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Vaccines: The few needles left in the haystack are still worth finding

by Florian Sommer

As pharmaceutical giants stare out over their well-publicized cliffs of patent expiries, vaccine industry participants are bathing in a comparative ray of sunshine. What was once an overlooked backwater has been sought out and picked over in a conglomerate search for growth. The swine flu has further enforced this change.

Vaccines used to be relatively unattractive products, with a high amount of upfront investment required, mediocre margins and a high amount of risk involved in achieving any return. The production and manufacturing plants are heavily regulated, spates of lawsuits were always a threat from possible side effects and in the case of a serious national emergency, manufacturers were occasionally forced into giving up the intellectual rights covering their products. Given those risks in what is a relatively small, bulk-order and price-based industry, it is no surprise that the number of manufacturers has consolidated from around 26 major players in the U.S. in the late 1960’s, to around 5 today.

However, as recent pandemic threats have shown, the health of any one nation is now increasingly dependent on the health of the rest of the world. The swine flu scare in particular, has again prompted governments in trying to address a global lack of manufacturing capacity. This should continue a trend that has emerged since avian flu, whereby several of the afore-mentioned issues have been rectified through funding, as authorities had to bridge the development gap that companies were unwilling to cross. Large pharmaceutical companies have also sat up and taken notice, and have been cornering the sector through acquisitions and partnerships. Partnerships are becoming the preferred model as they allow the smaller independent firms to retain innovation and leverage off of much larger sales and marketing capabilities. The larger firms benefit from outsourcing the early-stage risk, instead focusing on their specialties of later stage trials and bringing vaccines to market. The innovation continues to breed results; vaccines are being targeted not only at high-risk infectious diseases but also increasingly as therapeutic answers to highly complex diseases such as AIDS and cancers.

The consolidation trend has been ongoing for many years now, leaving the vaccines space with few sizeable independent companies. However, as the industry continues to transform itself, those that do remain are likely to see the fruits of their research and development highly valued when negotiating commercial agreements.

Copenhagen - low expectations mean no disappointment

by Martina Jung

We had not expected a global climate treaty – or anything close to it – to emerge from the Copenhagen Climate Change Conference 2009, and we had not been optimistic that emission reduction commitments would be made, in particular by China. So, we were not especially disappointed with the content of the Copenhagen Accord.

In contrast, the wider consensus view appears to be that Copenhagen failed to meet its goal: To reach binding agreements among the participating states to tackle global warming, which would serve as the basis for a global climate treaty to be signed in 2010. Indeed, participating countries have done little more than to take note of the Copenhagen Accord, without committing to accept it. The minimal compromise achieved does not include precise emission reduction targets or control mechanisms, nor is it legally binding or unanimous.

However, there are two points in the Copenhagen Accord which give us reason for optimism. The first is the recognition among UN member states that the increase in average global surface temperatures by 2050 must be limited to 2 degrees Celsius or less. This is the first time that scientific evidence of global warming has entered political documentation, applicable to 193 states. Looking ahead, this targeted restriction will serve as a universally accepted cap against which developments can be measured. The second is the pledge by industrialised nations to provide USD 30 billion to developing countries for the next 3 years. The pledge is aimed to step up action against climate change, and may be scaled up to USD 100 billion annually by 2020. This cash should accelerate installation of renewable energy capacity.

Achievements such as these are just a first step towards a global climate treaty. For now, they will have little immediate impact on the fundamentals of renewables stocks. But the need for continuing negotiations, and the growing pressure to achieve legally binding agreements, provides room for a positive mid- and long-term effect on renewables.

In the short-term, we do expect more ambitious action on a national level. In the course of the Copenhagen conference, China and the US presented various measures that they are prepared to implement in order to reduce their carbon emissions. All of them include the increase of renewable energy capacity, implying the potential for creating new jobs and reducing their countries’ dependence on foreign resources. The statements released by the world’s two largest emitters after the conference confirm their commitment to address the climate change problem and their willingness to further promote renewable energy technologies. We believe there will be more countries that follow this path now that 193 states are involved, at least politically.

Endocrine Disruptors – Our sexless future?

