Join our community of smart investors

Healthcare’s big reboot

Covid-19 could prove to be a catalyst for a long overdue shift in global pharmaceuticals
Healthcare’s big reboot

Britain’s response to the coronavirus pandemic has been repeatedly compared with the second world war. The financial measures initiated by the government reflect steps taken to protect the economy from the challenges of war. NHS and care workers have been likened to soldiers, battling the enemy on the front line. Even the Queen took inspiration from 1940s morale-boosting techniques when she assured the locked-down public that “we’ll meet again”.

Perhaps the metaphor has been overworked, but in drawing comparisons with wartime Britain, policymakers can learn a great deal about rebuilding in the wake of catastrophes. And nowhere is that more pressing than in the healthcare industry.

In 2020 the UK is a hub of scientific excellence – as was the case in the 1930s. Our universities are teeming with the type of knowledge that has already led to huge progress in coronavirus testing techniques. Researchers have created a test that extracts virus DNA and can confirm a patient’s diagnosis within four hours (standard testing normally takes more than a day to return results). A spin-out from the University of Cambridge has launched a point-of-care testing pack that can confirm infection within 90 minutes. And a team of tech developers has created an app that detects the ‘sounds of coronavirus’ – uneven breathing and coughing.

British research is also leading the way when it comes to Covid-19 vaccinations. The vaccine being developed by the University of Oxford has already been tested in more than 1,000 healthy volunteers and the study is now recruiting for a pivotal final phase of testing which will assess the vaccine in more than 10,000 volunteers of any age. 

 

But problems remain, not in the innovation of healthcare products, but in their supply. Rapid testing kits exist, but they cannot be produced quickly enough for a country in desperate need. The same is true of potentially life-saving personal protective equipment and components for ventilators. And there are concerns about vaccine roll-out. AstraZeneca (AZN) may have agreed to manufacture the University of Oxford’s vaccine for the mass market (if it is successful), but it doesn’t have its own vaccine packaging capabilities and is reliant on Oxford BioMedica’s (OXB) manufacturing site. 

These challenges will not come as a surprise to UK scientists. An inability to ramp up production for largescale use has long detracted from the country’s innovation. In 1945 when Alexander Fleming, Ernst Chain and Howard Florey won the Nobel Prize for their work in discovering penicillin – an antibiotic heralded for helping the war efforts – one British newspaper ran the headline: 'Penicillin prizes reveal shabby treatment of scientists – manufacturers make millions on work of ill-paid researchers'. The drug – a brainchild of UK scientists – had been scaled up for mass production largely by companies in the US. Mr Chain confirmed: “We never got a ha'penny out of our work. Commercial drug houses have profited handsomely from it.”

The UK is not the only country whose healthcare system has drawn the glare of a very unflattering spotlight. A frightening number of wealthy countries have endured appalling death rates at the hands of Covid-19. The UK, US, Italy, Russia, Spain and many more developed nations should have had better pandemic plans in place. It isn’t as though the world wasn’t forewarned; scientists have emphasised the dangers of infectious diseases for decades and the world has had plenty of early warning signs – the Sars outbreak of 2002, Mers in 2008 and Ebola in 2014, for example.

Fractures in national health systems have been exacerbated by the nature of the crisis – countries in lockdown cannot turn to the manufacturing capacities of other nations. For example, the UK’s weak diagnostics industry, lack of pharma packaging expertise and dependence on other countries for healthcare manufacturing has been shown clearly in the past few months. Meanwhile, the UK’s ventilator shortage pales in comparison with the many west African nations which only have a handful of breathing machines and don’t have nearly enough healthcare professionals to care for those in need.

It shouldn’t come as a surprise that South Korea – a country recently hammered by a Mers outbreak – had one of the best track-and-trace systems already in place; or Germany – which houses many of the world’s biggest diagnostics companies – was able to test huge volumes of its population early on. But countries that have truly failed in their ability to deal with Covid-19 can learn from those that got it right. The pandemic has given global healthcare an opportunity to reset. From the commercialisation of medicines to pandemic planning protocols, the crisis may have cleared the path to a new future in healthcare.

 

A lesson in co-operation

Covid-19 has sparked extensive collaboration, accelerating a trend that had been brewing in the healthcare industry for many years. In the UK, AstraZeneca and GlaxoSmithKline (GSK) have been drawn together in a joint venture aimed at improving the country’s diagnostics capability. Health secretary Matt Hancock aims to build a diagnostics industry “at scale” by combining Astra and GSK’s size and experience with the specialisms of the UK’s small biotech groups.

International collaboration has also increased in recent months. GSK has teamed up with French company Sanofi (FR:SAN) to work on a vaccine they say will be the first to be produced for the global market – GSK and Sanofi are the number one and two vaccines companies in the world, respectively. Astra is involved in global vaccine manufacture for smaller institutions and GSK has offered to provide its adjuvant technologies – which improve the efficacy of medical molecules – to many promising vaccine candidates.

