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The corona virus has a lock on the economy and the stock exchanges. Tests by the US pharmaceutical group Gilead in its search for a suitable remedy to fight the pandemic may be cause for hope. Harald Kober, senior fund manager of the equity fund ERSTE STOCK BIOTEC, keeps this company in the portfolio and has noticed a global increase in healthcare investments.
According to a news report, a drug by the US pharmaceutical group Gilead Science has been successful in the treatment of COVID-19 patients. Can you expand on that?
According to a study by The University of Chicago Medicine on the drug Remdesivir, originally developed against Ebola, caused the fever of patients to drop and the symptoms of the respiratory disease to subside, as a result of which almost all patients could be discharged within less than a week. This report was released Thursday evening on the online platform for medical news, STAT.
How do you rate the chances of FDA approval?
It is too soon to draw conclusions about imminent remedies: the study was not randomised or controlled. Therefore, the results have to be taken with a grain of salt. Initial randomised study results are due for the end of April. In case of positive study results, Remdesivir might be approved for treatment of COVID-19 as soon as May/June. The studies focus on severe, hospitalised cases.
How is Remdesivir used?
As IV, i.e. intravenously. This means it has to be administered by doctors .The production of the drug is quite complex, and the available doses are limited. According to Gilead, the company wants to produce more than 1mn doses by the end of 2020. Production capacities could be expanded with the help of other companies.
The shares of Gilead, which are also held in the portfolio of ERSTE STOCK BIOTEC, increased by 18% in late trading in the wake of this news report on Thursday. How do you rate this increase?
Harald Kober, Senior Fondsmanager, Erste Asset Management
We have prominently weighted the shares at more than 5% in the fund – for several reasons, not only because of COVID-19. Even though this increase is good news for fund shareholders, one has to point out that the euphoria in connection with Remdesivir had already caused the company’s market capitalisation to rise by USD 15bn prior to yesterday’s increase in late trading.
Late trading added USD 20bn on top of that. Pricing a total of USD 35bn into a share just for one therapy seems a lot, not the least since Gilead has announced that it will be selling the drug at cost. Will that be “big business”?
In the wake of the global containment measures against the pandemic, equities in the healthcare sector have moved to centre stage for investors. Many companies in the fund are based in the USA, where the pricing is a bone of contention. Is that going to change now?
The COVID-19 pandemic has led to a global increase in investments in the healthcare sector. It has highlighted the dire lack of protective equipment, test capacities, hospital beds, and suitable drugs. Here, R&D will be the main branch to benefit.
The situation has illustrated how important innovation is in response to life-threatening diseases and pandemics. Maybe COVID-19 is a reason to take into account the macroeconomic opportunity cost when pricing drugs.
Innovation will only happen if there is a return on investment!
About the fund ERSTE STOCK BIOTEC
ERSTE STOCK BIOTEC invests mainly in biotechnology companies from developed markets. The majority of the companies is based in the USA.
Legal note:
Prognoses are no reliable indicator for future performance.