By Sara Wright

Endocrine disruption (ED) has been present in scientific literature for decades, but has not coalesced into a coherent topic in the popular media. This is down to several reasons: the issue is complex, its long-term ramifications remain unclear, and the path of mitigation is not well defined.

The US EPA defines an endocrine-disrupting compound as “an exogenous agent that interferes with synthesis, secretion, transport, metabolism, binding action, or elimination of natural blood-borne hormones that are present in the body and are responsible for homeostasis, reproduction, and developmental process.” EDs are heterogeneous and include synthetic chemicals that are widely used as industrial solvents and lubricants, agricultural chemicals and pharmaceutical compounds. Not only do they have serious impacts independently, but evidence is strengthening that the combined effect of multiple EDs can be exponentially harmful to the human body and ecosystems.

Some EDs were identified long ago as being responsible for the near extinction of entire species, such as the pesticide DDT and the bald eagle population. Others are only now being identified, especially as their multiple vectors of interaction with other substances emerge. Nearly all plastics that consumers use daily contain ED compounds. The majority of people in developed countries have a shockingly high “body burden”, which indicates synthetic compound levels carried in the blood and tissues. This was not true a mere generation ago.

Even infinitesimally low levels of exposure can cause abnormalities, especially if exposure occurs during a critical developmental window. Surprisingly, low doses may sometimes exert more potent effects than higher doses. EDs can affect not only the exposed individual, but also subsequent generations. Given that some of the most prevalent EDs have emerged from industrial chemistry, a relatively new field, the effects are likely not yet to have fully manifested.

But there are alarming signs everywhere. Water animals are exhibiting bizarre deformities, often in their sexual organs. In polluted lakes, amphibians are sprouting extra legs and alligators are developing stunted genitals. In the US Potomac watershed, male smallmouth bass were recently discovered to be transforming into “intersex fish” that display female characteristics – 80% were producing eggs!

There are similar signs in the human population. A startling trend shows significant increases in the numbers of genital deformities among newborn boys. The daughters of women exposed to DES – an ED drug prescribed from the 1930s to 1970s to prevent miscarriage – seemed fine at birth, but exhibited abnormally high prevalence of misshaped sexual organs and cancer later in life. New research has also tied EDs to obesity, insulin resistance and diabetes. Examples abound, and they paint a sombre picture.

Governments are moving toward regulating these substances. If the evidence continues to grow, and frogs in a lake are our modern-day canaries in a coal mine, EDs will become as important as climate change, and perhaps even more difficult to rein in. Nearly all industries will be affected, both by legislation to reduce the use of EDs, and by litigation seeking restitution for the damage they caused. Companies that seek to mitigate effects and produce safer alternatives will benefit in the long run.

Swine flu: Longer-term perspective required by investors

By Florian Sommer

Tens of millions of people are getting ready for their vaccination against swine flu. We are in the midst of a new pandemic, as officially announced by the WHO back in June.

What does this mean for sustainable investors? First of all, pandemics have historically only occurred every 30 to 40 years. However, we have recently experienced an increasing number of epidemics that nearly reached pandemic status. Remember SARS and Avian flu.

The risk of pandemic outbreaks is increasing. In our modern world, people live closer together in urbanised centres, travel more, and eat more meat. Farmed animal populations have grown exponentially. For example, China’s poultry population has grown from 12 million in 1968 to 13 billion in 2005, while its human population only increased from 790 million to 1.3 billion. Increased proximity between animals and humans is a key risk factor, as most emerging infectious diseases originated from a species jump of a virus from animals to humans.  

What little investment research on the topic exists is dominated by a short-term focus on sectors of under- or outperformance during epidemic / pandemic events. For example, airlines were hit hard during SARS but then recovered quickly. Betting on one-off pandemic/epidemic events that are by nature quite unpredictable is not a very attractive strategy for investors. A longer-term perspective is more rewarding, such as the growing markets for disease prevention and pandemic preparation.  For example, bio-surveillance of animals is viewed as key to prevent the “species jump” from animals to humans. There are new diagnostics and testing technologies that offer more rapid and reliable disease detection. The market for molecular diagnostics has been growing between 10 and 20 percent in the last 5 years and is expected to reach USD 7 billion by 2011. Finally, governments have begun to dedicate longer-term funding to the development of more effective vaccine production infrastructure and new technologies (e.g. cell-based production methods), in order to overcome earlier problems in producing sufficient vaccines during epidemic / pandemic events.