But it is worth being wary of reactive collaborations, including those being entered into during the coronavirus crisis. Like many wartime efforts, the lessons of the 1940s UK penicillin scale-up efforts ring true today. In fact, a 1987 paper detailing ‘The British success with penicillin’ serves to highlight the remarkable similarities between the wartime response to a healthcare emergency and the steps being taken by the government to help protect the public from the coronavirus. 

Then, as is the case now, large companies were being drafted together – sometimes unwillingly – to speed up the production of critical health products. In the UK, there were only a handful of companies large enough to ramp up penicillin commercialisation and those companies attempted to pursue their own agendas, causing widespread distrust. The UK government lost control of its joint venture and, despite mass production of penicillin during the war, companies were unable to profit from the drug after the war was over. By contrast, the broad collaboration efforts of big US companies fostered impressive competition, which contributed to a highly profitable penicillin market. 

But despite past mis-steps, scientific and commercial tie-ups make sense. Universities and small biotech companies are often far more capable of identifying novel drug targets and accelerating them through the early, cheaper stages of development. It is during phase two and three trials where external funding from a large research institute or charity could be welcomed, while the manufacturing capacity, marketing expertise and lobbying experience of global pharma giants come into their own when drugs need to be scaled up for commercialisation.  

There is also an increasingly loud argument for the role of biotech tools companies, which help pharma companies identify novel drug targets with increasing efficiency. UK companies including C4X (C4XD) and ReNeuron (RENE) use data and algorithms to find molecules that could be a good starting point for new medicines. Meanwhile, the likes of Oxford BioMedica provide the delivery molecules to help complex medicines enter diseased human cells. 

And as medicine becomes more specialised and personal, these highly advanced tools companies are likely to be in rising demand. Indeed, Oxford BioMedica’s delivery mechanism is a crucial component of the world’s first genetic treatment for cancer – Novartis’ (CH:NOVN) Kymriah. Cancer patients with deep pockets now have access to personalised medicines that have proved 80 per cent effective and are significantly less hostile than traditional chemo or radiotherapy. And the technology is only improving. In 2019, a team from the University of Pennsylvania used Crispr gene editing techniques in humans for the first time. Crispr uses a defence mechanism commonly found in viruses to alter genetic code so that cells can target and fight tumours. It is looking increasingly likely that these complex, advanced processes will be the future of medicine – so long to maintenance mechanisms that help manage symptoms but fail to get to the root cause of a patient’s troubles.

 

Prevention is better than a cure

The world’s battle against Covid-19 has thrust the diagnostics industry into the public eye. And while such exposure has highlighted shortcomings in certain areas, it has also presented an opportunity to make transformative improvements. First and foremost, better testing should help to steer us out of the current crisis. But, looking ahead, it could also give authorities a blueprint to manage future waves of infection. A useful upshot, if you believe the words of Richard Horton, editor of The Lancet medical journal. “Viruses are creeping up on us,” he warned in a recent interview with The Sunday Times Magazine. “Pandemics are the new normal.”

Testing does more than just identify individuals who have contracted an illness. It can also help to contain rates of transmission and it provides authorities with an up-to-date picture of infection levels, allowing them to monitor the behaviour of a disease. What’s more, diagnostics can inform how medicine is administered, while also guiding inoculation strategies. It follows that accurate and timely testing can save lives. It could also ease the financial burden of health emergencies in the years ahead – a priority that will, presumably, move higher up the agenda now that we find ourselves in a deep recession.

The long-term outlook for diagnostics is therefore very encouraging. In a mid-April note, JPMorgan suggested that coronavirus testing “could become part of the norm”, like seasonal flu tests. Meanwhile, analysts at Morgan Stanley believe the virus “will drive a greater appreciation of diagnostics”. Thus, “innovation leaders in diagnostics such as Roche (Switz:RO) will be able to leverage the greater installed instrument base” after this outbreak – making it possible “to develop new molecular diagnostics tests for conditions including Alzheimer's and liver disease, as well as cervical cancer screening”.

 

Although testing has been thrust into the limelight by coronavirus, it is generally accepted that only a vaccine will end this pandemic. The scientific community has thus moved at supersonic speeds to find an effective inoculation. And that pace of innovation could, arguably, create a new baseline for other vaccines in the years to come.

Vaccine testing is currently very costly and time consuming. According to vaccine alliance group Gavi, clinical trials for vaccines can typically take 10 to 15 years – stretched out by the need for careful analysis and safety checks. This, and the expense involved, can put pharma companies off starting “down that challenging road without a definite pay-off at the end”. But, as we are now witnessing, “an urgent health crisis and new technologies can speed this process up considerably”.

Gavi suggests that the Ebola vaccine was “a game changer”, showing how trials “can be compressed when needed”. When the 2014-16 Ebola outbreak in West Africa began, a vaccine had been developed but not tested in people. The vaccine was developed using technology originally designed for an experimental HIV vaccine – showing how one type of tech can have multiple applications. Trials started within months. Today, Oxford’s Covid-19 vaccine candidate is based on a platform similar to the technology it used when working on a vaccine against the Mers coronavirus. As management consultancy McKinsey sees it, “new technologies will emerge and shift the overall industry”. 

