claimants’ demands and allows the organisations to continue functioning. Insolvent businesses won’t be any use to anyone.

Growth might suffer as the companies divert cash to fund their legal battles, but it seems unlikely the fallout will be terminal.

Rewind only a year, and it seemed reasonable to assume that Covid-19 would transform the prospects of the major pharmaceutical multinationals.

Three safe and effective vaccines were developed in a year; regulators worked at record speed to get them approved and governments pre-bought doses in the millions to ramp up production – perhaps the same would happen for a whole range of other diseases.

Investors started pouring money into both the established giants and the biotech start-ups on the promise that the industry was about to enter a new golden era.

What went wrong?

True, a lot of money has been made over the last couple of years. Pfizer’s jab, the most widely used, has been a blockbuster, delivering annualised sales of $37bn, almost doubling its turnover, and turning the jab into the biggest pharmaceutical product in the world. Moderna and AstraZeneca did not make quite so much, but still chalked up nine-digit revenues for their vaccines.

And yet, despite that, there is not much sign that progress can be sustained – the share prices of many of the main players have been tumbling. True, the wider stockmarket has also been weak, especially for innovative, technology-based companies, but even so, there is no escaping the fact that Covid-19 is not turning into a catalyst for rapid growth in the industry. No one is making a fortune out of Covid-19 anymore.

There were three big issues. First, the Omicron variant was more infectious, but at least somewhat milder than the Delta variant, and it only partly evaded existing vaccines. There was almost no way of stopping it from spreading, but fortunately very few vaccinated people who caught it required hospitalisation. Sure, it was still sensible to get vaccinated, and to get a booster as well, but the demand for the jabs inevitably started to wane. Flu vaccines are a major product, but in reality most people don’t bother because they are not that worried about catching it. As 2022 unfolded, Omicron meant Covid-19 was starting to go the same way.

Next, vaccination kills its own market. It is a paradox of developing and manufacturing vaccines that, the more successful they are, the less demand there ends up being. At the most extreme level, the disease is completely wiped out so that no one needs to worry about it anymore: polio has been largely eliminated from the developed world and measles and mumps have been tamed. Some of the drug companies are pushing for annualised vaccination against Covid-19, especially for the elderly or vulnerable, but it is starting to look as if two or three jabs will be enough. Almost all of us have been vaccinated now, and that means the demand isn’t there any longer.

Too greedy for their own good

Finally, and most importantly, the firms were too greedy. The AstraZeneca Oxford vaccine was the obvious exception, sold at cost price, but Moderna and Pfizer both pushed for very high prices, charging health systems as much as $30 per jab.

That now looks to have been a critical mistake; the wealthy countries could afford it, but the vaccines were unaffordable for many others, and countries have relied on home-grown alternatives, or opted for herd immunity instead. Even worse, it fuelled demands for the companies to be stripped of patent protection. It would have been far better to charge just two or three dollars per jab and make sure the whole world was vaccinated. Instead, the companies put short-term profits over building a long-term business.

The virus might bounce back. Hong Kong is in the middle of a full-blown epidemic and there are signs it is spreading across mainland China. If China were willing to admit its own vaccines were not very effective, and ordered the Pfizer or AstraZeneca jabs instead, that would revive the market. Otherwise, the boom has fizzled out. The pharma industry may have imagined it was going to make a fortune from the virus and start a new golden era of innovation. It has not worked out that way – and the industry looks stuck with modest growth at best for a long time to come.

On 11 March 2020, the World Health Organisation officially declared what everybody already knew: Covid-19 had become a pandemic. The two years that have elapsed since then changed the world in ways that most of us never thought possible. Most of these changes have been for the worse, but one of the few benefits may be the way that the crisis has accelerated biotechnology research and development.

Even before Covid-19 appeared, there had been many major advances in biotechnology, with an “extraordinary” amount of recent innovation and growth, say Linden Thomson and Cinney Zhang, who run the biotech strategy at AXA Investment Management. But the pandemic has put the sector “centre stage” and the vast amounts spent will have long-term implications in fields from drug development to the way clinical trials are conducted and the greater use of artificial intelligence.

A revolution in vaccines

One of the main outcome of the crisis is the “major advances” in vaccine technology, says Max Herrmann, who heads the healthcare team at investment bank Stifel. In particular, the successful use of messenger RNA (mRNA) vaccines is a gamechanger, with big long-term implications for how vaccines are developed. In contrast to traditional vaccines, which inject an inactive version of the virus or bacteria into the body, mRNA vaccines work by instructing cells within the body to produce a harmless version of key proteins from a virus. In the case of Covid-19, the vaccine is designed to get the body to learn how to target the spike protein of the Sars-Cov-2 virus – the part that enables it to infect cells and cause Covid-19.

The idea of using mRNA technology in medicine wasn’t new, but there was a fair amount of scepticism about whether it would ever work. Before 2020, the biotech firm Moderna, one of the original pioneers in this field, “failed to have a single product approved”, says Herrmann. However, the fact that Moderna’s and BioNtech’s Covid-19 vaccines “provided better protection than the vaccines that use traditional methods” has led to hope that this technology can also be applied to other vaccines. Trials are currently under way for flu, HIV and shingles.

There is also optimism that mRNA vaccines could be used in cancer immunotherapy, which relies on getting the body’s own immune system to work against cancer cells.Until now, most attempts to produce cancer vaccines have failed, but there are growing hopes that vaccines based on mRNA could succeed where other approaches have not.

“There have been other vaccines out there that use different approaches,” adds Sheena Berry of wealth manager Quilter Cheviot. Examples include those produced by AstraZeneca and Johnson & Johnson. However, the mRNA vaccines “have taken the majority of the market share” both in terms of the number of jabs provided in developed countries and global revenue. In the near term, the transition from a pandemic to an endemic (a disease that constantly reappears, but at a lower level of threat) could mean that we need to regularly get booster or seasonal jabs, she says. Whether this will have to be done for the entire population or only those most at risk “will largely depend on hospitalisation and death rates”. In any case, while the huge sales of Covid-19 vaccines that took place last year – and are expected to take place in 2022 – will eventually drop, there should continue to be a significant market for several years to come.

Antivirals and antibodies

While vaccines have certainly slashed death rates, some people are still suffering serious illnesses. Fortunately we have become much better at treating Covid-19 due to the development of new drugs such as antivirals (drugs that treat viral infections by inhibiting the development and replication of the virus). At the end of last year, Pfizer launched paxlovid and Merck launched molnupiravir. The former appears to be almost 90% effective in preventing hospitalisation and death; the latter does not have such high efficacy but supplies are currently greater. Provided there are no last-minute hiccups, Berry thinks that all the early data suggests that both companies should do well from these drugs.

Monoclonal antibodies are also being used to combat Covid-19. These bind to the Sars-Cov-2 virus, helping to destroy it. Monoclonal means that they bind to one epitope (site) on the virus; in contrast, the antibody response produced by our own immune system after vaccination is polyclonal (we produce a range of different antibodies that bind to different epitopes). While our own immune response will typically be stronger, monoclonal antibodies can be particularly useful for those unvaccinated patients or those with compromised immune systems. While antibodies have been around for decades, the large amount of research done in this area over the past two years “has given us a lot more data to work with” and “has greatly advanced our understanding of human biology”, which should hopefully lead to more advances, says Berry.

As new Covid-19 infections become less of a pressing problem, drug companies will need to focus on the growing problem of those suffering from long Covid-19, says Berry. While both the exact definition of this condition – and the numbers of sufferers – is still controversial, there is general agreement that “something will need to be done about it”: there is clear evidence that many previously healthy people are continuing to suffer from various health problems, long after the initial infection.

There is unlikely to be one magic bullet for dealing with long Covid, says Patrick Short, co-founder and chief executive of Sano Genetics, which helps companies and researchers analyse DNA data. Treating the condition will probably require a combination of multiple drugs, varying from patient to patient. Already doctors are seeing two types of long Covid sufferers: “some who were hospitalised and have never really recovered”, and those who were “mildly affected”, but “have since developed fatigue and brain fog”. With the crisis “advancing our knowledge of genetics”, he thinks that genetic analysis could be used to devise personalised treatments for sufferers.

The advance of artificial intelligence

The pandemic has also spurred improvement in the use of artificial intelligence (AI) and machine learning in biotechnology, says Nikhil Malhotra of Tech Mahindra, the IT consulting company. For example, his company worked with a client to go through a portfolio of 8,000 drugs that had already been approved by the US Food and Drug Administration to see if any of them could be repurposed. To do this, he used computation analysis involving AI to see “which drugs were most likely to bind”. Once this had narrowed down the list of candidates to 17, researchers were then able to carry out early tests to cut it further down to five drugs before finally coming up with what they think is the best candidate: a diabetes drug called Ertugliflozin. They are now carrying out extended trials and have applied for a patent. Malhotra thinks that within a few years, “such techniques will be used to develop completely new drugs for a wide range of conditions”.

Tunisian firm Instadeep has also been helping drug companies take advantage of machine learning. Just before the pandemic began, it began a collaboration with BioNTech, using tools that were originally developed for language translation to model the behaviour of proteins. This enabled BioNtech to find the optimal design for its mRNA vaccines, speeding up a process that would normally have been “like looking for a needle in a haystack”, says Nicolás Lopez Carranza of Instadeep. Indeed, BioNTech were so impressed with the results that in November 2020 they extended the partnership into other areas.

Instadeep has also developed an early warning system that can monitor changes in the spike protein in Covid-19 to predict how the virus could mutate, as well as which variant is likely to pose the most challenge to global healthcare systems. The system was vindicated last autumn, when it flagged up what would become known as the Omicron variant “on the day it was first detected”, says Lopez Carranza. With governments “much more aware about the possibility of a new pandemic sometime in the future” such monitoring systems “are here to stay”.

Covid-19 has also led to AI becoming part of frontline medicine, says Frederic Vacher, who heads the 3DEXPERIENCE Labs at software company Dassault Systèmes. Many patients ended up catching the disease while in hospital. Dassault worked with Pitié-Salpêtrière hospital in Paris to use airflow simulation models – originally developed for the car industry – to identify changes that could minimise the risk of spread.

Going faster on trials

Covid-19 has also led to the expansion of remote trials, in which patients stay at home and send regular updates on how they are doing via email or by wearable monitoring devices, says Lisa Moneymaker of Medidata, which develops and markets software for clinical trials. There was already pressure to move to this model – which is cheaper and allows drug companies to reach patients outside of major urban centres – but “resistance to change had slowed it down”. However, when Covid-19 hit, “drug companies didn’t have access to patients, so they were forced to innovate”.

The need to get vaccines and treatments approved quickly “birthed into existence various mega trials”, with Moderna “enrolling 30,000 patients in just a few weeks”. The speed was amazing, especially given that Moderna was at that point not a large company. Better remote monitoring devices also sped up data collection, allowing Moderna to get “real-time data on how the trials were progressing”. This allowed researchers “to make important decisions based on results from the mid-point of trials”, including giving regulators “heads up” about results and also “allowing them to stop trials that weren’t working early, saving time and money”.

“If regulators and drug companies are willing to go on a crisis footing, the time taken to develop drugs and get them approved can be slashed”, adds Short. Innovations include “running multiple stages of trials at the same time”, as well as “the government part funding trials and guaranteeing orders in order to reduce the risk to the drug and biotech companies”. There are also signs that regulators are starting to reform the process for granting fast-track approvals, especially for conditions that don’t yet have an effective treatment.

Better diagnostics

Covid-19 has also led to advances in diagnostics, with evidence that “some of the diagnostic technologies developed during the pandemic can be used for other conditions” says Eduardo Gonzales of Skymind Global Ventures, an AI incubator. At the start of the pandemic, doctors could only definitively diagnose Covid-19 from CT scans. However, a firm called Axial AI developed technology that automated the process, meaning that what previously took an hour “could be done in just ten seconds”. It later developed technology that could diagnose Covid-19 “from just a person’s cough” and is now using the same platform to improve the diagnosis of brain cancer and the early signs of gum disease.

The entire diagnostics industry, from large firms such as Abbott Laboratories to smaller domestic laboratories, has benefited from a “surge in demand”, adds Hermann. Some of this may be about to tail off, but the outlook remains bright. Governments around the world have realised “the importance of having a diagnostics infrastructure in place” to protect against the next pandemic – and to prevent them becoming too dependent on countries like China for supplies.

Overall, biotech achievements over the last two years have “created a spate of exciting potential investment opportunities”, say Thomson and Zhang. “Strong growth prospects” are set to “continue into 2022 and beyond”. Below, we look at some ways to invest.

Seven tips for the biotech boom

Moderna (Nasdaq: MRNA) has been a big winner from Covid-19 vaccines. Sales rose over 200 times from just $60m in 2019 to an estimated $17.9bn in 2021. The end of the crisis will lead to these sales falling, but the fact that it trades at just five times forecast 2022 earnings suggests that these fears are already priced in. Booster jabs may become part of life, while Moderna is also working on using mRNA technology to produce vaccines and treatments for other diseases.

The fortunes of BioNTech (Nasdaq: BNTX) have also been transformed by its mRNA vaccine. Like Moderna, its low valuation of four times estimated 2022 earnings mean that it could surprise on the upside if sales fall less than expected. Long-term prospects come from a pipeline of treatments for infectious diseases and cancer: four of its mRNA-based cancer vaccines are already in phase two trials, as is an antibody therapy that is designed to work against solid tumours.

Pfizer (NYSE: PFE) made and marketed BioNTech’s vaccine and its very effective antiviral treatment paxlovid has recently been approved in most major markets. As with other companies, the revenue boost from Covid-19 will eventually fade, but it is already developing other mRNA treatments. It trades on 8.8 times estimated 2023 earnings and yields 3.6%.

Regeneron (Nasdaq: REGN) is at the cutting edge of antibody research. Its REGEN-COV antibody cocktail is widely used to treat moderate cases of Covid-19, as well as for those high-risk patients who have been exposed to the virus. A decline in the number of hospitalisations – as well as the reduced effectiveness against Omicron – is expected to see the amount of revenue from REGEN-COV decline, causing Regeneron’s revenue to fall in 2022. However, sales are expected to bounce back, thanks in part to its strong pipeline with no less than 11 antibodies in phase three trials. Regeneron trades at 13 times forecast 2023 earnings.

Software company Dassault Systèmes (Paris: DSY) has previously focused mainly on manufacturing, but it is expanding its efforts in healthcare and life sciences, which now account for around a quarter of revenue. During the pandemic it worked on applying artificial intelligence and big data to the fight against Covid-19, including helping hospitals to cut down the spread of the virus. Its subsidiary Medidata Solutions also helps vaccine companies run and validate large-scale decentralised trials. It trades on a relatively aggressive 37 times 2022 earnings, but the firm is targeting sales growth of around 10% a year and earnings growth of around 13%-14% per year over the next few years.

The need to maintain some domestic testing infrastructure in the UK is good news for EKF Diagnostics (LSE: EKF), says Stifel’s Herrmann. It was one of the few British companies to successfully develop and market a Covid-19 test, but already had a reputation as a manufacturer of diagnostic devices, mainly centred around analysis of blood. Between 2015 and 2019, its sales grew by more than half and Covid-19 further boosted its growth. It trades at 14 times 2022 earning and pays a dividend yield of 2.3%. Genedrive (Aim: GDR) may also be worth a look. It is applying technology developed while creating a test for Covid-19 to help with diagnosing Hepatitis C. The technology is also being trialled in NHS hospitals to identify newborn children who are vulnerable to antibiotic-induced hearing loss, therefore minimising the risk of irreversible harm by adjusting the treatment. It trades on eight times forecast 2023 earnings.