We do not know yet how severe the swine flu will turn out to be. However, we do know that the drivers of pandemic risk are increasing and that this is fuelling a growing demand for solutions that help to prevent the emergence and spread of infectious diseases. These technologies offer attractive longer-term investment opportunities.

Sugar price hike: a reminder of what looms around the corner

By Dirk Seel

'Breakfast’ commodities currently capture headlines as their prices hit multi-decade highs. Although sugar, coffee, tea and orange juice do not qualify as vital crops, their price hike should still be seen as a warning sign of a potential food crisis repeat.

Let’s recap: driven by drought-impacted poor global harvests, growing consumer demand, rising energy costs and financial speculation, the prices of agricultural commodities dramatically increased in 2007-08, causing food riots and political instability worldwide.

Given that the prices of rice, corn, wheat and soy have fallen amid the recession to today’s relatively depressed levels, can we assume that the threat of another food crisis is history? Clearly not. Instead, the driving forces behind the current production shortfall in breakfast commodities seem to be very familiar.

Take sugar. Following a global production deficit, its price has so far risen to a 28-year high. Government authorities around the world blame poor weather conditions for the severe shortage. But there are fundamental problems too. One is regulation. Sugar is among the most heavily manipulated agricultural commodities. From import levies to production quotas and statutory minimum prices, governments worldwide use interventionist mechanisms to maintain certain price levels. The real price of this policy can be seen in India. Millers, angry about imposed higher minimum prices, made their payments late, which led farmers in 2007-08 to abandon sugar for more profitable crops such as rice. With production down 40%, the country this season switches from being a net exporter of sugar to a net importer.

A lack of arable land dedicated to cane cultivation is not the only problem. Consider the world’s ever-increasing demand for energy. Already today, about 60% of Brazilian sugar cane is used to produce ethanol, a petrol substitute. With a rising oil price, this percentage looks set to increase further. Add developing countries’ growing appetite for sweet food, and you get an idea of the heavily imbalanced supply-demand curve.

As such, the current price hike of breakfast commodities should be seen as a reminder that another food crisis is looming. After all, the fundamental drivers that contributed to last year’s crisis have not disappeared.

The dawn of E-Paper

By Alvaro Ruiz-Navajas

The nascent market for e-readers has put e-paper into the spotlight, but the potential applications for e-paper are much wider.

The technology for e-paper has been developing since the late 1960s, but its potential applications have become apparent only since the advent of the e-readers. In theory, e-paper could replace ink and paper, but given the current state of technology, e-paper is better suited to display data rather than input data. Thus, rather than being useful only in consumer electronics, e-paper could find its core markets in disposable electronics and electronic signage. E-paper could expand rapidly to a USD 3 billion market by 2015.

Disposable electronics is likely to be an area where e-paper creates a new market. Potential uses include making packaging more appealing to consumers and advertisers – as shown by the Esquire magazine cover in 2008 - the change in pre-paid cards and, most interestingly, medical instructions. Doses and instructions could be changed so that they target a specific patient, and even the time to take the next dose could be displayed.

Electronic signage is where e-paper does have an advantage over current incumbents. Currently, TFT-LCD, LED and paper dominate this segment. However, with e-paper's ability to change rapidly and its low energy consumption, it is ideal for mobile message boards in airports and train stations. For billboards, e-paper could still provide an expensive alternative to paper, but the robustness of e-paper and the possibility to update it remotely presents a compelling case. E-paper price tags that can be updated centrally have proved successful in Japan.

A frequently cited benefit of electronic paper, however, stems from its direct effect on the environment. With an estimated 4 billion trees cut down each year and most of them going to paper, e-paper could not just open new markets, but also help preserve biodiversity.

Copenhagen – renewables likely to win

 By Martina Jung

The United Nations Climate Change Conference 2009 to be held in Copenhagen may fall short of agreeing a global climate treaty, but the renewables sector is likely to emerge as a winner.

