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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.

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.

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.