Over the past two years, many investors will have learned more about vaccines than they ever expected. Most people rarely encounter or think about them outside of our childhood immunisations and the occasional travel requirement. Yet as the pandemic has reminded us, this is a crucial, life-saving area of research – and suddenly a very profitable one for a select handful of successful vaccine developers.

Vaccines protect us from disease by stimulating the production of antibodies that prime the body’s immune system to protect us against specific diseases. They are prepared from the agent responsible for a disease to act as an antigen, but in a way that does not cause the disease. Vaccines can be used against both viral and bacterial diseases. Vaccines cannot guarantee you will never get a disease, but greatly reduce the probability of catching it. If you are infected, they will usually reduce the disease’s severity.

The first vaccine was developed in the UK by Edward Jenner in 1796. He realised milkmaids did not get smallpox because they had had cowpox. He inoculated a boy with cowpox virus and demonstrated the boy’s immunity to smallpox. A smallpox vaccine was developed in 1798 and mass vaccination throughout the 19th and 20th centuries enabled smallpox to be eliminated from the world by 1979.

The Covid-19 pandemic marks a fresh leap forward. Several highly effective vaccines were developed in just under a year, compared with the ten years or more required previously to discover, develop and approve a new vaccine. An extreme example was the Ervebo vaccine for Ebola, which was discovered in 2001 and yet only approved by the US Food and Drug Administration in 2019. The incredibly rapid development of Covid-19 vaccines provides a blueprint for future vaccine development.

The race for a vaccine begins

The Covid-19 pandemic started in Wuhan, China, in November 2019. Unfortunately, the Chinese authorities said the virus was viral pneumonia, not a Sars-type virus and, in spite of contrary evidence, denied there was human-to-human transmission until 20 January 2020. Some doctors in Wuhan, including Li Wenliang who later died from the virus, tried to warn about the coronavirus in late December, but were punished for “spreading rumours”.

In early January, around five million people travelled out of Wuhan, many to other countries and this spread the virus worldwide. At the same time, the virus’s genetic sequence was analysed by Chinese researchers, including Zhang Yongzhen, a virologist in Shanghai. On 13 January, he defied instructions and published his data. The Chinese authorities promptly closed his laboratory for “rectification”, but the information was out and laboratories in Western countries started to design both diagnostic tests and vaccines.

Before the pandemic, the major vaccine makers were GlaxoSmithKline (revenues of $9.8bn in 2019), Merck USA ($8.4bn), Sanofi ($6.9bn) and Pfizer ($6.5bn). Vaccines accounted for 21% of GlaxoSmithKline’s turnover and 13%-18% for the others. Some of these companies have ended up playing a major role in the Covid-19 vaccine programmes. Others have not yet had success, while some lesser-known firms – often using innovative technology – have come to the fore.

The most traditional approach to vaccines for both bacterial and viral diseases are those that contain whole bacterial cells or viruses. These are of two types – those using inactivated bacteria/viruses and those using live but attenuated (weakened) bacteria/viruses. However, three other approaches are also now used to create vaccines for viral diseases. These are subunit (also used for bacterial vaccines), viral vector and nucleic acid. Recombinant subunit vaccines use pieces of the pathogen (often protein fragments, such as the spike protein from a coronavirus) to trigger an immune response. The viral vector vaccines work by giving cells genetic instructions to produce antigens, but deliver these instructions using a harmless virus as a carrier. The nucleic acid vaccines (eg, mRNA) work in a similar way to the viral vector ones, but insert genetic RNA or DNA material from the virus into human cells to give instructions to the cells to make the antigen that triggers an immune response.

Who tried what – and what worked

The clear leader of the established vaccine firms has been Pfizer, which teamed up with Germany’s BioNTech to roll out an mRNA vaccine. The UK was the first country to approve this, with vaccinations starting in December 2020, followed by much of the rest of the world. The AstraZeneca and Oxford University vaccine, which uses a viral vector approach, arrived only shortly afterwards. A second mRNA vaccine developed by Moderna has also been widely approved, including by the UK in January 2021. Finally, Johnson & Johnson’s Janssen vaccines division launched another viral vector vaccine, which was approved by the UK in May 2021 (and by other countries, including the US, earlier).

In addition to these, Russia produced its Sputnik vaccine using the viral-vector approach. China’s Sinovac/CoronaVac and Sinopharm vaccines use the older inactivated virus technique, as does India’s Covaxin. These have been used widely in emerging economies, but not in the West.

Novavax, a US biotech, has developed a subunit vaccine that performed well in trials, but has been slow to gain regulatory approval due to manufacturing problems. It gained its first regulatory approval in Indonesia in November 2021, was recommended for authorisation in the EU by the European Medicines Agency (EMA) last month and has applied for approval in the UK. The EMA also began reviewing an inactivated virus vaccine with adjuvant (a substance that enhances the immune response to an antigen) from French biotech Valneva in December 2021.

The rapid arrival of so many successful vaccines may seem remarkable, but is partly explained by how many went into urgent development, some of which have been abandoned. To take just other examples involving major developers, Merck had two programmes, but early results were disappointing and it terminated both in January 2021. It is instead helping to make Johnson & Johnson’s vaccine. GlaxoSmithKline and Sanofi had disappointing results from their first vaccine candidate so developed an upgraded version, which began phase-III trials in September 2021. This is a recombinant vaccine with GlaxoSmithKline’s adjuvant, as are the firm’s collaborations between South Korea’s SK Bioscience and Canada’s Medicago. Both of these are also in phase-III trials. GlaxoSmithKline is also about to enter trials for an mRNA vaccine developed with CureVac, a German biotech whose first effort at an mRNA was abandoned after weak results. Sanofi has also worked with Translate Bio on an mRNA, but suspended development in September 2021.

Pfizer takes the prize

Thus we see that the smallest of 2019’s four major vaccine manufacturers – Pfizer – has done best so far. Merck is out of the race. GSK has four collaborations with three in phase-III clinical trials. Sanofi has its collaboration with GSK. Meanwhile, three companies not in the top four of 2019 – AstraZeneca, Johnson & Johnson and Moderna – have all had Covid-19 vaccines deployed, while Novavax is finally starting to obtain its first approvals.

Pfizer expects to have made three billion vaccine doses in 2021. Its vaccine sales for the first nine months of 2021 were $28.7bn, or half of its total sales. That compares to its vaccine sales of only $4.6bn for nine months in 2020. Its partner BioNTech – which developed the vaccine (Pfizer handles testing and distribution) – reported its own vaccine sales for the first nine months of 2021 as €500m, but profits from its profit-share agreement with Pfizer were €9.8bn. Moderna, which arranged its own contract manufacturing rather than partnering with a pharma major, expects its vaccine sales for full year 2021 to be $15bn-$18bn, or around half of Pfizer’s expected sales.

AstraZeneca reported Covid-19 vaccine sales of just $2.2bn for the first nine months of 2021, despite setting up 25 manufacturing plants in 15 countries and supplied two billion vaccine doses to 170+ countries by November 2021. This is much lower than Pfizer, since AstraZeneca had initially priced its vaccine at cost to help poorer countries. It said in November that it may now start to make a modest profit from sales. Johnson & Johnson reported Covid-19 vaccine sales of €500m for Q3 and $770m for the first nine months (its vaccine has been deployed less widely and, like AstraZeneca, the company said that it would initially deliver it at low cost). For comparison, GlaxoSmithKline reported vaccine sales of £5bn ($6.7bn) for the first nine months and this includes just £352m of adjuvant sales for Covid-19 vaccines.

Prospects for Covid-19 and beyond

Future sales of coronavirus vaccines will depend on the number of new variants and how severe symptoms are from those variants. Some viruses become less virulent over time and Covid-19 might follow this path. However, it could be that annual Covid-19 vaccinations become routine for sections of the population, as for influenza. The new vaccine platforms, such as viral vector and mRNA, should enable vaccines to be updated in around 100 days to counter new Covid-19 variants. Thus, if annual vaccinations become necessary for vulnerable groups, vaccines can be modified each year to fight the latest variants. This may drive continued sales even when the current pandemic phase is over.

More broadly, vaccines were until recently thought of as stable, good businesses, but not exciting ones. That changed with the advent of Covid-19. Yet uncertainty about the future course of Covid-19 and other possible pandemics creates the main unknown about investing in companies with substantial proportions of revenue from vaccines.

For example, the Sars-1 coronavirus that emerged in China in 2002, causing pneumonia-like symptoms and leading to 8,098 cases and 774 deaths in total, mainly in China and four other countries, was ultimately controlled. Covid-19, by contrast, has already caused 5.4 million deaths and spread to almost every country. If future pandemics were similar to Sars-1, they would provide only modest returns. However, ongoing serious mutations of Covid-19, or a serious pandemic caused by another coronavirus or other pathogen, would generate an urgent need for new vaccines.

The rapid development of Covid-19 vaccines has both demonstrated that vaccine development can be speeded up and introduced new technologies that can form the basis of vaccines for other diseases. So it’s important to look at the full range of potential developments in these companies’ pipelines.

Among the big pharma firms, Pfizer has seven potential new vaccines for diseases ranging from clostridoides difficile in phase III, Lyme disease in phase II and influenza in phase I. GlaxoSmithKline has 15 vaccines in clinical trials, including vaccines for respiratory syncytial virus (RSV), rabies, shingles, meningitis and C. difficile. Merck’s pipeline has two vaccines in phase II and three vaccines approved within the last two years, but gives no phase-I information. Sanofi has ten vaccines in its pipeline, with three of those in phase III for rabies, RSV and meningitis. Johnson & Johnson has four pipeline vaccines in clinical trials for RSV, HIV, Ebola and ExPEC (systemic bacterial infection). AstraZeneca has only RSV and Covid-19 vaccines under development.

Turning to the smaller firms, BioNTech has an mRNA vaccine for influenza in phase-I clinical trials and plans to start clinical trials of an mRNA malaria vaccine and a tuberculosis vaccine in 2022. Moderna has a well-stocked pipeline of 15 different mRNA vaccines for diseases as diverse as RSV, EBV (Epstein-Barr virus), influenza and HIV, with six of them in clinical trials. Novavax has five vaccines in clinical trials, for RSV, influenza and Ebola. Vaccine specialist Valneva has four in trials and two marketed.

Investment options

There are two main options for investing in companies involved in vaccines. The first is to concentrate on large biopharma companies with substantial vaccine interests. Pfizer demonstrated agility in teaming up with BioNTech. GlaxoSmithKline, originally the world leader in vaccines, has at least set up four collaborative programmes that should bear fruit if Covid-19 continues to be a threat for two or more years. However, in the medium term profits for both companies will depend mainly on products other than vaccines. GlaxoSmithKline, for example, has been strengthening its pipeline with emphasis on cancer and HIV as well as infectious diseases. It recently announced the start of human clinical trials in 2022 of a cure for HIV. In addition, it is preparing to spin-off its consumer products division from pharmaceuticals and vaccines into a new listed company. This will reduce the dividend and adds uncertainty about how debt will be allocated and whether proceeds will be reinvested in new pharmaceuticals.

The other major company that showed agility over Covid-19 vaccines is AstraZeneca, but its future depends almost entirely on other products. It has revitalised its whole pipeline over the last few years, added treatments for rare diseases with the acquisition of Alexion in July 2021, and has a particularly strong pipeline of cancer drugs.

Pfizer will benefit the most from Covid-19 vaccines. Analysts forecast earnings per share (EPS) to rise from $2.82 in 2020 to $4.19 for 2021 and $6.04 for 2022, but then fall back to $5.17 for 2023 when the pandemic boost may be reducing. It trades on a forecast price/earnings (p/e) ratio for 2022 of 9.9, rising to 11.5 for 2023. GlaxoSmithKline has a 2022 p/e of 14.1 and AstraZeneca a 2022 p/e of 16.7. Of the three larger companies, AstraZeneca probably has more potential in its pipeline, but for cancer treatments and rare diseases rather than vaccines. It should be compared with other major biopharma companies, not just those with vaccines.

The second choice is to focus on smaller, newer companies using mRNA or viral-vector technology for both Covid-19 and other vaccines and drugs. BioNTech, Moderna and Novavax were all making losses in 2020, but are expected to make good profits in 2021-2023. Forecast EPS for BioNTech is $32.2 for 2022, falling steeply to $18.6 for 2023. Moderna is projected to earn $27.1 for 2022, falling to $13.6 for 2023. Novavax is on $25.7 for 2022, falling to $18.7 for 2023. These decreases from 2022 to 2023 are much larger for the smaller companies than Pfizer because they are much more dependent on vaccines.

In terms of valuation, BioNTech is on a 2022 p/e of 8.1, rising to 14 for 2023. Moderna’s p/e for 2022 is 7.8, rising to 18.5 for 2023. Novavax comes in at 7.1 for 2022, rising to 9.8 for 2023.

Of the three smaller firms, BioNTech is probably the best investment option. In addition to its mRNA-based infectious diseases vaccine pipeline (seasonal influenza, HIV, Malaria and tuberculosis) it has a strong oncology pipeline based on mRNA, CAR-T cell therapy and antibodies with 12 clinical trials in phase I, four in phase II and five at a pre-clinical stage.

What are mRNA vaccines?

Conventional vaccines work by training the immune system to recognise and fight viruses or bacteria by introducing an inactivated form of a virus (one that has been rendered harmless) into a patient’s body. However, the biotechnology used in the mRNA vaccines made by Pfizer/ BioNTech and Moderna is fundamentally different. The aim is the same: to train the immune system to recognise and fight off the virus. But these new vaccines accomplish this by using synthetic “messenger RNA” to deliver a snippet of viral code to your body in order to teach your immune system what the relevant disease-causing virus looks like. Then, if your system encounters the virus, your body is primed to mount a defence using specialised antibodies and T-cells.

What exactly is mRNA?

Messenger RNA (ribonucleic acid) is a polymeric molecule – naturally produced and essential to all known forms of life – whose principal job is to tell cells which proteins to make. To make an mRNA vaccine, scientists produce it synthetically in a laboratory. When injected, the synthetic mRNA goes to an area of the body’s cells called the cytoplasm, where it is turned into proteins that look like the relevant proteins of the virus. This primes the cells to help them fight off infection if your body later encounters the real thing.

Is the technology new?

It has been in development since the late 1970s – going through numerous hurdles and breakthroughs over the decades but never before authorised for use. Katalin Karikó, the Hungarian-born, US-based biochemist who pioneered mRNA research in the 1980s, is now a senior adviser to BioNTech.

In early 2020, scientists there and at Moderna, who had been researching potential mRNA applications for influenza and cancer, were able to switch their focus within days of China sharing the genetic sequencing of the novel coronavirus – with results that far exceeded most expectations.

The beauty of mRNA technology is the speed, in that once you have the genetic sequence, you can identify exactly what you need to put in the code of your vaccine, and you are giving instructions to the target that the immune system can respond to,” John Bowler, of the Schroder Global Healthcare Fund, told Bloomberg. “It really changes the whole dynamic on infectious diseases.”

What else is being developed?

While the Covid-19 vaccine rollout continues, the race for the next generation of mRNA therapies – targeted at a variety of other diseases – is already intensifying, says Stephen Buranyi in Wired. Moderna and BioNTech each have nine candidates in development or early clinical trials. There are at least six mRNA vaccines against flu in the pipeline, and a similar number against HIV, Nipah, Zika, herpes, dengue, hepatitis and malaria have all been announced. And the pharma giants are snapping up promising researchers for huge contracts. Sanofi recently paid $425m to partner with a small US biotech called Translate Bio; GSK paid $294m to work with Germany’s CureVac.