The ultimate goal of the conference is a global climate treaty with the agreement of major economies to binding emission reduction targets and the implementation of cap-and-trade mechanisms. While the European Union already has its European Union Emissions Trading Scheme in place, the toughest challenge facing the UN in Copenhagen is to agree on the contribution of the world’s largest emitters, the US and China.

For its part, the US government is currently discussing a draft climate bill that could be a powerful tool to persuade the world’s other heaviest polluters – particularly China – to pass binding emission reduction legislation. However, as the US industry struggles with the effects of the financial and economic crisis, resistance to the planned cap-and-trade bill is growing.

China, meanwhile, is taking tentative first steps towards reducing its emissions. The country’s president, Hu Jintao, recently expressed his intention to slow increases in China’s carbon pollution relative to its economic growth. Nevertheless, Mr Hu refuses to commit to specific numerical targets, and he insists that richer countries should pay for poorer nations to reduce carbon emissions.

Despite these efforts, it is unlikely that the US will arrive in Copenhagen with a finalised cap-and-trade bill. Nor will China be willing to quantify any emission reduction commitment by December. However, participants in the Copenhagen conference will likely achieve a clear strategy to expand renewable energy production.

Already, the US has decided on measures to support the use of renewable energies as part of its economic stimulus package. There are still problems with the implementation. Efforts to address these problems should provide scope for more ambitious targets for the installation of renewable energy capacity in the US.

China has also taken steps to support renewable energies. It has set itself the goal of deriving 15% of its energy needs from renewable sources by 2020. The Chinese government is currently putting together a renewable energies subsidy scheme. As part of its contribution to discussions in Copenhagen, it is possible that the Chinese government will provide clarity on the details.

Renewables are key to reducing carbon emissions, and they offer countries such as China a palatable way to begin tackling emissions. While both an expansion of renewable energy production and a cap-and-trade system will represent a cost burden for national economies, the development of local renewable energy industries also has the potential to create new jobs. Therefore, expect ambitious renewable energy generation commitments among UN member states accompanied by the implementation of crucial measures to achieve these objectives to emerge from Copenhagen.

US Health debate. What about prevention?

By Paulo Campos

When President Barack Obama made his last speech to Congress on healthcare reform, the good news – the potential universal coverage – came along with bad news: the missed opportunity to expose and address the exploding healthcare spending.

Obama estimated that the plan would cost USD 900 billion over 10 years, offset by savings from money “spent badly in the existing health care system”, and the follow-up criticism targeted increasing healthcare expenditures without identifiable sources of funding.

While it is true that a debate build on stereotypes does not benefit the U.S., it is also true that moderating its tone does not allow the country to face the future challenges. The Congressional Budget Office had estimated in 2007 that without reform, healthcare spending would grow 1.7% faster than GDP to reach 40% of GDP in 2050; the ongoing recession makes the picture worse, not better.

Additionally, the existing proposals lack ambition. President Obama pointed to the fact that the U.S. spends close to 50% more of its GDP on healthcare than its peers, but the U.S. benefits from a young population and other qualities like a small proportion of smokers and a very efficient healthcare service in some aspects, like early cancer diagnosis.

Healthcare reform should clearly identify and address performance lagging segments of the system, such as inpatient hospital care. The U.S. spends on aggregate significantly more than its OECD peers, and public payers are particularly important in this category.

The CMS (Centers for Medicare and Medicaid Services) projects that MEDICARE/MEDICAID plus other federal and state payers will spend 55 cents of every dollar spent on hospital care, and that MEDICARE will be the largest individual payer. The sum of all private insurers will pay 36.4% of the category expenses in 2009, while MEDICARE will pay 28.8%. Finally, certain studies calculate U.S. hospitalization costs at 162% above OECD average per bed/day.

Under the existing plan, public payers would not provide effective incentives to improve the performance of care providers, nor would private insurance companies perform this valuable function, so long as they can pass costs along the chain. Effective incentives would imply setting harmonization of treatment practices, implementation of statistical systems and Electronic Health Records, and quality of care and outcome objective measures to reward best performance.

