A shot in the arm for your portfolio
How to invest in Big Pharma (and avoid the side effects)
The breakthrough on the Covid-19 vaccine from Pfizer and BioNTech this week has cheered the nation – and the markets. Although the feats of Big Pharma sparked a dramatic change in mood, shares in the sector did not soar.
This may seem strange because, for the first time in months, science was about to set us free rather than lock us down.
On Monday, Pfizer rose by just 8pc. By contrast, pandemic-battered shares like Carnival, the cruise ship operator, leapt by 39pc.
Big Pharma may not be popular, but its contribution to our health and that of the economy has never been more vital.
Pharmaceutical shares may be seen as expensive. But since the population is ageing – there are 12m people in the UK aged over 65 – the industry’s output is more essential than ever.
The reason to put money into these companies now is not the profits that could flow from the Pfizer vaccine or indeed jabs from other companies.
Investment bank Morgan Stanley estimates this market could be worth $10-30bn between 2020 and 2022.
But vaccines like these are likely to be sold at cost, or at only a small profit. Pfizer did not accept US government cash to fund its research so could charge more, as may Moderna, another American name in the vaccine race.
Firms will be conscious, however, that it would be damaging to their reputation if they were seen to be profiteering from the human misery of the pandemic.
That said, the speedy and resolute response to coronavirus has raised the industry’s reputation and ignited its creativity, which is worth backing because it should deliver profitable drugs and treatments for a variety of conditions.
BIONTECH’S immune technology, crucial to the vaccine, may have applications for cancer, for example.
This is one of the strongest arguments to invest in the sector, says fund manager Liontrust, whose SF Global Growth Fund has large pharmaceutical holdings.
But some professionals are taking a more nuanced approach. Charlie Parker of Albemarle, the wealth manager, comments: ‘You always want to keep a balance. This week we sold Glaxosmithkline, in favour of housebuilder Bellway, Burberry and Whitbread.
‘But we are hanging onto other pharma stocks such as Astrazeneca and Gilead.’ Glaxosmithkline shares have underperformed the sector this year because it is seen to have fallen behind in the development of new drugs.
But it, too, is collaborating on a vaccine – with Sanofi of France. There is more enthusiasm about Astrazeneca’s drug pipeline, and also i ts vaccine that i s being developed in partnership with Oxford University.
You could put together a vaccine-focused higher-risk section of your portfolio made up of Pfizer, BioNTech, Astrazeneca, Glaxosmithkline, Sanofi and Moderna.
You could add Croda, which will supply ‘ novel excipients’ ( delivery systems) to Pfizer, whose vaccine has to be stored at minus 70 degrees. This could benefit Air Liquide and BioLife Solutions, specialists in keeping stuff super cold.
But such terms as ‘novel excipients’ are a hint that backing biotech and other pharmaceutical breakthroughs is best pursued through a fund or trust, where experts can assess the viability of complex projects.
The ability to rely on such insights lies behind the popularity of Baillie Gifford’s Global Discovery fund: pharmaceutical and biotech companies make up 21pc of the portfolio.
Ben Yearsley of Shore Financial Planning likes three investment trusts: Biotech Growth; Worldwide healthcare, whose portfolio includes Merck which is also trialling a Covid-19 vaccine, and Polar Capital Global healthcare which i nvests i n Roche, the Swiss group whose cancer immunotherapy treatments are causing a stir.
QuotedData, t he analytics group, highlights the International Biotechnology trust whose net asset value is up 30pc this year. Kate Bingham, the Government’s vaccine tsar, is one of its managers. She is under fire over expenditure in this role – proving that Big Pharma always comes with controversy as a side effect.