But the potential for mRNA is not limited to infectious diseases. There is also much excitement about the potential of mRNA in treating certain rare genetic diseases (caused by defects in or deficits of proteins) and cancer (targeting cancer cells in the same way that the immune system targets infection).

In the field of regenerative therapeutics, mRNA might also help in the growth of new blood vessels (in research by Moderna and AstraZeneca).

Will this make other vaccines obsolete?

It’s highly unlikely in the foreseeable future. First, not every current vaccine technology works for every target, and it’s highly unlikely that mRNA will prove effective – or the most cost-effective solution – in every scenario. Existing efforts to develop mRNA vaccines against other diseases (for example by Moderna and GSK in 2016 and 2017) have been much less successful than the vaccines developed successfully for Covid-19, and the reasons for that are not yet fully understood.

Second, there remain big issues to solve around stability and affordability of manufacturing if mRNA vaccines are to reach all corners of the world – and the shipping and super-cold storage of mRNA vaccines requires expensive infrastructure. That suggests a diversity of vaccine types will remain necessary. And third, where effective, cheap, established vaccines already exist, there’s no good reason for drugs companies to switch to a completely new platform. All that said, there’s no doubt mRNA vaccines have transformed the sector from the point of view of investors.

Who’s doing well?

Moderna and BioNTech are the names everyone knows. However, rival CureVac’s near-50% stock slump in one day in June – on disappointing trial results for its mRNA Covid-19 vaccine – is a good example of the sector’s risk. Other focused biotech firms using non-mRNA technology include Novavax and Dynavax (both in vaccines), while Vir Biotechnology is developing antibody treatments for Covid-19, says Suzanne Woolley on Bloomberg.

Any other tips?

In the wider supply chain – for example makers of the ingredients in vaccines, diagnostics and testing companies, and even makers of rubber stoppers, syringes or speciality glass products – businesses worth investigating include West Pharmaceutical Services, Becton Dickinson and Germany’s Gerresheimer, says Woolley.

Other possibilities are Catalent, which specialises in delivery technologies for drugs and biologics, and Corning, which makes vials. Germany’s Evonik Industries supplies lipids needed for the Pfizer/BioNTech vaccine. Spanish pharmaceutical company Rovi bottles Moderna’s Covid-19 vaccine and Switzerland-based Lonza produces some of the ingredients that Rovi bottles for Moderna.

AstraZeneca is “reviewing the future of the Covid-19 vaccines business”, says Farah Ghouri in City AM – and could decide to exit vaccines altogether. Its jab helped boost overall sales by almost a quarter to $15.5bn in the first half of 2021. But AstraZeneca has suffered a “series of setbacks”, including “being sued” by the European Union over jab deliveries.

It’s not surprising that AstraZeneca “is now weighing up whether it wants a future in vaccines at all”, says Hannah Boland in The Daily Telegraph. After all, the vaccine, which was developed in conjunction with Oxford University, has been the victim of European “envy” of “British scientific expertise” and “animosity over Brexit”. For example, in February French president Emmanuel Macron falsely claimed that it was “quasi-ineffective” in older people. At the same time, fears of blood clots meant that it was withdrawn in many countries, even though later evidence suggests that “AstraZeneca-jabbed patients develop blood clots at a similar rate to those who received the Pfizer vaccine”.

Self-inflicted wounds

However, AstraZeneca is also “partly responsible” for its own problems, says Bryan Appleyard in The Times. When it came to delivering vaccines it made promises to the EU that it could not fulfil. What’s more, it “altruistically” decided to set the price of its vaccine at the cost of production. So whatever happened, it was guaranteed to lose money, which is why it is indicating that it may have to start charging a “realistic price”.

No wonder AstraZeneca is discreetly backing away from the “not-for-profit route”, says Julia Kollewe in The Guardian. After all, rivals Moderna and Pfizer, which charge more than double AstraZeneca’s price for their vaccines, have enjoyed great “commercial success”. A few months ago Moderna, which received substantial funding from the US government, forecast that it would make $19.2bn in sales from its vaccine in 2021 alone. It also turned its first profit in the first three months of the year. Pfizer has done even better, raising its forecast for sales this year to $33.5bn.

While AstraZeneca continues to deal with ongoing lawsuits, Pfizer and Moderna are set to continue making “tens of billions of dollars in revenue” for years to come, says the Financial Times. This is because the emergence of the “highly infectious” Delta variant has made countries anxious to secure supplies for “potential booster shots”. With Europe already reserving the right to an additional 1.8 billion doses of Pfizer’s vaccine, some experts predict that by the end of next year, sales of Pfizer’s treatment “will hit $56bn, with Moderna’s reaching $30bn”. AstraZeneca’s trouble with its cost-price treatment means that the dream of “low-priced vaccines for the world lies” now lies in “ruins”, says Appleyard – bad news in Africa, where vaccination rates remain “catastrophically low”.

On 7 June shares in Biogen, a US biotechnology company, soared by 64%. America’s Food and Drug Administration (FDA) had just approved Biogen’s Aducanumab, the first drug for Alzheimer’s disease to be admitted to the market for 18 years. The US Alzheimer’s Association noted that the “historic approval of Aducanumab ushers in an exciting new era in Alzheimer’s and dementia treatment and research”. Aducanumab, to be marketed as Aduhelm, was submitted for approval in the EU and Japan in 2020 and FDA approval makes the other regions more likely to follow suit.

Alzheimer’s: a global scourge

More and more people are being diagnosed with serious neurodegenerative diseases such as Alzheimer’s and Parkinson’s; people are living longer and we have become better at diagnosing them. In this article we concentrate on the main neurodegenerative diseases, Alzheimer’s, Parkinson’s and Huntingdon’s. The good news is that the FDA’s approval of Aducanumab will galvanise research in this subsector and bring forward successful treatments.

Alzheimer’s is the most serious neurodegenerative condition. There are 6.2 million people in the US with the disease and this number will rise to at least 14 million by 2050. The World Health Organisation (WHO) estimates that 50 million people worldwide are suffering from dementias (Alzheimer’s accounts for two-thirds of them), with ten million new cases being diagnosed each year. These are probably substantial underestimates because of poor diagnosis in many countries. The prognosis for Alzheimer’s sufferers is grim. The few drugs previously available merely alleviated certain symptoms.

But the Alzheimer’s Association says that “Aducanumab addresses the disease in a way that has never been done before. This therapy slows progression of the disease rather than just addressing symptoms”. Biogen’s two 18-month long double-blind phase-III trials (the last stage of clinical trials before approval) involved 3,285 volunteers in 20 countries. (In a double-blind trial neither the patient nor the researchers know which patients are given drugs and which placebos.)

Results showed that there were both dose-dependent and time-dependent reductions in amyloid plaques and tau tangles in the brain when Aducanumab was dispensed. Amyloid plaques and tau tangles are both key signs of Alzheimer’s. The plaques are clumps of protein that gather between neurons and disrupt cell function.

The tangles are abnormal collections of protein inside neurons that spread through the brain once the level of amyloid plaques reaches a tipping point. The highest doses of the drug showed reductions in clinical decline by about a quarter, measured both by cognitive tests and clinical assessment of daily function and behavioural abilities.

Bear in mind that Aducanumab’s approval was accelerated, or fast-tracked; the regulator occasionally speeds through the approval process if a drug can address a serious unmet medical need. The FDA’s approval is primarily based on the drug’s ability to reduce amyloid plaques in the brain. Approval could be revoked, however, if new studies do not affirm the promise shown in the first trials. The FDA is requiring Biogen to conduct a new trial to verify the drug’s clinical benefit (reduced cognitive decline); if benefit is not verified, the FDA could start proceedings to withdraw approval.

A big boost for Biogen

Aducanumab is expected to be most effective if patients are started on it during the very early stages of Alzheimer’s disease. However, even if only early-stage patients are treated, the drug is still likely to provide a large new revenue stream for Biogen, which says it can supply over one million patients a year. The price is $56,000 per year, although there will be discounts for bulk purchases.

Around 500,000 new Alzheimer’s cases are diagnosed in the US each year, so giving Aducanumab to, say, 30% of newly diagnosed US patients (those with confirmed amyloid plaques) could raise up to $8.4bn in the first year, rising to $16.8bn in the second. Compare these figures with Biogen’s 2020 revenue of $13.4bn. Sales in Europe, Japan and other advanced economies could double these sums.

Improved early diagnosis of Alzheimer’s could increase the estimate of 500,000 new cases per year since many cases of mild cognitive impairment are really cases of early-stage Alzheimer’s. In the short term some doctors may want to await the results of Biogen’s further trial.

But doctors taking this view may find that their patients are very unhappy. Jeff Borghoff, now a spokesman for the Alzheimer’s Association, has been lobbying hard. He was enrolled on Biogen’s clinical trial and credits Aducanumab with giving him extra time. He was diagnosed with Alzheimer’s at age 51 and has been on Aducanumab for six years. He initially feared steep mental decline, but says that “to date that has not been the case”.

A strong Alzheimer’s drugs pipeline

But Aducanumab is only one of Biogen’s potential Alzheimer’s drugs. It also has BAN2401 in phase-III trials, BIIB092 in phase-II trials with BIIB076 and BIIB080 in phase-I trials. In April 2021 Biogen’s encouraging phase-II clinical trial results on Lecanemab (BAN2401) showed consistent reductions in both amyloid plaques and clinical decline at the highest doses. The FDA deems it a “breakthrough therapy” and phase-III trials are under way.

Among the other large companies, America’s Eli Lilly stands out with Solanezumab in phase-III trials, Donanemab (which shows evidence of reducing clinical decline) and Zagotenemab in phase II, and two others in phase I.

German biopharma group MorphoSys has Swiss giant Roche as a partner in developing Gantenerumab, now in phase-III trials for early Alzheimer’s with the expectation of an FDA filing for approval in 2022. AstraZeneca has a treatment in phase-I trials. There are also several small biotechs working on Alzheimer’s treatments. One small, unlisted biotech – Atalanta Therapeutics – is partnering with Biogen and Genentech (a division of Roche) on its proprietary gene-based therapies for Alzheimer’s, Parkinson’s and Huntingdon’s diseases.

The Alzheimer’s Association reports that of 121 experimental drugs in trials designed to change, slow, or delay the progress of Alzheimer’s, 29 are in phase III. A combination of two or more drugs may well prove to be the most effective treatment.

Finding an effective blood test

Alzheimer’s disease is often diagnosed rather late through observations of memory loss and cognitive impairment. However, drugs such as Aducanumab are most effective when given early, since the amyloid plaques and tau tangles that develop in the brain during the early stages can be more easily reversed if caught quickly. Positron emission tomography (PET) scans can reveal if amyloid plaques or tau tangles have formed and successive scans can show if they have grown.

However, PET scans are expensive and thus not very useful for widespread testing. An alternative is cerebrospinal fluid (CSF) testing. CSF is the watery fluid that surrounds the brain and spinal cord. A sample of CSF is taken from the spine and tested for the presence of amyloid and tau proteins. But the goal of the research and development (R&D) department in Roche’s diagnostics division (and other testing companies) is to develop a blood test to detect amyloid and tau proteins so that doctors can determine whether symptoms of mild cognitive impairment are due to early-stage Alzheimer’s.

Another possible approach pioneered by a team at London’s Queen Mary University is a cheap, sensitive smell test using an aromatic oil. This could provide early identification of Alzheimer’s and Parkinson’s disease. For example, more than 90% of Parkinson’s patients suffer from loss of smell, so a sensitive smell test could identify the disease up to ten years before symptoms appear. Of course, loss of smell is also a feature of Covid-19, so other causes of losing a sense of smell must be eliminated first.

A promising pipeline for Parkinson’s

Parkinson’s disease is less prevalent than Alzheimer’s, but there are still over one million cases in the US and over six million worldwide. Parkinson’s is progressive, with the main symptoms being tremors, rigidity and slowness of movement followed by mild memory and cognitive problems. My father died of Parkinson’s so I have seen at first-hand how serious it is in the later stages.

The main treatment is Levodopa, introduced in the 1970s. It controls symptoms to some extent, but neither halts nor cures the disease. Several other drugs have been approved for use in combination with Levodopa. US biopharma AbbVie is carrying out a phase-III trial of a Levodopa/Carbidopa combination. Biogen is developing new treatments for Parkinson’s too, with Cinpanemab in phase-II clinical trials and BIIB092 and BIIB122 in phase-I trials.

AbbVie has ABBV0805 in phase-I trials for Parkinson’s, while Roche has Prasinezumab in phase-II trials. Eli Lilly’s PR001 gene therapy and AstraZeneca’s MEDI1341 are both in phase I trials for Parkinson’s.

Huntingdon’s disease (HD) is much rarer than Parkinson’s, but there are still 30,000 cases in the US with another 200,000 people at risk of developing it. It is a genetic disease characterised by uncontrollable muscle movements, loss of cognitive ability, personality changes and depression. In 2008, Tetrabenazine, made by a firm called Lundbeck, was the first drug for HD to be approved by the FDA. It helped control the involuntary movements characteristic of HD.

Deutetrabenazine, made by Israel’s Teva Pharmaceuticals, a similar but longer-acting drug, was subsequently approved for HD. Roche has a phase-III clinical trial of Tominersen for HD.

However, the independent data-monitoring panel recommended ceasing the dosing of clinical trial patients with Tominersen on 30 March 2021, based on its assessment of the drug’s benefit-risk profile. This is a blow for HD patients who were hoping to see a new treatment approved.

The core-and-satellite investment strategy

Investors wishing to gain exposure to biopharma companies likely to be launching new drugs for neurodegenerative diseases should adopt a core-and-satellite strategy.

The core companies will be large, low-risk biopharmas with a diverse range of approved and pipeline treatments that include several promising pipeline drugs for Alzheimer’s and Parkinson’s diseases. The satellites will be smaller biotech companies that offer higher risks, but higher rewards.

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What’s happened?

Earlier this month the US surprised the global community – and stunned investors in drugs companies – by backing the temporary suspension of some globally agreed rules covering intellectual-property (IP) protections for Covid-19 vaccines. A waiver of World Trade Organisation (WTO) rules to help tackle the Covid-19-emergency was first proposed by India and South Africa last October, covering patents not just for vaccines, but also diagnostic tools and therapeutic treatments. Both countries have a large manufacturing sector making generic (off-patent) pharmaceuticals. The US is not signed up to a broader waiver of that kin, but its support for a narrower waiver on vaccine patents is a surprise.

Why’s that?

Because the US has a vast and powerful pharmaceutical sector and Washington has a long history of opposition to public-health measures that affect intellectual property rights. In 1996, it even threatened sanctions against Brazil for weakening patent laws to improve access to life-saving Aids drugs. Still, there’s no guarantee that a patent waiver – that is, a temporary suspension of certain rules set out in the WTO’s Trade-Related Aspects of Intellectual Property Rights (Trips) agreement – will actually happen. Until earlier this month, the idea had gained little traction, with the US, EU (notably Germany), UK and Japan all opposed. But US support makes it far more likely that some kind of waiver will be agreed.

What’s the case for a waiver?

The hope is that the waiver will encourage a wider and more geographically diverse production base, as well as encouraging international co-operation. And also that the prospect of a waiver will encourage pharmaceutical companies to enter into more voluntary arrangements and non-exclusive licensing to enable the transfer of technology in a controlled and transparent way. The lesson of the Aids pandemic is that patents “stymie accessible treatment, cost lives, and offer little bona fide enhancement of innovation”, says Laurie Garrett in Foreign Policy.

What’s the case against?