The exploding healthcare spending cannot be unwound by a moderate reform and companies, particularly around hospital care, which integrate or contribute to improved performance should benefit from upcoming changes.

Electric cars on the horizon

By Florian Sommer

While hybrids are already on the move, electric cars are firmly on the rise. The debate has now moved on from whether electric cars will be a feasible solution to when they are going to enter the mass market.

This year’s government stimulus programmes have accelerated this process. Obama announced in August a grant of US$ 2.4 billion for the development of electric vehicles (EV) and the batteries to be used in EVs. The EU and several national European governments have also made significant funds available to make the shift. China has set a goal of producing half a million electric cars annually by 2011 and has committed US$ 1.4 billion for R&D. 

A major part of the funding is earmarked for making advances in battery technology. This is a serious bottleneck for electric cars. Batteries need to become more powerful, longer lasting, and most of all, much cheaper. Current progress looks promising. The cost of batteries has been declining by 6 to 8 percent annually and most analysts predict they will continue to do so over the next 10 years with rising production volumes. The market potential is huge. McKinsey estimates that the market for batteries will be US$ 60 billion assuming six to eight million electric vehicles sold per year.

Markets have realised that batteries are a very promising technology. Our battery / energy storage index has risen by 97.5% since the beginning of this year. This is the strongest performance amongst our 30 different indices, each addressing a different sustainable technology area. 

Another area where we need to see a radical change is in the development of a reliable energy infrastructure for charging up cars. China, pushed by its urban air pollution problems, has announced some ambitious plans. It seeks to build a network of charging facilities in at least three of the country’s largest cities by 2011. Hawaii has also announced plans to build up to 100,000 charging stations for electric vehicles by 2012.

Finally, the electric car lobby needs to stay firmly focussed on winning the carbon argument. It is not a given that electric cars are necessarily more carbon efficient. Studies have shown that an electric car using pure coal-based energy would be less carbon efficient than a car with a petrol or diesel motor. However, the electric car is superior when using the current energy mix of the EU.

Ultimately, only a strong green argument for electric cars will convince governments to create the required incentives that will enable mass market roll-out of electric cars.

Questioning Japan's "low-carbon revolution"

By Adam Child

Japan’s fourth stimulus package, announced back in April, offered critical support in key sustainable areas: JPY 2 trillion (USD20 billion) for healthcare, reinforcing over JPY700 billion (USD 7 billion) announced in previous fiscal injections. Crucially, these resources have been heavily weighted towards R&D and increasing the efficiency of the system through investments in IT. Also, we note provisions specifically targeted at the elderly show increasing willingness to tackle the issue of a rapidly aging population head on.

Nonetheless, the low-carbon revolution touted by Prime Minister Aso at the start of the year is not yet in sight. On solar energy – a key component of the package and an area in which Japanese firms have traditionally been dominant - the stimulus will create demand for 80-100 megawatts, which we estimate would only offset around 5% of the projected minimum 2 gigawatt global oversupply for 2009. In addition to the solar package, the stimulus includes funding for green autos, railways and energy efficient household appliances. Nonetheless, this hardly represents a new model for growth – Japanese emissions are among the highest in the G-20. At UN-sponsored talks on climate change held in June, Japan pledged a 15% reduction in carbon emissions by 2020 from 2005 levels. This falls short of measures agreed by Democrats on the US House Energy and Commerce Committee to reduce emissions by 17% over the same time period. Similarly, the EU is taking more ambitious steps in its policy to curtail emissions to 20% below 1990 levels. Far from leading the revolution, Japan was branded a ‘laggard’ by the WWF conservation group.

If Japan’s alarming deficit can finance yet another round of spending, it may be a case of fifth time lucky for the green recovery that analysts have been predicting since late last year. Elections are due at the end of August, and the opposition Democratic Party, ahead in the polls, has proposed increasing investments in clean energy. More importantly, they have pledged to enforce more ambitious emissions targets and set up an emissions trading system in line with similar developments in the EU and the US. Legislative adjustments such as these are an intelligent step. In our opinion they could yield better results for clean tech than another round of stimulus spending that may in any case barely offset the collapse of debt financing for renewables.