23 MAR

2020

Covid-19 , Equities , Highlighted , Rudi Van den Eynde , Topics

Coronavirus: "The situation is serious, but not hopeless"

  • Exponential spread of the virus in Europe and the USA, Asia is increasingly gaining control of the disease
  • Covid-19 vaccine expected to be available in 12 to 15 months; more than 100 million doses of vaccine for the population is a huge effort for the industry; use of appropriate drugs can stop the spread
  • Healthcare and biotech under pressure: However, companies in the sector are doing better than the general stock market to withstand the economic downturn

Italy reports peak levels of infected persons and fatalities, in Germany the Robert Koch Institute speaks of up to ten million people who could contract the coronavirus within the next few months unless current social restrictions are seriously followed. Thus, the situation is indeed serious, but by no means hopeless.

What's the situation?

Looking at Asia shows how it can be done. In China, the number of current new infections per day is around 20, yet most of those who have tested positive there have come from abroad. The South Koreans also have the disease well under control by now, the same applies to Singapore. That shows: The measures taken there, which are undoubtedly tough, are working. In Europe and the United States, however, the number of people infected is growing exponentially. One of the reasons for the rapidly rising curves is that sufficient tests have only recently become available. In addition, the incubation period can be a week or more, so the statistics will continue to frighten next week.

After that the odds are good that the curve will flatten out. It can be expected that the measures that have recently been taken to avoid direct contact within the population will be effective. Until all patients are known and cared for, global efforts will have to be maintained and followed. If so, we can eradicate the coronavirus. There is a strong indication that the virus will return next winter, but the world will then be much better prepared - and it is highly likely that it can then be tackled with vaccines and medicines.

How far is the way to a vaccine?

Many companies in the healthcare and biotech sector are currently working at full speed on the development of a vaccine. However, it will most likely take at least another twelve to 15 months before the vaccine is ready. More optimistic, but not impossible, are first dosages in December this year. Nevertheless, the development of a vaccine is only one side of the same coin. The production of an estimated 100 million vaccine doses for the population also means a huge effort for the industry. It is good that not only a few companies, but many companies are working on vaccines at the same time, including the big market leaders, who can quickly build up the necessary capacities. Another positive aspect is that the new corona virus hardly mutates at all according to the current status and in contrast to seasonal influenza. The chances are therefore good that a vaccine would still be effective in 2021.

The development and use of drugs can also help in the fight against the coronavirus. There are two approaches: In China, a drug is being tested that was originally developed against Ebola. It inhibits the replication of the virus in the human body. Another idea starts at a different point. For many patients it is not the infection itself that causes the greatest damage, but a kind of overreaction of the immune system - especially among older people. The hope is to stop this spiral, which would not prevent the disease, but would significantly reduce mortality. Such drugs are used, for example, to treat arthritis or the HI virus, and initial investigations suggest that they might also help with Covid-19. Rapid progress is realistic because the drugs have already been approved. The only thing that would still be necessary are clinical trials involving several hundred patients in hospitals. If the drugs cure faster and no new side effects occur, good clinical data could be available as early as September or October.

How is the biotech sector reacting?

The healthcare and biotech sector is also not immune to general market sentiment and fluctuations. When it really rains, everyone gets wet. The shutdown hits the entire global economy to an extent that nobody expected - including the healthcare sector. Surgeries that are not strictly necessary are postponed, but the sector itself is relatively stable. Treatments for cancer patients will not be suddenly interrupted, and rare diseases will continue to receive maximum attention. Compared to global indices such as the MSCI World, the healthcare sector has held up much better.

One thing is certain, however: the business figures for the next two quarters will most likely not look good. Nobody knows how long the temporary measures of global politics will last and what concrete effects the current downturn will have on the markets. However, there is a very good chance that the economy will have returned to normal by summer 2021. Investors can therefore certainly make the difference here: Anyone who thinks long-term and can fade out the coming months will see that some quality companies are currently available at a much more attractive price than just a few weeks ago.

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