First, that waiving patents on Covid-19 vaccines would not actually speed up global production or get more shots into arms. Second, that doing so would have damaging long-term effects on future innovation. To take the first, it’s not IP issues that lie behind vaccine supply issues, it’s a range of factors including shortages of critical raw materials, a lack of production facilities and the technology and expertise to manufacture them. We know vaccine patents are not the bottleneck to making more vaccines because “there are no factories capable of producing Covid-19 vaccines sitting idle because they don’t have a patent”, says Matthew Lesh on CapX. Moderna announced last October that it would not be enforcing its own patents – yet there is no generic non-Moderna production.

Why not?

Because it’s too hard to copy given the obstacles. Pfizer’s vaccine, for example, requires 280 components from 86 suppliers in 19 countries, from glass vials to lipids to special plastics. And AstraZeneca, having established a global supply network with more than 20 partners across 15 countries, ran out of engineers qualified to transfer its technology. Moreover, waiving patents will increase competition for scarce ingredients, with the risk that less efficient and less expert manufacturers would hinder the ability of existing producers to ramp up capacity. And there’s an obvious issue with safety – and the knock-on effects on global confidence in Covid-vaccines as a whole.

And the long-term consequences?

Security of property rights underpins the whole pharmaceutical sector, which is driven by massive – and massively high-risk – upfront investment in research and development. Weakening or waiving those rights would inevitably discourage companies from investing in future innovation. That would make the world less safe and more vulnerable to the next pandemic threat – and could conceivably even disincentivise investment in pharmaceuticals more broadly. Biden’s “bewildering” support for this is “the single worst presidential economic decision since Nixon’s wage-and-price controls”, says The Wall Street Journal – destroying tens of billions of dollars in US intellectual property and surrendering America’s advantage in biotech, a key growth industry. Certainly, when the next pandemic hits, the world will want the pharmaceutical industry to once again “drop everything and work like hell to make vaccines”, says Tom Chivers on Unherd. “Maybe waiving IP rights will have no impact on their willingness to do that next time, but if there’s even a small chance that it will, it seems a bad bet.”

Will it happen?

Any agreement will need the backing of all 164 WTO members, and will take weeks or months to secure. Meanwhile, many poor countries have jabbed less than 1% of their populations, 44% of vaccine doses have gone to Europe and North America, and Covid-19 is raging in south Asia and Latin America – and all the while new variants are raising the risk-level globally. Investors are worried about a fall in pharma profits, says The Economist, but the danger – in terms of both health and economy – is far broader than that. If protracted negotiations at the WTO “suck energy away from other initiatives to transfer technology and increase vaccine supplies, that would really be something to fear”. Far more useful than waiving patents, says The Washington Post, would be a concerted effort by Western governments to share their vaccine surpluses, and by Western pharma firms to strike more licensing deals and “share manufacturing know-how, experienced personnel, quality control methods, oversight and raw materials”.

Several large shareholders have signalled that they will support GlaxoSmithKline (GSK) in its battle with hedge fund Elliott Management, giving a “huge boost” to the pharma company’s “under-fire” management, say Alex Lawson and Emma Dunkley in The Mail on Sunday. Elliott is said to be pushing for a “dramatic” new plan that could see the FTSE100 firm “sold off in parts or swallowed up by a foreign rival”. However, BlackRock, GSK’s biggest investor, its fifth-largest shareholder Dodge & Cox,and insurer Royal London have reportedly urged firm’s chairman Jonathan Symonds to carry on with plans to overhaul its drugs pipeline and to spin off its consumer healthcare division next year.

The intervention will provide “some relief” for GSK’s chief executive Emma Walmsley (pictured), and there may be more good news to come, say Alex Ralph and Dominic Walsh in The Times. GSK’s Covid-19 vaccine, which it is developing in conjunction with Sanofi, has showed “positive results” in recent trials. GSK and Sanofi have “trailed others in the race to provide coronavirus jabs”, but may now have a product available by the end of the year.

This shows why GSK should hang on to its vaccines unit, says Lex in the Financial Times. The division is a “crown jewel” that “has increased revenues by 50% and nearly doubled profits in the past four years” thanks to the Shingrix shingles vaccine, while its respiratory syncytial virus vaccine looks promising. Research into the immune system is driving both the vaccines and pharma business. Splitting this up would be “the wrong prescription”.

Alzheimer’s disease is not only one of the top causes of death worldwide – it is also a condition that is “incredibly devastating” for people, says Martin Tolar, chief executive of biotech company Alzheon. It’s not just the victims who end up suffering, as the friends and family of those affected have to watch helpless while their loved ones lose their memories, their personality and the ability to carry out basic tasks. At present, most treatments “only deal with the symptoms of the disease, rather than altering the course”, but the encouraging news is that this is set to change, in as soon as the next five to ten years.

These breakthroughs can’t come too soon. The large number of people who now suffer from Alzheimer’s has created a “huge unmet demand” for better treatments, says Cassie Doherty of Parkwalk Advisors, a fund that specialises in investing in university spin-outs. In the UK alone, over 500,000 people have been diagnosed with the disease, which accounts for around two-thirds of all dementia cases (vascular dementia accounts for most of the rest). It’s a similar story across the entire developed world.

The direct cost of palliative treatments, plus the wider costs of the social and medical assistance that most Alzheimer’s patients end up requiring, represents a huge drain on health and social care budgets. Some estimates put the total expense of treating and caring for Alzheimer’s patients in the US healthcare system alone to be as much as $500bn per year. Such a figure may sound incredibly high, but Doherty agrees that it is “plausible” especially “when you take into account the costs of unpaid carers, such as family”.

The situation is likely to get even worse over the next few years as the number of patients is “growing quickly”. There is a strong, well-documented link between Alzheimer’s and age, with around one in every three people over 85 suffering from the disease, so an ageing population is much more susceptible to the condition. This combination of high costs and increasing cases means that there is a “real commercial opportunity” for anything can help doctors and healthcare workers deal with sufferers.

More efficient diagnosis

Before any treatment can be carried out, patients first have to be diagnosed with the disease. At the moment, the only way to definitely diagnose Alzheimer’s-related dementia is to carry out a brain scan (or in a few cases a lumbar puncture). However, since such procedures are expensive, costing up to £20,000, most healthcare systems tend to require patients to be assessed by several doctors before such a scan is approved. In the UK this follows a three-stage process, with a general practitioner (GP) first referring patients to a specialist, who then decides whether to order a scan.

This is inefficient, says Sina Habibi, co-founder of Cognetivity Neurosciences, a medical technology company specialising in dementia detection. He notes that the initial decision to refer a patient to a specialist is based on a GP’s subjective assessment of a person’s symptoms. This means that a large number of referrals end up involving the “worried well” who have “seen a movie or read a newspaper article about dementia and have convinced themselves that they have the disease”. Visiting a specialist can be expensive for reassurance, with a full range of cognitive tests typically costing the NHS around £2,000 a time.

Even these tests aren’t always accurate, resulting in people who don’t have Alzheimer’s being referred for scans, and people who do have the condition being told that they have nothing to worry about. In order to address this problem, Cognetivity has developed a series of visual tests, which Habibi says can last just five minutes, can be administered by non-medical professionals and have around a 95% accuracy, greater than existing tests such as the Montreal Cognitive Assessment. Its system has already been approved by several NHS trusts for use in deciding which patients are given a full scale magnetic resonance imaging (MRI) scan.

Mass screening could slow onset

The immediate goal of automated tests is to save health systems money by acting as gatekeeper separating those who are worrying unnecessarily from those genuinely in need of treatment. But in the medium terms, such processes could be used to screen for those suffering from early stages of the disease.

One of the unique features of Alzheimer’s is that by the time symptoms start to appear “the disease has progressed for 15 to 20 years, and a lot of brain damage has already taken place”, says Mark Edwards of ViewMind, another dementia-detection technology firm. However, there is a lot of evidence that even simple lifestyle changes in the earliest stages, such as adopting a better diet and being more active, can help slow the onset. While mass screening of patients is currently impractical, Edwards believes that ViewMind’s system, which uses a virtual reality headset to measure the brain’s ability to process visual information, could be used to predict those patients who are starting to deteriorate, decades before the disease progresses to the point where they are experiencing symptoms.

Genetic screening could also play a key role in determining who is going to be at risk of developing the full-blown version of the disease in the future, says Patrick Short of Sano Genetics, a genetic data-sharing platform. While “tens to hundreds of genes” may help determine a person’s chances of getting Alzheimer’s, the one that has a “particularly strong link” is the APOE gene that controls production of a protein called apolipoprotein E. One allele (variant) of this gene called APOE4 is found in only 25% of people, but is present in the majority of Alzheimer’s patients. Only 2%-3% of people have two copies of APOE4, but this rises to 15% among those with Alzheimer’s.

Encouraging investment in new drugs

Of course even the best diagnostic systems are going to be of limited use unless better ways to treat the disease are developed. Until recently, drug companies have been traditionally reluctant to invest money in this area, and even today “the amount of research and development in this area isn’t as much as in other areas, such as oncology”, says Parkwalk’s Doherty. Not only are clinical trials in this area expensive, but “getting good clinical outcomes” from such trials “has proved to be difficult”. The scale of the challenge is shown by the fact that as many as 300 clinical programmes have ended in failure in recent years.

The failure of so many trials means that “more work needs to be done” to further our understanding of the condition, says Doherty. However, the prospect of growing numbers of Alzheimer’s patients putting pressure on healthcare systems is encouraging governments around the world to invest large sums of money into all levels of research. The UK government has been at the forefront of this, with the Medical Research Council and the National Institute for Health Research making research into Alzheimer’s and dementia a priority. British universities, especially Oxford and Cambridge, are already starting to produce a lot of interesting discoveries.

While most drug trials have ended in failure, a few have managed to show enough promise to justify further investigation, says Doherty. At the moment there are around 18 drug trials that have progressed into phase III (the stage of the process that tests effectiveness in a large number of human patients) and 36 that are in phase II (which tests efficacy in a smaller number of patients). While there is no guarantee that any of these drugs will end up being approved, she is confident that significant progress is on the horizon.

Meanwhile, with billions available to those who are able bring a drug to market, pharmaceutical drug companies at now starting to realise that, despite the high cost of trials, “they can’t afford to neglect the area”, say Alzheon’s Tolar. This is leading them to get back into the area by investing large sums, in an attempt to find a decisive breakthrough that will help them deliver a blockbuster drug. Like Doherty, Tolar is confident that all this increased interest means that “we are likely to see several approved treatments for the disease on the market within the next few years”.

The leading contenders

The three main drugs that are attracting attention at present are Biogen’s aducanumab, Eli Lilly’s donanemab and Alzheon’s ALZ-801. All three work – in different ways – on the theory that Alzheimer’s is caused by a corrupted form of the amyloid-beta precursor protein (APP). This protein is thought to help the brain repair itself, but researchers believe that when APP breaks down and accumulates into amyloid plaques, it becomes toxic and damages the same cells that it is supposed to defend. When damage reaches a critical level, people start to suffer symptoms.

Of the three, the closest to making to market is aducanumab, which could be approved by the US Food and Drug Administration (FDA) as early as next month. If so, it would be the first approval in this area since 2003. However, while trials suggest that there is statistically significant evidence that the drug slows the progression of the disease in its later stages, the effect is relatively small. Indeed, with the FDA’s own advisory panel recommending against approving the drug, experts estimate that the chance of getting the green light is only around 50%.

There’s also the added complication that, since amyloid plays a vital role in “protecting the brain against injury or infection”, reducing the levels of healthy amyloid “can have big negative implications” for general health, says Tolar. Both aducanumab and donanemab have been linked to an increased risk of brain oedema (swelling due to trapped fluid). As a result, even if the FDA approves aducanumab, rival companies are still likely to continue working on their own treatments, in the hope that these could be more effective. For example, Tolar obviously hopes that Alzheon’s drug ALZ-801 – which he believes could be approved by 2024, or even earlier if the FDA decides to speed up the process – could end up being the dominant treatment. He argues that existing trials have shown that it is much more effective than its competitors; that it has been associated with fewer side effects; and the fact that it is delivered through a twice-daily pill, as opposed to intravenous (IV) infusion, makes it more convenient for elderly patients.

Future treatments with gene therapy

Using drugs to target rogue amyloids, as well as tau proteins, another group of neural proteins that has been linked to both Alzheimer’s and Parkinson’s disease, is the most popular approach at the moment, but there’s also been an increasing amount of interest in gene therapy. For example, the key to fighting Alzheimer’s could be through a protein known as brain-derived neurotrophic factor (BDNF), thinks Mark Tuszynski, professor of neuroscience at the University of California San Diego School of Medicine. Since Alzheimer’s patients tend to have lower levels of this protein, which helps rebuild brain synapses, he hopes that increasing the level of BDNF in the brain can not only slow the progress of the disease, “but also rebuild connections between parts of the brain” to improve the memory of sufferers.

However, getting BDNF into the brain is not easy. It isn’t absorbed by the gut, so it can’t be delivered by a pill, and it’s blocked by the blood/brain barrier, so IV infusion is unlikely to work. Tuszynski’s idea is to inject a modified virus carrying the gene into the brain, which will prompt nearby cells to start producing BDNF. Preliminary results from animal studies suggest that the boost from a one-off treatment could last for up to nine years, and have prompted his institute to set up a human trial of the technique. If everything goes to plan, this could be available as a treatment option within the next five years.

Meanwhile, researchers at Cornell University are targeting the APOE4 allele, which has been linked to both an increased likelihood of getting Alzheimer’s as well as an earlier onset of the disease. They have begun a trial that floods the brain with a different allele, APOE2, which has been associated with a reduced risk of getting Alzheimer’s.

However, commercial use of gene therapies for the disease probably lie further in the future. We look at some firms with more immediate prospects below.

The leading contenders in Alzheimer’s drugs

Among the larger biotechnology and pharmaceutical firms, Biogen (Nasdaq: BIIB) stands out for putting a lot of resources into finding an effective treatment for Alzheimer’s. Even if the FDA’s decision on whether to approve aducanumab, which is due in June, ends up going against it, Biogen has four other Alzheimer’s treatments undergoing clinical trials. These include BAN2401, which is in phase III, and gosuranemab (phase II), while BIIB076 and BIIB080 are in phase I (safety) trials. The downside risk is limited by the fact that Biogen already has several successful drugs on the market and trades at only 14 times forecast 2022 earnings.

Eli Lilly (NYSE: LLY) is also at the forefront of the race to develop new Alzheimer’s drugs, with early trial data suggesting that its donanemab drug slows the progression of the disease. The firm is currently running multiple phase III studies for use in Alzheimer’s patients at different stages of the disease, including pre-symptomatic patients. While the stock trades at a more expensive 23 times forecast 2022 earnings, this is more than justified by the fact that revenue has increased by more than 150% over the last three years.

Alzheon, which is developing ALZ-801, is not listed (it has twice pulled a planned initial public offering), but there are a number of smaller biotech firms working in this area. Alector (Nasdaq: ALEC), which specialises in neurology, has several Alzheimer’s drugs in its pipeline, including AL002, which has reached phase II clinical trials. Its portfolio also includes other interesting prospects, such as AL001, which is in the final stage of trials to see whether it can help with frontotemporal dementia. Alector is partnering with pharma giant AbbVie (NYSE: ABBV), which is obviously not a pure play on Alzheimer’s, but looks cheap at just 8.4 times forecast 2022 earnings.