Saul Bates, professor of paediatric immunology and infectious diseases at Southampton University, cautions against the assumption that Covid-19 has set a new precedent in the pace of vaccine trials: “Safety usually means needing to go slower.” But he also admits that coronavirus has shown us that much of the regulation is not needed for lower-risk trials. If intense testing regimes can be loosened in the wake of the pandemic, the market for vaccine development could look far more attractive to pharmaceutical companies. 

 

The virtual doctor will see you now

Beyond vaccines, new technologies are changing the way we think about all aspects of healthcare. True, such digital disruption was already happening before the current crisis took hold, but Covid-19 has acted as an accelerant – with widespread lockdowns spurring many of us to try new medical platforms, products and services.

Only a few years ago, most people had not used telemedicine – a tech-driven process whereby a physician delivers remote medical care to a patient. But that has dramatically changed in the past few months. In a survey of 1,015 US consumers, RoboGlobal found that more than half of respondents had tried telemedicine. Of that figure, 52 per cent had used it for the first time during March and April 2020. That constitutes a rise of more than three times during the Covid-19 outbreak. 

And while it might be tempting to assume that consumer behaviour will eventually revert back to normal, the data suggests otherwise. Indeed, 93 per cent of respondents said they would use telemedicine again. That could be good news for the likes of Teladoc (US:TDOC) and Singapore-based Ping An, which both offer virtual doctor appointments and are top 10 holdings within RoboGlobal’s ‘HTEC’ healthcare index.

Remote care could also play a sustained role in managing underlying illnesses, which require regular interaction with a doctor. Livongo (US:LVGO), HTEC’s number-one holding, specialises in connected devices that monitor chronic conditions such as diabetes, along with accompanying expert advice. Shares in the group – which floated last July – are up by over 100 per cent since 1 January.

Meanwhile, on this side of the Atlantic, Emis (EMIS) – the UK leader in connected healthcare software – has seen demand for its ‘patient access’ service continue to grow during the pandemic, exceeding 10m registered users. That’s up from 8.4m at the end of 2019 – marking significant expansion for the platform, which links users with their local health services online. Emis says it is clear that “digital health capabilities will be even more important post Covid-19”. That theory might extend to teleradiology, too – something that would benefit Medica (MGP), which offers up a network of expert doctors to consult on medical imaging and scans for more than 100 organisations.

Data and digital communications have been central to the establishment of track-and-trace systems around the world. In the UK, a contract-tracing app is currently being trialled on the Isle of Wight. Drawing on Bluetooth signals, the platform alerts smartphone users when they have been in close proximity to someone who has tested positive for Covid-19.

That said, there is a balance to be struck between keeping people healthy and safeguarding their personal data – an issue that has become more prevalent since the introduction of new privacy rules across Europe in 2018. NHS Digital’s app will ensure that users remain anonymous, but such concerns could jeopardise citizens’ willingness to use it, hampering the overall tracing regime. Broadly speaking, country leaders will need to find an equilibrium that allows them to maintain strict security standards, while collaborating with private industry on healthcare strategies. 

 

Medical progress – who is paying?

Profiting from lifesaving medicines has always been a contentious topic. Pharma and biotech companies exist in a painfully tight sphere which seeks to please patients (through innovation), society (through open access), investors (through profits) and politicians (through donations). A wobble one way will tilt the balance and cause widespread repercussions. 

Drug development in recent years has upset that balance. Modern genetic medicines are immensely expensive to develop and produce and only need to be taken once. Pharma companies therefore argue that they need to charge extortionate amounts to make the innovation worth it. Thus, despite coming closer than any company ever has to curing cancer, Novartis has been hammered for charging almost $1m for its treatment. 

Coronavirus has thrown up another challenge. AstraZeneca’s chief executive, Pascal Soriot, has said that the group won’t seek to profit from a vaccine during the pandemic, while working to achieve “broad and equitable access”. Meanwhile, London’s Imperial College, which is also working on a vaccine, has set up a social enterprise called VacEquity Global Health with Hong-Kong-based investor Morningside. For the UK and low-income countries abroad, it will waive royalties and charge only modest cost-plus prices to sustain VGH’s work.

But pharma companies will need to be rewarded for their vaccine development effort eventually, or they will be unlikely to keep innovating and viruses will prove just as problematic as they always have done. The same is true of infections caused by bacteria – one of the reasons why superbugs have developed is due to a lack of innovation in antibiotics and that has been caused by too few financial rewards for developing new medicines. 

Pharma pricing needs a complete rethink. From the maintenance medicines, which lead to drug reliance, to the lack of financial rewards for genuine innovators, such as the penicillin pioneers. Covid-19 could prove an excellent opportunity for a reboot.