There are opportunities afoot even during a pandemic, they simply have to be properly vetted. Any investment should always be well researched and advice or tips should only be heeded if they come from credible sources. The investment world has always been a shifting landscape, it is simply important to be mindful – and educated – about the shifts. In light of the pandemic, the pharmaceutical industry is experiencing changes just like every other industry; with that said, the industry has never been one that is easily predicted, like so many blue-chip companies. By nature, pharmaceutical companies are prone to volatility, however pharma functions quite differently than other industries. As new treatments make it into the production pipeline some are big winners while others are losers, which means that investors can also lose or win big. Pharma companies are almost in a different world than other investments and not really impacted by the economic cycle – a point that makes them critical to portfolio diversification. The best way to understand the industry’s opportunities, trends and challenges is via information from equity experts. Mawer Investment Management Ltd. was founded in 1974 and is a private investment firm that now manages nearly $82 billion in assets for individuals and institutions. With the slogan of “Be Boring. Make Money,” the firm has a podcast called, “The Art of Boring.” Episode 85 features a deep dive into the pharmaceutical industry. During the episode, Institutional Portfolio Manager Rob Campbell speaks with Amit Shah, who has a PhD in neuroscience and is a member of the Mawer U.S. equity team as well as Mawer International equity team member Siying Li, who has a background in engineering. As Li points-out: the pharma industry is not typical and has a learning curve, but approaching it with a generalist’s perspective has its benefits when studying for investment. There is a wealth of information, so this will likely be split into two or three posts. Here are some big take-aways from the episode: The rise in personalized medicine and shift in how companies profit Shah notes that one multi-decade theme that the team has noticed is a trend towards more personalized medicine. “And the end stage of this would be something like, we have a full understanding of [an] individual's biological makeup and we can perfectly customize a therapeutic regime for you, specifically,” he says. While the industry is not there yet and not likely to be anytime soon, he is seeing a broadening of therapies for certain diseases like cancer. Now, there are more therapeutics available for various types and subtypes of cancer, depending on whether an individual expresses “a specific type of protein.” Another example is gene therapies for patients that have a gene that is “malfunctioning or missing.” “I think it's good for patients, but it's also separately perhaps beneficial for pharma companies that see a higher economic return for some of these targeted therapeutics relative to small molecule drugs,” he says. Large conglomerates that once housed the pharma business, a business focused on medical devices, and separate animal and consumer health businesses have now “divested some of these non-core assets” to become more focused on pharma. “And I think what we've seen is some of these divestitures have done pretty well on an individual basis once they've been separated from the conglomerate,” he says. Li points out that research and development return on investment is declining for pharma. “So, they've actually coined it a term. It's called the “Eroom's Law,” and what it is, it's really the opposite of Moore's Law,” she explains. “Moore's Law is this law that's widely known; it’s applicable to semiconductors—so, the cost of making a semiconductor actually got exponentially lower year after year of making them. But Eroom's Law is the opposite. The cost of making a drug has actually become exponentially higher to bring a drug to market over time.” The fact that drugs are now targeting small audiences and specific diseases means that they do not have widespread blanket application as medications that address things like hypertension and can be used by billions of patients. “Now, when you come up with a very specific biologic cancer drug that targets a specific type of protein or mutation, the group of people that could use that drug is smaller,” she explains. “And also the other factor is that there's just more negotiation power from the government, because they're spending so much money on health care.” “I mean, we've all heard about the health care cost trend increasing for government because of [an] aging population, because of more medical therapies coming to market...so they're spending a lot of money on drugs and different types of healthcare treatment, [and] they're negotiating harder as well for these therapies. Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Unit values and investment returns will fluctuate. Insurance products, including segregated fund policies, are offered through Beyond Business Financial Solutions Inc., and Investment Representative Nathan Garries offers mutual funds and referral arrangements through Quadrus Investment Services Ltd. |
AuthorNathan Garries is a Certified Financial Planner who has been involved in financial advising, financial planning and wealth management for over two decades, carrying on a family tradition of three generations. Archives
October 2022
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