Denali Therapeutics (Nasdaq: DNLI) is also focused on neurological diseases. This is one to watch, with a pipeline targeting diseases such as Alzheimer’s, Parkinson’s, dementia and amyotrophic lateral sclerosis, say Julia Angeles, Rose Nguyen and Marina Record of the Baillie Gifford Health Innovation Fund. Denali’s most promising Alzheimer’s treatment is DNL788, which has started phase I trials in partnership with Sanofi. The firm isn’t making any money, but has enough cash to support development of its main drugs.

Loss-making Axsome Therapeutics (Nasdaq: AXSM) looks riskier, but has a combination drug therapy, AXS-05, in phase III trials for reducing agitation in patients with Alzheimer’s (something that no drug is currently able to do). While this is palliative – it reduces symptoms rather than slowing the course of the disease – the ability to improve patients’ quality of life means that sales could be as much as $3bn a year if the drug is approved. The FDA has granted it Breakthrough Therapy designation, meaning it will be eligible for an expedited decision after trials conclude.

SEE ALSO

Make uncommon profits from helping cure rare diseases

Biotechnology is a vast field – and a lucrative one for investors. It is concerned with harnessing biomolecular processes (involving lipids, cells, nucleic acid and proteins) to develop technologies and products. Over the last few decades the sector has revolutionised drug development, agriculture and aspects of green energy.

Early investors in biotech companies have done very well. Shares in Amgen (a large drug maker), for instance, have soared by a factor of 170 over the last 31 years; Genus – a UK animal-genetics group – is up 54-fold in the last two decades.

The industry’s successes include new and effective treatments for cancer, cures for serious genetic diseases and the recent development of several Covid-19 vaccines at record speed. Both the Pfizer/BioNTec and Moderna vaccines use synthetic mRNA, a technique applied to fighting cancer. It adapts the body’s natural RNA, which governs protein production in the cells.

When the vaccine, comprising mRNA and the spike protein from the surface of the virus, is injected into the body, it prompts cells to start producing antibodies (proteins developed by the body to defend the immune system) to fight the virus. The AstraZeneca/Oxford vaccine, meanwhile, uses a harmless carrier virus with extra genetic material of the Covid-19 spike protein, which again stimulates antibody production.

Going beyond drugs

Biotech stretches far beyond vaccines, however. Increased crop and farm-animal yields are needed to feed a growing world population. This drives agricultural biotechnology. There are four big agribusinesses providing crop protection, fertilisers and genetically improved seeds. These are BASF, Bayer/Monsanto, Dow/DuPont (whose agricultural part was spun off as Corteva) and ChemChina/Syngenta.

Several agricultural biotech start-ups have already been acquired by the majors, including AgraQuest and TPG Growth (both bought by Bayer) and Becker Underwood (a seed-treatment specialist),scooped up by BASF. Genus is the world leader in genetics for farm animals.

Industrial biotech includes areas such as harnessing enzymes (biological catalysts) to improve products; biomatter power facilities; biofuels; waste-to-energy facilities and the biodegradation of plastics. Novozymes is a good example of a diversified industrial-biotech company with products in enzymes (for household detergents, for example); food and beverages (baking and brewing); bioenergy (bioethanol); and agriculture and feed (animal-feed enzymes and biopesticides).

However, it is the therapeutic biotech companies that have made the most rapid progress. The past few years have seen new biotech drugs for diseases such as cancer, autoimmune diseases and inherited genetic disorders. The companies developing new drugs range from well-established pharmaceutical firms with biotech divisions to large biotech companies and a range of smaller biotechs developing specific new treatments that they usually exploit through partnerships with big biopharma firms.

The key players

The large therapeutic biotechs include Amgen (it specialises in oncology, cardiovascular, inflammation and other diseases), Biogen (multiple sclerosis and neurological diseases), Gilead Sciences (HIV, liver diseases and cancer) and Celgene (a blood-cancer specialist acquired by Bristol-Myers Squibb in late 2019). There are several large pharma groups with big biotech divisions.

Roche, for instance, took a majority stake in Genentech, the first large US biotech, in 1990 and then acquired the remaining shares for $47bn in 2009. Bristol-Myers Squibb has joined this group via its acquisition of Celgene; AstraZeneca through its 2004 acquisitions of Cambridge Antibody Technology and 2007 acquisition of Medimmune; and Johnson & Johnson (J&J) due to takeovers of Janssen Pharmaceuticals, Crucell, Actelion and others. Most other large pharma firms have made smaller biotech purchases or bought late-stage drugs from smaller biotechs.

The smaller biotechs divide into three groups: those large enough to launch their own new drugs; those that enter partnerships with large pharmaceutical firms, whose massive sales forces agree to market some or all of their late-stage pipeline drugs; and those acquired by Big Pharma.

A good example of the first category is Vertex Pharmaceuticals, whose shares rose from $79 in early 2017 to $211 in May 2021; one growth driver was the launch in 2019 of its drug Trikafta for cystic fibrosis. It generated sales of $1.2bn in Q1 2021. MorphoSys, the antibody company, is an excellent example of the second group. It develops antibody drugs, which it commercialises in partnership with big pharmaceutical firms. It has 16 antibody drugs in 45 clinical trials with 12 Big Pharma partners.

MorphoSys’s first US-approved treatment was Tremfya, a treatment for psoriasis and psoriatic arthritis. It was launched four years ago. Examples of the third group include Gilead’s acquisition of Kite Pharma for $11.9bn to strengthen its cancer pipeline.

How a picks-and-shovels approach can pay off

The term “picks and shovels” was coined during the Californian gold rush when most money was made by firms supplying picks, shovels and other mining equipment rather than by prospectors, only a small proportion of whom found worthwhile amounts of gold. In this context, picks-and-shovels companies are those providing biotechs with the tools to carry out research and development. They tend to be lower-risk investments, since biotech researchers need these tools regardless of whether their projects are successful.

Excellent examples include Illumina and Abcam. Illumina is the market leader in next-generation DNA and RNA genetic-sequencing equipment, which can sequence either selected parts of a genome (the genetic material in an organism), or the whole genome. The widespread use of genomic sequencing results from the massive reduction in sequencing costs facilitated by technological advances. The first human genome was sequenced in 2000 and cost $2.7bn. Today a whole genome can be sequenced for $1,000.

Next-generation sequencing has wide therapeutic applications ranging from cancer and reproductive health to genetic and rare diseases and vaccines, notably Covid-19-variant sequencing. Illumina has an agreement to acquire full ownership of cancer-testing group Grail for $8bn.

Grail has developed a multi-cancer blood test that can identify different types of cancer at an early stage using tumour-genome analysis. This promises to revolutionise the early diagnosis of cancer and dramatically raise the chances of a cure.

Abcam, one of the largest companies on Aim, London’s junior market, provides the antibodies, other proteins and consumables (such as biochemicals and reagents) used in biotech research. It has an excellent website selling both its own and third-party antibodies to global customers, causing it to become known as the “Amazon of antibodies”. Abcam provides a detailed technical data sheet for every product so customers can select the best antibody or protein for their research project.

Picking cores and satellites

Since biotech is a broad field, investors usually want some exposure to the main areas of biotech, such as therapeutic drugs, picks-and-shovels companies and possibly agricultural, and/or industrial biotech. This is best achieved using a “core-and-satellite” approach, where the core comprises substantial, established and profitable companies often paying dividends. Satellites consist of smaller, higher-growth companies with the prospect of faster, but riskier, capital growth. The relative sizes of the core and satellite proportions will depend on an investor’s appetite for risk.

A biotech portfolio is likely to consist mainly of therapeutic biotech companies. When assessing these it is not sufficient just to look at recent financial results, since the company might make most of its profits from one successful drug facing increased competition or patent expiry. It is also important to analyse each company’s new drug pipeline to ensure that it has the potential to grow profitably in future.

So which companies have nurtured healthy pipelines? If we look at the top-ten drugs of 2019 by worldwide sales, we see that six are for cancer and two for immunology (diseases such as rheumatoid arthritis and psoriasis fall into this category).

Research group Evaluate Pharma’s estimate of what the top-ten bestselling prescription drugs will be in 2026 lists the bestselling one from Merck, the next two from Bristol-Myers Squibb, the fourth from Gilead and one each from AbbVie/J&J, Pfizer, AstraZeneca, Sanofi, Vertex and Novo Nordisk. Worldwide sales of cancer drugs in 2026 are estimated to be $311bn, with the next largest disease area being anti-diabetic drugs, with $67bn in global sales. These are followed by immunosuppressants with $61bn, vaccines ($56bn) and anti-rheumatics ($50bn). This shows the importance of having a portfolio well stocked with promising cancer drugs.

The top trusts and funds

Many investors are likely to gain biotech exposure through biotech or biopharma investment trusts or funds. In this case investors rely on the fund selecting an appropriate mix of core and satellite companies. There are several pure biotech investment trusts and others including both biotech companies and larger pharmaceutical companies.

There are only nine healthcare trusts with a four- or-five-star rating from investment-research and fund platform Morningstar (meaning a trust should outperform its peers). A good example of a four-star biotech/pharma trust is the Worldwide Healthcare Trust.

Its top-ten investments include four big-pharma companies (Bristol-Myers Squibb, Merck, Novartis, AstraZeneca), three smaller biotechs (Horizon Therapeutics, Mirati Therapeutics, Vertex) and a wide-ranging healthcare-products company (Boston Scientific).

Contrast this with two five star-rated biotech trusts, the Biotech Growth Trust and the International Biotechnology Trust, which are focused on pure biotech. BIOG’s top-ten investments include two large biotechs (Amgen and Biogen) and eight smaller ones, including Horizon and Vertex, which are also in WWH’s top ten. IBT’s top ten include two large biotechs (Amgen and Gilead Sciences) together with eight smaller biotechs including Horizon and Vertex.

These three trusts have rather different yields, discounts/premiums to net asset value (NAV), sizes and charges. BIOG and IBT have no dividend and currently sell at discounts to NAV of 0.1% and 0.6% respectively. WWH offers a yield of 0.68% and sells at a 1% discount. BIOG has a market value of £556m and boasts total return of 18.1% per year over the last five years. WWH’s market capitalisation is £2.4bn and it has returned an annual 17.1% per year over the last five years.

IBT’s market cap is £288m and it has produced annual returns of 15.2% over the past half decade. Ongoing charges vary from 0.88% for WWH to 1.1% for BIOG, to 1.29% for IBT. These three trusts are all well diversified and relatively low risk; WWH is the least risky.

An interesting high-risk addition to these trusts is Arix Bioscience. Arix invests in and builds unlisted biotechs making cutting-edge advances in life sciences. It has investments in 13 companies. Arix is small, with a market value of £253m at a recent share price of 190p. It is still unprofitable, but has cash of £44m and a three-year target of increasing NAV up to £500m. Arix could be a promising satellite investment. My favourite biotech investments, however, are outlined below.

The stocks and funds to buy now

Healthcare finished a year in the top three of the S&P 500’s 12 major sectors on six occasions between 2007 and 2017. Most other sectors recorded only two or three years in the top three. In addition, healthcare’s worst year was when it saw a 22.8% decline. Only consumer staples did better, with a slide of 15.4%; all other sectors recorded falls ranging from 29%-55%. This demonstrates the strong performance of healthcare and its defensive nature in bad years – good reasons why it should feature prominently in your portfolio. And biotechnology is the high-growth area of healthcare.

A smaller investment portfolio is likely to contain the Worldwide Healthcare Trust (LSE: WWH) or the Biotech Growth Trust (LSE: BIOG) to gain diversified exposure to healthcare or biotech respectively with relatively low risk. A larger portfolio may well have a section devoted solely to biotech, which is organised as a collection of core-and-satellite picks, but with the aim of still being moderate risk.

In this case the core constituents could be chosen from large biotechs such as Biogen (Nasdaq: BIIB) and Gilead Sciences (Nasdaq: GILD), a picks-and-shovels company such as Illumina (Nasdaq: ILMN), Abcam (Aim: ABC) or Thermo Fisher Scientific (NYSE: TMO), and a biotech-oriented pharmaceutical company such as Bristol-Myers Squibb (NYSE: BMY), Merck (NYSE: MRK), or AstraZeneca (LSE: AZN). Biogen is a leader in neuroscience, while Bristol-Myers Squibb, Merck and AstraZeneca spearhead cancer research. Gilead also has a strong cancer-drug pipeline. Diabetes is well covered by Novo Nordisk (Copenhagen: NOVOB), while AbbVie (NYSE: ABBV) concentrates on rheumatoid arthritis and immunology.

The satellites could be chosen from firms with substantial pipelines, such as MorphoSys (Frankfurt: MOR), Vertex Pharmaceuticals (Nasdaq: VRTX), Genus (LSE: GNS), Neurocrine Biosciences (Nasdaq: NBIX), Curis (Nasdaq: CRIS) and Keros Therapeutics (Nasdaq: KROS). It is important to select a set of firms whose products and pipelines cover a range of serious diseases. MorphoSys has as the largest proportion of its pipeline clinical trials for cancer, followed by immunology. Vertex focuses chiefly on cystic fibrosis, but its pipeline has potential drugs for seven other diseases. Genus is concerned with farm animal genetic-improvement programmes – both via breeding and by gene editing – to improve disease resistance. Neurocrine has four approved drugs and pipeline drugs for Parkinson’s, schizophrenia, depression and epilepsy. Curis focuses on oncology with one marketed drug. Keros is an example of a small biotech with no approved drugs, but three promising compounds in its pipeline.

In a still larger portfolio, the satellites could include smaller, riskier biotechs such as Keros, with pipelines having a small number of clinical trials in progress. Diversified exposure to unlisted companies could be added through an investment in Arix Bioscience (LSE: ARIX).

The price/earnings (p/e) ratios of the large biotechs are quite reasonable, with Biogen on 14.8 for 2021, Gilead on 9.3 and Bristol-Myers on 8.6. Picks-and-shovels stocks have p/es ranging from Thermo Fisher’s 21.2 to Illumina’s 63 and Abcam’s 65 (for 2022). Vertex is on 19.4, Horizon 24.5 and Genus 65 (for 2022). The large biotechs offer good value, says Morningstar, with Biogen’s shares at $272 compared with Morningstar’s fair-value estimate of $350, Gilead at $66.5 (fair value of $81) and Bristol Myers-Squibb at $64.50 ($68). Vertex costs $212 ($295). Illumina’s price at $377 is 10% above its fair value of $343.

Drug giant AstraZeneca has suffered a “major shareholder rebellion” over proposals to raise bonus levels for its bosses, including CEO Pascal Soriot (pictured), says Julia Bradshaw in The Daily Telegraph. While the proposals were passed, over 40% of AstraZeneca’s investors voted against them.

Soriot’s possible earnings have now climbed from 650% of his salary to 900% in just two years. The reason the revolt went as far as it did was due to opposition from Institutional Shareholder Services (ISS), which advises 4,000 clients on how they should vote, says Oliver Shah in the Sunday Times. However, while the likes of ISS can be useful in fighting “egregious bonuses”, such as those at floundering Cineworld, their “box-ticking” is unfair for Soriot, one of the few “world-class chief executives in the FTSE 100”. AstraZeneca’s share price has increased by 80% since he took over and it has developed a Covid-19 vaccine with Oxford, so“if anyone deserves a pay rise, it is Soriot”.

Soriot is a “talented chief” whose performance “actually lives up to the multimillion-pound billing” and his pay isn’t excessive compared with his contemporaries at Roche or Pfizer, says Helen Thomas in the Financial Times. Still, investors rightly worry that the dynamic in the AstraZeneca boardroom has “tipped” in favour of its “superstar boss”, who is now “being feted as the saviour of the UK’s health and economy”. The increased size and complexity that AstraZeneca is taking on with its $39bn takeover of Alexion, which shareholders also approved at the meeting, could prompt Soriot to demand even more money in future.

Shares in pharmaceutical companies slumped last week after the US government “threw its weight behind global plans for a patent waiver on Covid-19 vaccines to boost their production and distribution around the world”, says Julia Kollewe in The Guardian. Vaccine makers Moderna and Novavax fell by over 10%. In Hong Kong CanSino Biologics slumped by 22% and Fosun Pharma, which distributes the Pfizer/BioNTech vaccine, lost 18%.

No wonder investors “shuddered”, says The Economist. Drug companies have hitherto banked on big profits from a vaccine, with Pfizer forecasting “vaccine revenues of $26bn in 2021, with profits around $7bn”. But much of this would disappear if their know-how could be “pilfered with impunity”. Worse, “botched imitations” by generic manufacturers could “fuel vaccine hesitancy” and lead to litigation. But these arguments are unlikely to impress countries pushing for a waiver. They insist that “a pandemic is not the time to be thinking about profits”.

An unfortunate precedent

It’s not just lost profits from Covid-19 drugs keeping drug firms up at night, says the Financial Times. For decades, the US has “fiercely” protected domestic companies’ intellectual property rights in trade disputes, even to the extent of preventing cash-strapped countries trying to lower the costs of expensive HIV treatments in the late 1990s. The biotech sector fears that President Biden is now opening a “crack in the wall” that could be used to set a precedent to “make it easier to suspend patents in the future”, thus reducing the incentive for future innovation.

Investors shouldn’t panic just yet, since the US announcement is more a “symbolic milestone than a turning point”, says life-sciences news site Stat. Due to opposition from Germany and other countries it will take “months of international infighting” before any proposal is agreed at the World Trade Organisation, with the most likely outcome a “narrow” compromise involving the compulsory licensing of vaccines. What’s more, even if patents were waived today, generic manufacturers would struggle to find the “skilled expertise” required for making the vaccines. Note that even though Moderna has already opened the door to copycats, it’s unclear whether any company has tried to emulate its vaccine.

While an immediate patent waiver may be a bad idea, there are several ways in which drug and other companies could help speed up distribution in poorer countries, says The Wall Street Journal. For example, the US could make “hundreds of millions” of surplus doses in its stockpile available to countries such as India and Brazil. Countries that produce “quality vaccines” could also invest in a “major expansion” of manufacturing facilities aimed at increasing exports to poorer countries. Finally, pharma groups should speed up efforts to build up manufacturing capacity in poorer countries.

GlaxoSmithKline has suffered several setbacks this year. A cancer drug seen as a potential “blockbuster” failed a late-stage trial, while another drug suffered an unexpected delay owing to Covid-19, says Jamie Nimmo in The Times. Some analysts worry that these “serial disappointments” are becoming a “major concern for GSK’s... outlook”. But help may be at hand. Elliott, the US hedge fund led by activist investor Paul Singer, who is “feared in boardrooms” worldwide, took an undisclosed multibillion-pound stake in GSK last week. The news boosted the shares by 4.6%.

No wonder shareholders are frustrated, says Lex in the Financial Times. GSK’s share price has moved sideways since Emma Walmsley was appointed CEO four years ago. However, “one wonders what change is sought”. After all, while most activists “demand some form of corporate divestments or restructuring”, Walmsley “already has this in train”, with a “long-planned” flotation of GSK’s consumer health business due in the next year, “leaving a biopharma core behind”.

Elliott could ask GSK to “cut back on in-house research and development, and spend more on acquisitions” to boost the “otherwise lacklustre” drug pipeline, says Aimee Donnellan on Breakingviews. It could also insist that Walmsley “spin off the consumer division, rather than list it and hang on to a stake”, which might “make a takeover of either business easier”. In any case, the positive reaction to Elliott’s involvement suggests that if it does make demands, “it can count on other shareholders’ support”.

The AstraZeneca vaccine has suffered a setback in the past few days as France, Germany and Italy have joined a “growing list” of European countries, now more than a dozen in total, to halt its use “temporarily”, says The Economist. A few countries in the rest of the world, including Indonesia, have followed suit. This “wave of suspensions” has been set in motion by data from a Norwegian medical regulator reporting four cases of blood clotting in adults given the vaccine. Similar scattered reports of blood clots “have come from Denmark, Italy and Austria”.

Those countries suspending the vaccine are behaving irrationally, says David Spiegelhalter in The Guardian. While suspected reactions “should be investigated”, moving too fast may lead to regulators “drawing causal links between events where none may exist”.

Given that one in 5,000 people end up having a blood clot each year, it is “not at all surprising” that there have been 30 reports of blood clots so far from the five million people who have had AstraZeneca’s vaccine, especially since most vaccinations have occurred among the elderly and infirm. This hardly means the vaccine caused the clots. If anything, all the data so far has demonstrated how “extraordinarily safe” both the AstraZeneca and the Pfizer vaccines are.

Lasting reputational damage

Experts agree that the decisions to suspend the vaccine look wrong, especially since the European Medicines Agency (EMA), the EU’s main regulator, continues to defend it, says Paul Cullen in the Irish Times. However, even if these countries eventually change their minds, the damage to the reputation of the AstraZeneca vaccine will be “massive and possibly lasting”. Despite its “impressively high effectiveness in real-world trials”, disparaging comments by many European politicians, as well as a perception that it is less effective in older patients, mean that it is facing a high degree of “consumer resistance”.

Concern over blood clots and lower effectiveness aren’t the only problem that AstraZeneca is up against, say Suzi Ring and Michelle Fay Cortez on Bloomberg. There is also the ongoing controversy over “manufacturing issues”, which means that the company will “only be able to deliver about 100 million doses to the EU in the first half of the year”, about one-third of the number originally planned.

AstraZeneca’s loss could be other companies’ gain, says Aimee Donnellan on Breakingviews. The EU has set itself a target of vaccinating 70% of its population, around 350 million people, by the summer. But without AstraZeneca’s vaccines, it will only have enough for 250 million people. So if Europe is to avoid having to impose more lockdowns in the winter, when infections start to pick up, Brussels will need to “speedily approve and distribute” other candidates, such as Johnson & Johnson’s jab, which got the nod from the EMA last week.

Good news for Johnson & Johnson (J&J): the US Food and Drug Administration (FDA) has formally approved the company’s Covid-19 vaccine, says Oliver Milman in The Observer. The move comes after studies showed that it was not only 85% effective in preventing severe cases of Covid-19, but also offered “complete protection” against Covid-19-related hospitalisation and death after 28 days. As a result, the J&J vaccine will become only the third jab to be authorised for use in the United States. What’s more, unlike the Pfizer and Moderna vaccines, which are already in circulation, J&J’s vaccine only needs a single shot and “can be stored at common refrigerator temperatures for up to three months”.

J&J’s vaccine may have been approved, but it may take some time to reach American arms, say Hannah Kuchler and Donato Paolo Mancini in the Financial Times. J&J says “production problems” mean that it will only be able to hand over four million doses to the US government, rather than the ten million originally expected, although it still expects to meet its promise to deliver 100 million by June. It has also had problems in Europe, where its plans to “scale up its vaccine... manufacturing from a small facility to a large one in the Netherlands” took longer than anticipated.

Dispelling the lockdown gloom

Despite the delay, the approval of J&J’s vaccine should help dispel the “lockdown gloom”, says Robert Cyran on Breakingviews. Other manufacturers are also boosting production, with Pfizer planning “to more than double output from nearly five million doses a week to 13 million”. Moderna “thinks it will double production to 40 million a month by April”. Throw in the fact that there are “more new vaccines on the horizon”, and it likely that most of the populations of wealthy countries will be vaccinated relatively quickly, which “will make things easier for less wealthy countries, too”.

But not all vaccine makers are doing equally well, says Nils Pratley in The Guardian. While J&J, Pfizer and Moderna are forecast to make a “chunky profit”, AstraZeneca’s decision to sell the initial batch of vaccines at a much lower price means its only benefit “has been goodwill”. In fact, it may not get even that, thanks to “opportunists in Brussels” angry about production delays and officials in France and Germany talking down its efficacy for over-65s – even though it’s been approved for all ages by the European Medicine Agency.

All this makes AstraZeneca’s decision to sell its 7.7% stake in Moderna particularly unfortunate, says Alex Ralph in The Times. While the move netted AstraZeneca a profit of $1.1bn on an investment of $400m, the decision to cash in early means that it has missed out in the surge of Moderna’s share price “from about $29 a year ago to a peak of $186 last month”. AstraZeneca would have been sitting on a “significantly larger paper profit”, possibly three times as much, had it retained its stake in the US biotech.

Hearing problems are often dismissed as a niche concern when it comes to medical care. This is perhaps largely because they are seen as an inevitable consequence of getting older. But in an ageing world where one in ten people are already over the age of 65, more and more people will suffer from problems with their hearing. What’s more, there are some interesting technological developments taking place in this field. There is, in short, ample scope for this subsector to grow. Francesco Conte, JP Morgan European Smaller Companies Trust’s lead investment manager, says that €15bn is spent each year on devices such as hearing aids – just 0.2% of global health expenditure.

Generation X can’t hear you

The demand for hearing care in all forms has grown particularly strongly in recent years. Hearing problems have overtaken eye trouble as the most common sensory disorder in the developed world, says Dr Lawrence Lustig, Howard W. Smith professor and chair of the department of otolaryngology, head and neck surgery at Columbia University Medical Center and New York Presbyterian Hospital. Lustig thinks this is largely due to an ageing population.

However, there is also strong evidence of “an increased incidence of hearing loss among those who are still relatively young”. This may be due to the “greater ubiquity of personal audio devices” over the past four decades. This doesn’t just include all the people who spend time listening to music from their smartphones, but also the generation that first embraced the Walkman in the 1980s, now reaching middle age. Those who listened to loud music in the 1960s and 1970s are also experiencing problems.

What’s more, there is an increasing awareness that sensory health “is just as important as our physical health”, says Karen Shepherd, director of professional standards at Boots Hearingcare. Part of this is a result of the impact that poor hearing can have on someone’s mental health; people feel socially isolated.

However, there is also increasing evidence that the quality of our hearing has an impact on our physical state. Studies show that “if you do start to lose some of your high-frequency hearing [which helps you make out high-pitched sounds] and you start to mishear certain words”, it forces you to “use other cognitive senses to try and identify what that word is”. Over time that can cause “fatigue, neural changes, and cognitive decline” – and possibly even dementia.

A 2013 study by Johns Hopkins University of 2,000 pre-screened volunteers found that declines in thinking skills happened faster among people with hearing loss than among those without it. While those with normal hearing took 11 years to develop cognitive impairments, those with hearing problems started to experience difficulties within only eight years. Although it’s possible that both hearing loss and cognitive decline were caused by an unexplained factor common to both conditions, more recent studies, including one published in the Lancet last year, suggests that early treatment, such as the use of hearing aids, can cut the risk of dementia.

Hearing aids are getting better...

The humble hearing aid remains the most visible part of the hearing-loss market. Around 17 million units were sold worldwide in 2019, and revenue is growing by around 6% a year, according to the European Hearing Instrument Manufacturers Association. However, the market for these devices is about to undergo some radical changes, says Dr Laurel Christensen, chief audiology officer for GN Hearing. At present they are only available through hearing-healthcare professionals in most countries, including America, the largest market for hearing aids. While this rule was put in place to make sure that hearing problems aren’t caused by any serious underlying medical condition, it may discourage people who could otherwise benefit from buying one.

However, in 2017 America’s Food and Drug Administration (FDA) formulated rules for a new category of hearing aid that can be purchased over the counter. They have yet to be implemented, but legislators from both political parties support the idea. As a result, people could soon be able to buy hearing aids from a supermarket, or online, without having to go to a store at all. Christensen hopes that more people with mild hearing loss problems will therefore get help for their hearing sooner.

At the same time the technology underpinning hearing aids is constantly evolving. Today’s hearing aids “are markedly different from your grandfather’s clunky” one, Christensen says. Not only are they smaller and less obtrusive, but the sound quality is also “much better”.

For example, GN Hearing has recently launched the ReSound ONE Hearing Aid, which puts the microphone in the ear of the hearing-aid user rather than at the top of the ear, as is most common today. This improves sound quality, reduces wind noise (a major challenge with conventional hearing aids) and makes it easier for the wearer to determine the direction the sound is coming from.

Christensen expects the technology to evolve further in the next few years. She expects artificial intelligence (AI) to play a big role in the hearing aids of the future. AI will help the devices tune out unwanted sounds at the right time by learning to recognise noise patterns.

People will also increasingly be able to personalise their hearing aids so they can set the extent of wind-noise reduction and other features. What’s more, even though overuse of personal music devices is damaging people’s hearing, hearing-aid makers are learning from designs and technology in consumers’ headsets.

... and more advanced treatments are improving too

While hearing-aid technology is constantly improving, people whose hearing loss is more profound may require more radical treatment involving surgery and more complicated devices. One of the most cutting-edge surgical procedures is cochlear implants, says Joseph Manjaly, a consultant otologist, auditory implant and ENT surgeon at University College London Hospital. The procedure, aimed at those “whose natural acoustic hearing is too poor to be amplified with conventional hearing aids”, works by implanting a device that can generate electronic signals to replace those normally produced by the cochlea, a part of the inner ear. These signals are in turn delivered by the auditory nerve to the brain, where processing allows hearing and understanding of spoken language again.

In the past, the procedure was viewed as an absolute last resort, as it is expensive (it costs the NHS around £40,000), takes several hours and will not work for all patients. However, advances in technology mean that the time required for the procedure has shrunk to less than an hour per ear, while it is now accepted that it can be a “life-changing operation” for both those who are born deaf and people who lose their remaining hearing later in life. There is also a medical consensus that it should be done as soon as possible after severe deafness is diagnosed, so the brain is still able to decode the signals coming from the device, in order to maximise the chances of success.

There is now also increasing evidence that people with hearing loss in one ear or in both can benefit from implants. Similarly, there is a drive to offer implants to babies within one year of birth, rather than waiting until they are older, to achieve better outcomes. At the same time, Manjaly also notes that other surgical implants have starting to emerge.

The new ones include bone-conduction implants, which bypass a damaged middle ear and deliver sound directly to the inner ear, and middle-ear implants for people struggling with conventional hearing aids. There is still enormous room for growth. While according to the Ear Foundation more than 600,000 people worldwide have received cochlear implants, Reo Liao, market analyst with IG Index, believes that in the developed world alone 15 million people could benefit from some sort of implant. This means that “the global supply of cochlear implants units is still far below the number of patients who demand it” and could potentially grow twentyfold.

Pills and potions will help too

Better devices and surgery are one element of the solution, but drug companies and biotech firms are also playing a part through some “really exciting” research, says Lustig. He estimates that there are no fewer than 30 companies actively engaged in research and clinical trials in this area.

At present most attention is focused on the cochlear hairs in the inner ear. These hair cells transform sounds into electrical signals that then goto the brain. Most age-related hearing problems occur because the number of hair cells decline as people get older, reducing the sounds that get transferred to the brain.

Since some of the deterioration in the number of hair cells is due to faulty genes, many biotech companies are trying to identify the genes responsible and design ways to put the correct gene into a virus, which would be delivered through pills or an injection. This virus will produce the correct protein, allowing hair cells to grow or improving the connections between the hair cells in the cochlea and the nerves that carry the signal to the brain. Several treatments based on these ideas are undergoing early phase clinical trials, including the REGAIN trial at University College London led by Professor Anne Schilder.

Lustig hopes that “within one to two years we should start to get some definitive data” on which treatments are effective. The number of trials carried out means that “we could... have some viable treatments for certain types of hearing loss within five years”.

Of course, he emphasises that this is unlikely to mean an instant cure for deafness. Instead, the first discoveries are likely to produce small improvements, with later research building upon and refining these advances. Still, this means that “in the not-so-distant future we’ll see more cochlear-implant candidates be able to function with just a hearing aid for longer, and those previously considered for hearing aids get by without one”.

And even when drug therapies start to reach their potential, cochlear implants and other advanced devices are still likely to have a role to play. Lustig thinks that there is a good chance that in the future the boundaries between drug therapies and surgery could start to blur, with cochlear implants becoming drug-delivery devices.

Remote diagnosis will accelerate treatments

The final area in hearing care that is starting to experience rapid change is telemedicine, says Dr. Krishan Ramdoo, an ear, nose and throat research registrar in North West London Hospital Trust and founder of TympaHealth Technologies. At present the only way to diagnose hearing problems is to visit a doctor or audiologist in person.

This is time-consuming, inefficient (especially when people miss appointments) and plays a large part in the typical gap of up to seven years between hearing problems emerging and people seeking treatment. The ongoing pandemic and the need to maintain social distancing have also caused additional problems for ear specialists around the world.

The good news is that devices are starting to be developed that can aid remote diagnosis, and even treatment. Ramdoo’s Tympa system, developed with funding from the NHS, and now available in chains such as Boots, is the world’s first all-in-one hearing health-assessment system.

It allows non-specialists, including nurses, healthcare assistants or even pharmacists, to carry out routine procedures such as earwax removal, which until recently were carried out by a GP or even a specialist. The system not only clears the ear, but it can also take a snapshot of the ear drum and screen for hearing loss in the inner ear. The image can then be sent to a doctor, who can use it to diagnose abnormalities remotely.

In the longer run, Ramdoo hopes that advances in AI will allow the system to diagnose problems itself, thus reducing the amount of work that a human doctor has to do. For now, he and other researchers are hard at work building algorithms “that use pattern recognition to spot hearing problems, even at an early stage”.

Preparing the data for AI algorithms

All this will require huge amounts of data, so University College London and several other British hospitals are currently collaborating on creating a huge bank of information and case studies, which can be used to teach the machine how to spot various ear-related problems and trends. GN’s Christensen agrees that telemedicine will play a much bigger role in hearing care in the near future, and even predicts that there could be benefits for other types of medicine. “Companies are starting to realise that ears can provide a glimpse of a person’s overall health, and any future problems that might emerge.” She notes that recent research suggests that “you can get a more accurate pulse from the ear than from the wrist, and that it should even be possible to carry out an ECG from it”.

The stocks to buy now

The most lucrative part of the hearing-care market is cochlear implants, a subsector currently dominated by Cochlear Limited (Sydney: COH), which accounts for half the market. Cochlear has not only been a “good performer over the last 20 years”, but is also likely to remain “an attractive longer-term growth investment”, says Alex Hunter, global-equity analyst at Sarasin & Partners.

While it trades at 41 times 2021 earnings, this multiple is justified by the strong growth rate of the underlying market for cochlear implants as well as the “annuity-style business” from the servicing and maintenance of past implants.

Another major player in the hearing-aid market is GN Store Nord A/S (Copenhagen: GN). The company has two major subsidiaries: GN Hearing, which deals with hearing aids, and GN Audio, which makes money from headsets.

While GN Hearing’s revenue has been hit by Covid-19-related disruption, both to demand and supply, it is expected to recover quickly this year. Meanwhile, the audio business has boomed thanks to the increase in home working. Overall, GN Store Nord trades on a 2021 price/earnings (p/e) ratio of 36, which is more than reasonable given that sales have surged by more than 50% in four years and are expected to keep growing strongly.

A riskier but potentially more lucrative investment is the American firm Eargo (Nasdaq: EAR). Instead of following in the footsteps of its more established competitors it is trying to disrupt the market by aiming at younger consumers, who have milder hearing loss and would not normally consider a hearing aid. Its hearing aid is smaller and cheaper than its competitors’ versions and sits within the ear canal, making it less visible. It also uses rechargeable batteries for added convenience.

While it is currently losing money as it focuses on building up its brand, sales more than doubled in 2020 despite the challenge of Covid-19 and are expected to grow by more than 50% again in 2021 as the company expands its share of the fast-growing US hearing-aid market.

While many drug and biotech companies are working on treatments for hearing loss, most of them are either private or part of huge conglomerates. One pure play, which recently floated on Nasdaq, is Decibel Therapeutics (Nasdaq: DBTX). It focuses on using gene therapy to tackle hearing in several ways, including regenerating cells within the cochlea to help cochlear hairs regrow. It has a total of seven treatments either under discovery or development, with clinical trials already under way on a drug to help protect against hearing loss caused by chemotherapy.

Frequency Therapeutics (Nasdaq: FREQ) is another publicly traded biotech working on drug therapies to reverse hearing loss. Using an approach developed by researchers at MIT and Harvard Medical School, it targets progenitor cells within the body, which in turn create new tissues and cells.

Its most advanced hearing loss drug, FX-322, targeted at those with sudden mild hearing loss, is undergoing stage-two trials (the penultimate stage of clinical trials). Note that Frequency, like Decibel, has not yet brought any drugs to market, which makes it an extremely risky investment.

Many MoneyWeek readers will have had their first Covid-19 vaccine jab by now; a few will have had their second. The advent of the vaccines is a story of clever biotechnology deployed with lightning speed, illustrating the sector’s rapid development over the last two decades. The Covid-19 virus was only sequenced (genetically mapped) in mid-January 2020 and the first two vaccines approved in the UK were the Pfizer/BioNTec treatment in early December 2020 and the AstraZeneca/Oxford University one in late December – 11 and 12 months later respectively.

The International Federation of Pharmaceutical Manufacturers & Associations says that the normal timescale for vaccine development is between ten and 15 years. Prior to the Covid-19 vaccines, the record for vaccine development was four years for the mumps treatment, which emerged in 1967.

The Pfizer/BioNTec and Moderna vaccines use similar mRNA technology, whereas the AstraZeneca/Oxford one uses a viral-carrier approach. All three vaccines benefited from previous research on two other coronaviruses, Severe Acute Respiratory Syndrome (Sars), which emerged in China in 2003, and Middle East Respiratory Syndrome (Mers) which jumped from camels to humans in 2012. Covid, Sars and Mers are called coronaviruses because of the spikes on their surface that resemble a crown under the microscope.

The breakthrough in mRNA technology

The story of mRNA starts in 1990. Synthetic messenger RNA, or mRNA, is a clever variation on the natural RNA that directs protein production in the body’s cells. The promise of the technology has always been that a modified form of it could be injected into the body to transform body cells into drug factories producing the right antibodies (proteins developed by the body that defend the immune system).

This was the idea that Hungary’s Katalin Karikó had while she was at the University of Pennsylvania in 1990. Her grant applications to develop the technology were all rejected for the reason that synthetic RNA was known to be vulnerable to the body’s defences, so it could be destroyed before reaching its target cells and that could cause an immune response that might have serious consequences for some patients. But Karikó persisted and was even demoted by her university for not bringing in enough research grant money.

With a collaborator at her university, Drew Weissman, she solved the problem. Every strand of mRNA is made up of four parts called nucleosides, and one of these was triggering the immune response. Karikó’s solution was to replace the problem nucleoside with a slightly modified version to make an mRNA that could work its way into cells without triggering the problematic immune response. Karikó and Weissman described their discovery in several papers published in 2005 and later.

Surprisingly, it was only scientists at two small biotechs – the founders of Moderna and BioNTec – who realised the enormous potential of Karikó’s discovery and both set about exploiting it by developing the technology to make mRNA medicines. When Covid-19 came along they both realised that an mRNA vaccine could be effective against the new virus. The vaccine is just a piece of mRNA inside a coating. The mRNA contains the code for a protein of the spikes of the Covid-19 virus. So once the mRNA enters cells, the cells produce this virus protein and the immune system recognises it as a foreign molecule and the body produces antibodies to fight it.

The AstraZeneca/Oxford approach

The AstraZeneca/Oxford vaccine uses a different technology based on the use of a carrier virus, a virus used to insert a gene into cells. Genetic code of the Covid-19 spike-protein is added to the carrier virus so when the carrier virus enters body cells, the spike-protein’s genetic code makes the cells produce the surface spike protein of the coronavirus. This produces an immune response so the immune system can attack the Covid-19 virus should it later enter the body.

The AstraZeneca/Oxford vaccine uses a carrier virus that is a weakened form of the virus causing the common cold in chimpanzees. The carrier virus is in fact isolated from chimpanzee stools and has been genetically altered so it cannot multiply in humans. Oxford University had already used this carrier-virus technology to make candidate vaccines against flu and Mers. This enabled the team to make a flying start on developing their Covid-19 vaccine.

The Medicines and Healthcare products Regulatory Agency (MHRA) realised how important it was going to be to approve new vaccines as quickly as possible without prejudicing safety and therefore devised a new method of rolling approval. This involved the regulator examining clinical trial results as they came in rather than waiting until all results had been gathered before starting regulatory examination.

Covid-19 vaccines were also approved under emergency-use regulations requiring companies to conduct follow-up surveys to look for side-effects and monitor efficacy in the field. The MHRA approved the Pfizer jab on 2 December 2020 and the US Food and Drug Administration on 8 December. In terms of vaccine rollout in large countries the UK is leading with 18% of its population vaccinated by 9 February; the US follows with 9%. In the EU the figure is 2.4%-2.8%.

The problem with mRNA vaccines is that they must be stored and transported at very low temperatures. The Pfizer vaccine must be transported in dry ice (implying a temperature of -78 degrees centigrade) and stored between -80C and -60C. This compares with domestic freezer temperatures of -23C to -18C. Once the vaccine is removed from storage, it can be kept in a refrigerator (2C to 8C) only for up to 120 hours. These requirements make it difficult to use in less developed countries and in many doctors’ surgeries.

The Moderna vaccine, however, is less sensitive to heat and only requires storage at freezer temperatures (-25C to -15C). It can live in a fridge for up to 30 days. The AstraZeneca/Oxford vaccine, on the other hand, can be transported and stored at refrigerator temperature for at least six months. The AstraZeneca treatment costs £3 per jab in the UK. The Pfizer and Moderna jabs cost £15 and a reported £26 respectively. Clinical trials show that the Pfizer/BioNTec and Moderna mRNA vaccines are up to 95% effective from a week after the second dose. The AstraZeneca vaccine is up to 90% effective after two doses spaced well apart. Some of the clinical trial volunteers were given a half dose followed by a full dose and this was more effective than two full doses.

However, it transpired that the half-dose cohort were in fact given their second doses after a longer delay and it was probably the delay rather than the half-dose that increased effectiveness. This conveniently ties in with the UK government’s decision to delay second doses of all vaccines so they are given 12 weeks after the first. The AstraZeneca vaccine gives 76% effectiveness after the first jab.

Modifications will beat mutations

The AstraZeneca vaccine is effective against the dominant “Kent” variant in the UK, but a small South African study suggests it offers minimal protection against mild infections from the South African variant (although it seems to be effective against serious ones). Oxford/AstraZeneca have started adapting their vaccine to the South African variant. The modified vaccine will be ready by the autumn.

Both types of vaccine should be quickly modifiable to be effective against mutations of the Covid-19 virus. This is because mutations have differences in the surface-spike proteins, which enable them to bind better onto the surfaces of body cells. Both types of vaccine contain genetic code from the spike protein. So to fend off the mutation, code from a mutant strain needs to be inserted into the vaccine instead of code from the original coronavirus. Regulators believe that only a small clinical trial involving a few hundred volunteers will be needed to assure safety and effectiveness of such modified vaccines.

More treatments are on the way

Three other vaccines are well advanced in clinical trials and are likely to be approved for use in the UK. They are from Novavax, Valneva and Johnson & Johnson (J&J). The J&J vaccine uses a similar technology to the AstraZeneca one, based on a carrier-virus the company developed for its Ebola vaccine. Valneva’s vaccine is of a more conventional type, using an inactivated virus, whereby the virus is killed with heat or chemicals and its dead cells are introduced into the body; the immune system is instructed how to fight live versions of it in the future. The Novavax vaccine is a recombinant vaccine: it uses a specific fragment of the coronavirus that acts as the foreign antigen for the immune system to react against. This virus fragment is inserted into cells to make them produce large quantities of active ingredient for the vaccine. The hepatitis-B vaccine uses similar recombinant technology.

What this means for investors

Investment analysis and fund platform Morningstar estimates that global herd immunity to Covid-19 should be reached by 2023, with peak vaccine sales in 2021 and 2022 sales at 40% of 2021’s. The coronavirus vaccines represent only small proportions of the turnover of large pharmaceutical companies such as Pfizer or AstraZeneca, so one does not expect vaccine approval or vaccine orders to have much effect on their share prices, which have changed little since November, while Moderna’s stock has rocketed from $18 to $170 in a year. Long-term investment returns from Moderna depend on the firm finding new valuable medicines using its mRNA technology. But for now AstraZeneca (LSE: AZN) appears good value with a recent share price of 7,340p versus Morningstar’s estimate of fair value of 8,360p, while the same applies to Pfizer (NYSE: PFE), with a price of $34.9 compared with Morningstar’s fair-value estimate of $40.

Drug giant AstraZeneca’s shares “fell sharply” this week after it agreed to “the biggest deal in its history”, says Julia Kollewe in The Guardian. Investors are worried that the $39bn it is paying for US rare-diseases specialist Alexion is excessive, especially since it represents a 45% premium to Alexion’s pre-deal price. The deal, which involves both cash and shares, will force AstraZeneca to secure a $17.5bn bridging loan. AstraZeneca’s stock has had a tumultuous year. It surged to £96.39 in July when the group published promising interim results related to its coronavirus vaccine. However, it has since been hit by recent vaccine trial results suggesting its treatment could be less effective than its rivals’ drugs and doubts over whether the vaccine will be licensed in the US.

US biotech Alexion is an “unexpected target” for AstraZeneca, but could also be a “canny one”, says Lex in the Financial Times. While the British company is paying a 45% premium for a business that “does not obviously fit with its own portfolio”, the premium “is not high by biotech standards”. The additional debt “is likely to be paid off within three years, thanks to Alexion’s strong cash flow”. The deal brings around $500m of synergies and the technology developed by Alexion complements AstraZeneca’s skills, as it can be applied to more than rare diseases. Meanwhile, Alexion’s expertise in the “fast-growing” rare disease market could “increase the uptake of niche discoveries”.

A bidding war?

The fact that Alexion was trading at just ten times earnings means that even with the premium the deal looks “like a winner”, says Charley Grant in The Wall Street Journal. Still, AstraZeneca’s shareholders “shouldn’t count on that extra dividend boost just yet”, as there is “no shortage of large companies with long-term growth challenges but fat wallets”. As a result, there is a chance that AstraZeneca could end up being sucked into a bidding war, making the takeover much less attractive. CEO Pascal Soriot’s “megadeal” marks a “stunning turnaround” for a business that only six years ago “faced extinction” from a hostile takeover by Pfizer, says Jim Armitage in the Evening Standard. The deal would have “deprived the world of one of the two Covid-19 vaccines the predator and prey have now independently developed” and would also have “stolen from shareholders the 87% rise in AstraZeneca’s share price Soriot has overseen since”. So many UK firms have been “bought on the cheap by foreign predators”; we should welcome this “turning of the tables”.

There could be a “wave of deal-making” in the sector next year, says Julia Bradshaw in The Daily Telegraph. Big pharma will be looking “to beef up its pipelines while borrowing remains cheap”; investors will be seeking the sort of “long-term, stable returns” its combination of yield and growth offers, which looks attractive compared with declining industries such as oil and tobacco.

The creation, approval and large-scale manufacturing of a Covid-19 vaccine in less than a year is among the most notable scientific and technological achievements in history. Led by Operation Warp Speed in the US, and with similar initiatives in other countries, including the UK, vast scientific resources have been mobilised to crack a huge global crisis. The effort has succeeded magnificently.

What governments got right

Governments around the world got plenty wrong in their response to the virus. But they got one thing right. They threw a lot of money at getting a vaccine. In the US, Operation Warp Speed was given a budget of $10bn to distribute to anyone who might be able to help. In this country, government help was available for the Oxford and Imperial vaccines, and the same was true in Russia, China and across much of the developed world.

Just as significantly, by pre-ordering vaccines on a vast scale, governments guaranteed a market for any company that could produce an effective jab. The billions spent might seem like a lot of money, but it was peanuts, of course, compared to the vast cost of coping with the epidemic. It was money well spent. The interesting question, however, is this. What can any company, or indeed government, learn from the success of that project? Here are four places to start.

1. Focus

The companies and research institutes working on creating a vaccine didn’t have to worry about diversity, market share, delivering value for different stakeholders or governance structures. In fact, they didn’t have to worry about anything other than the single overriding purpose of devising a safe and effective jab as fast as possible. Clarity of purpose makes a huge difference. We expect businesses to deliver a range of economic, social, and environmental goals, and while they might all be worthwhile, it is often more effective to have just a single objective and concentrate completely on it. It gets results.

2. Incentives matter

University research institutes have contributed hugely to the scientific work – especially Oxford and Imperial – but most of the work has been done in the private sector. Pfizer didn’t even take the money on offer from the US government because it didn’t want its scientist to be bogged down in politics and targets. Instead, patent rights have been preserved and companies are being paid standard commercial rates for the vaccines despite pressure for it all to be taken under state control. The result? Businesses have had plenty of incentives to create a vaccine, and to put in place all the infrastructure to deliver it to hundreds of millions of people because they can make money from doing so. It is very simple – but it works every time.

3. Embark on different stages of a process simultaneously

New medicines usually get created step by step. It takes a year or two to develop a drug, then another couple of years to do the trials, then a year or so for approvals, and then another year to get the factories ready and get it into the medical system. So it can be a decade before the product is on the market. If tests are done at the same time as factories are prepared, however, it can all happen much faster. From infrastructure projects to consumer goods there are lessons in that for every kind of product. Sure, it costs more, but if it makes everything happen faster, then it might be worth it.

4. Accelerate the approvals process

Finally, accelerate regulation too. Whatever the anti-vaxxers might say, there is no evidence that there have been any compromises on the safety trials for the Covid-19 vaccines. But the regulatory checks have been sped up. Instead of waiting for every test to be completed, and a huge dossier to be compiled, regulators have constantly monitored the vaccine candidates as their trials were completed. The result? They could approve drugs far more quickly. Other regulatory agencies could learn from that. Lots of industries, from finance to telecoms to the media, need supervision – but it doesn’t need to slow everything down as much as it does.

It turns out that Covid-19 vaccines are like the old joke about buses. You wait for ages and then three turn up at the same time. Over the last month, we have seen stunning results from Pfizer, Moderna and Oxford-AstraZeneca. Each vaccine is slightly different, in terms of effectiveness, and how quickly it can be rolled out, but there is now no question that we are close to a mass vaccination programme that should bring the virus under control. Six months ago plenty of experts were arguing it would take five years or more to get a working shot. In fact, it has been done in less than a year.

Don’t throw sand in the wheels

But there’s a problem. Now that we are close to a vaccine, the arguments are starting about who gets it, when, and on what terms. There are complaints about the potential for the drugs companies to make excess profits. And countries such as South Africa and India are calling on the World Health Organisation to suspend patent protection on the vaccines so that they can be manufactured by anyone at cost.

It is easy to understand the arguments for that. A Covid-19 vaccine is needed around the world, and some countries might struggle to afford it. It doesn’t make any sense just to vaccinate the richer countries. If the virus is still rampant around the world it will just come back in more virulent forms. The trouble is, suspending patents, and stopping drug companies from making money from the vaccine, would be a disaster, not just for the shareholders in those businesses, but for the whole world.

Why? Getting a vaccine in less than a year is a huge achievement, and one that has cost vast sums of money, much of it privately funded. If the only reward for that is to have the patent rights taken away, then will the companies make the same kind of effort the next time there is a global epidemic?

Second, some exciting new technologies are emerging. The genetics-based vaccines that seem to be working against Covid-19 can not only be developed far more quickly than traditional shots but may also work against many other conditions as well. We already have vaccines that can work against some form of cancers. Over the next decade the technology that has advanced at rapid speed in this crisis may well turn out to be just as good at dealing with other forms of cancer, dementia, Alzheimer’s, and a whole range of hard-to-treat diseases. But if we don’t allow companies patent protection on the technologies they are developing, then that is far less likely to happen – and we will all be worse off for that.

Whatever the profits, it’s a bargain

Finally, it is immoral. Private companies have done the work on a vaccine, they have risked their own money, and they have devoted time and resources to solving a global crisis. They deserve to be rewarded for that. So do their shareholders. If we start taking one form of property away from companies, then where do we stop? In truth, we should probably reward vaccine makers more than we are right now – for example by extending the patent protection from 20 to 30 years. Given the vast cost of the epidemic in terms of locked-down economies, closed businesses and schools, lost jobs, and broken families, if anything we are paying too little for the science that will get us out of the mess, not too much.

There are far better ways of dealing with the issue of global access. The sums of money are not huge, especially when set against the scale of the challenge. Take a relatively poor country such as South Africa, with one of the worst outbreaks on the continent. Even with Moderna’s vaccine, at £30 a shot, the most expensive so far, it would only cost £1.5bn to vaccinate the entire country. If the government can’t raise that, then aid budgets, and charities, could probably step in and fill the gap. If the poorest 20% of the global population needs help paying for the vaccine, then the G20, representing the richest countries in the world, could easily step in with an emergency funding programme. That way we still get the vaccine out around the world, and we also properly reward the companies that made it.

The good news keeps coming on the vaccine front, says Lex in the Financial Times – this time with positive results from AstraZeneca. The overall tally was “underwhelming”: the treatment’s average efficacy of 70% was “significantly less” than the figure achieved by the BioNTech/Pfizer and Moderna vaccines. But the best results, of 90% efficacy, were achieved for participants who only received half of the first of two doses. This suggests that “more people can get a shot with the same amount of vaccine”. AstraZeneca has already agreed deals with drugmakers in Russia, Brazil and India to produce up to three billion doses.

Despite this apparent success, the market has punished AstraZeneca, with the drug giant’s shares falling by 3.8% when the news was announced, says Nils Pratley in The Guardian. Part of this is due to the need to explain the “wide gap” between the 62% efficiency in the main study and 90% for those who received the half-dose, full dose regime. AstraZeneca’s pledge “to distribute the vaccine at cost during the course of pandemic” also means that it “won’t make profits from the initial orders”. Still, it’s impossible to deny that a 90% efficiency rate in one study is “excellent”.

Near-perfect protection

The near-perfect level of protection is particularly impressive given the way the trial was conducted, says The Economist. While the numbers of people involved were smaller than in rival studies, AstraZeneca repeatedly tested all those involved in the trial to pick up asymptomatic infections. As a result, the efficiency of AstraZeneca’s jab is not necessarily worse than that of Pfizer and Moderna, who relied on people self-reporting symptoms, followed by a confirmatory test. This is important because those who are asymptomatic can still pass on the virus to others, so AstraZeneca’s jab may ultimately reduce the transmission of the virus. The interim results “will certainly please the UK government”, says Ross Clark in The Spectator. Not only is it a “homegrown” vaccine, developed from research carried out by the University of Oxford, and part-funded by the state, but the UK has also ordered 100 million shots. What’s more, the facts that the vaccine itself “is less than a fifth of the price of the Pfizer vaccine” and can be “kept at ordinary fridge temperatures” will greatly facilitate a roll-out, as well as making it the “obvious choice” for developing countries.

While Britain and America have ordered enough doses for their entire populations, most young and able-bodied people in other countries “may have to wait until 2022 to be vaccinated”, even with multiple vaccines, says Aimee Donnellan on Breakingviews. That means that many unvaccinated people could “keep avoiding public transport and mass gatherings”, which will “put a cap on any recovery in corporate profitability”.

Biotechnology firm Moderna is celebrating after “tremendously exciting” preliminary results from late-stage trials of its Covid-19 vaccine, says Sarah Knapton in The Daily Telegraph. So far, only five people in the trial who received the jab have contracted the virus, compared with 90 who received a placebo, implying that it is nearly 95%-effective in preventing infection. That would make it “even more effective than either the Pfizer/BioNTech or Russian jab”. The trials suggest that it can even protect “the elderly and vulnerable who are most at risk”, with no one who has received the jab developing severe Covid-19 yet (compared with 11 from the placebo group).

Moderna’s success is “stunning”, says Robert Cyran on Breakingviews. Not only is it highly effective, but side effects are also “moderate”. More importantly, it can be stored in a conventional freezer for six months, and in a fridge up to 30 days, making it much easier to distribute than Pfizer’s vaccine, which must be “kept far colder, complicating distribution”. This is particularly good news for emerging markets, who not only lack expensive storage facilities, but will also benefit from the fact that richer countries have ordered far more doses than they need. The US alone ordered 600 million doses.

Vindication after a volatile year

This is “great news”, says Lex in the Financial Times. The data also brings “vindication for one of the sector’s most divisive companies”. After a “record-setting” initial public offering in December 2018, its shares spent much of 2019 trading below its opening price. However, the coronavirus pandemic has put its work on messenger-RNA, which prompts the body to make its own medicine, “back into focus”. Indeed, there are hopes that the Covid-19 jab may represent “proof of concept” for other Moderna treatments, including a personalised cancer vaccine. So, it’s no surprise that its shares have risen by 390% this year. Thanks to its latest success, Moderna should easily find enough money to develop its other vaccines, says Charley Grant in The Wall Street Journal. Its $40bn valuation means it can raise funds by selling shares and it also has $4bn in cash on the books. Selling even 500 million doses of vaccine at $200 each would translate into $10bn, which should come with “attractive profit margins” as Moderna’s decision not to seek a partner means that “it won’t have to share those profits”.

AstraZeneca should also be happy, says Nils Pratley in the Guardian. Moderna’s trial suggests that its own jab, developed in conjunction with Oxford University, will report similarly good news next month. What’s more, it stands to benefit from the fact that it “made a very good bet” when it invested in Moderna as long ago as 2013, back when it was a “three-year-old biotechnology tiddler”. As a result, its 7.6% stake, which cost just $380m, is now worth $2.9bn – a “very decent” return.

What’s new?

The German drug company BioNTech and its US partner, Pfizer, announced on Monday that their Covid-19 vaccine has been found to be 90% effective. The drug remains in phase-three clinical trials, and there are significant unknowns around the extent of its effectiveness, as well as challenges around scaling up and distribution (the vaccine has to be stored at temperatures around –75˚C). But there is hope.

What happened in the trial?

In a double-blind global trial involving 43,500 volunteers, who were either taking the trial vaccine or a control-group placebo, 94 people contracted Covid-19. The split between the two groups indicates that the vaccine – which is taken in two doses, three weeks apart – is more than 90% effective. We don’t know yet how many of those 94 had been given the vaccine and got Covid-19 anyway. It’s also not yet known how long vaccinated patients remain immune, or whether the vaccine stops transmission or just the development of the disease. What we do know is that it remains effective 28 days after the second of the doses is taken, and there are no reported safety concerns.

So this is good news?

Indeed, and not just because there appears to be an effective, safe vaccine, but because this particular virus is susceptible to control by a vaccine at all. Some viruses from the same family, and other pathogens such as HIV and malaria, have defied all efforts to develop a vaccine over many decades. The finding of 90% efficacy is also higher than most people had dared hope for (it’s twice as effective as flu vaccines, for example). BioNTech co-founder and boss Dr Ugur Sahin said he expected his vaccine’s immune response to last for “at least one year” and that the vaccine-induced antibodies were shown to block about 20 different mutations of Sars-Cov-2, the virus that causes Covid-19. All this makes it more likely that other effective vaccines will be developed.

How do vaccines work?

A conventional vaccine works by introducing the deactivated husk of a virus, or proteins from that virus, into the body. That dead virus triggers an immune response that prevents subsequent infection. It’s a very effective and proven approach, but it takes time. This new vaccine is different. It uses mRNA (messenger ribonucleic acid) technology that was originally developed as a cancer therapy. Genetic code wrapped in microscopic droplets of oily liquid is injected into the body. This code instructs cells to make viral proteins that prime the immune system. The idea is that the mRNA “tricks” cells into making fragments of the coronavirus, so that the body learns to spot what it looks like and produce antibodies.

Is this technology new?

Not completely. Such mRNA vaccines have been under development for years, aimed at tackling viruses including influenza, HIV, rabies and Zika. But the arrival of Covid-19 “turbocharged the process”, says Clive Cookson in the Financial Times. The crucial advantage of mRNA vaccines is that they are potentially faster to develop and easier to manufacture – making the technology ideal, if successful, to tackle a novel coronavirus pandemic. Their proponents also say they may be safer than conventional vaccines which may provoke an unwanted reaction from the immune system. BioNTech has led the charge, with backing from Pfizer. They say they will be able to produce a combined 1.35 billion doses by the end of next year. And there are three other mRNA candidate vaccines under development at Moderna in the US, CureVac in Germany and Imperial College London.

What happens next?

Phase-three trials of the Pfizer drug will continue, pending emergency regulatory approval, expected in the coming weeks. The UK has pre-ordered 40 million doses (enough for 20 million people), of which a possible ten million could be available before the end of December. Meanwhile, as more data arrive, scientists will be better placed to answer some of the crucial unknowns about how well this vaccine works. Does it work well in all age groups – and in particular the elderly? Does it prevent transmission as well as illness? If not, it may not get us to herd immunity. Does it prevent all illness or just mild illness? How long does immunity last? More broadly, there is a societal question of whether enough people will be willing to be vaccinated at all; in the UK around one in six say they are firmly opposed.

What if the vaccine fails in the end?

More are on the way. The UK has made deals to secure more than 350 million vaccine doses from five suppliers in addition to Pfizer. The AstraZeneca-Oxford University team’s vaccine, for example, uses a harmless chimpanzee virus to ferry genetic material from the coronavirus into human cells. It is expected to announce the results of its trials in coming weeks – and crucially its vaccine is already known to stimulate a good immune response in the elderly. Janssen (owned by Johnson & Johnson) is using a similar technique. GSK/Sanofi Pasteur, Novovax and Valneva are the other three potential suppliers with vaccines currently in clinical trials.

But the hype for this vaccine is justified?

More than that, it might even be rather too cautious. Stephen Innes of brokers Axi thinks the markets are putting too much emphasis on the logistical challenges and too little on the fact that this could be a “real game-changer”. Given that we have in months leapt over the hurdles that usually keep a vaccine from market for a decade, the other challenges “will be a snap in comparison”. Brace yourself for “the mother of all economic and reflationary rebounds… once we have made it through what will still be a harsh winter”. This is definitely not the end of the pandemic, but it may well mark the beginning of the end.