The search for cures and vaccines during the COVID-19 pandemic has brought the biotechnology industry into sharp focus.  Beyond the COVID-19 pandemic though, what does the future hold for this industry and the broader healthcare sector?

Defining healthcare and biotechnology

The healthcare sector represents all businesses providing medical goods and services to treat patients.

The way we look at healthcare in Australia is we put it into four buckets:
1. Pharmaceuticals e.g CSL.

2. Medical devices e.g. Cochlear, ResMed.

3. Services e.g. the hospital operators like Ramsay Healthcare.

4. Diagnostics e.g. Sonic Healthcare and some of the telehealth offerings that are out there.

“Healthcare represents about 8% of the ASX300 index within Australia, with 23 companies listed, ranging from CSL with a market capitalisation of $130 billion down to Monash IVF with a market capitalisation of $230 million,” says Scott Power, Senior Analyst covering Healthcare, Life Science and Technology for Morgans Financial Limited.

Biotechnology falls within the healthcare sector, often within the pharmaceuticals space.

Specifically, though, biotechnology refers to technologies using biological processes. Biotechnology companies focus on research, development, manufacturing and/or marketing of products based on biological and genetic information to treat human diseases.

This is the sub-industry covering COVID-19 vaccine development and testing.

 “I think it’s 12 products in human testing at the moment and with over 100 in pre-clinical development…It’s big household name companies like Merck, Pfizer, Gilead, Eli Lilly are all working towards trying to find some sort of vaccine and/or therapeutic (cure),” says Scott.

The US and FDA approvals

In terms of healthcare and biotechnology, the US is the largest market with the US Food & Drug Administration (FDA) approval process considered the gold standard.

“The US FDA is one body, once you've got it, it goes right across the whole country. Their healthcare system is much more complex than ours, but again, once you have the approval and the appropriate reimbursement encoding, the ability for you to get across a larger patient population is much easier,” says Scott.

From that perspective, many healthcare companies such as Moderna or Gilead have based their companies within the US to improve ease of access to both FDA approvals and the large US population.

The COVID-19 pandemic has resulted in fast-tracked processes for testing vaccines and therapeutics for the virus but this may be a negative for non-COVID vaccines and cures.

“A lot of clinical trials have been put on hold. So, if you can’t recruit, because of isolation type issues, then you can’t actually conduct the trial. So a lot of companies, not only in Australia but around the world have actually put their clinical trials on hold,” says Scott.

While the fast-tracking during COVID-19 has given some hope for more efficient FDA processes in the future, Scott Power believes change is unlikely.

“The drug approval process is well entrenched, well established, you’ve got to go through certain hoops, safety… and tested against larger population groups, that’s not going to change. Will the timing of those trials change? I think we are always finding better ways to get through these clinical trials,” he says.

Ongoing evolution of the sector

The COVID-19 pandemic has accelerated some change within healthcare.

“We are seeing some clear structural shifts, we've talked about telemedicine or remote monitoring. It's really gone from a nice to have to a must have… In terms of government policy… one of the issues previously is the reimbursement for teleconsult has been quite low. They have increased it during the COVID crisis to encourage more teleconsults but it needs to be maintained. So, I think we can definitely see a change in government policy from that perspective. In terms of other structural shifts we're seeing, we spoke about the diagnostic side, there's real trend towards rapid diagnostic, whether it's home testing, particularly with the current pandemic, but putting that to one side, that whole concept of early quick detection of conditions and diseases is certainly very much to the forefront. And that will continue,” Scott says.

Healthcare and biotechnology as a sub-industry have been tipped to benefit from a globally ageing population and the ongoing need for disease treatment. Biotechnology in particular is forecast to reach more than $729 billion in 2025[1].

“What we’ve seen over the last 10 years is healthcare as a sector tends to outperform most other sectors… We expect that to continue… I think it’s important for investors to make sure they have exposure to global healthcare companies,” says Scott.

He notes that company selection from the global front can be difficult but it complements and diversifies the more concentrated Australian exposure to the sector.

“Do you want to back Gilead… or Moderna, they’re working on a vaccine, they’ve got a market cap of $30 billion, but they actually don’t have a product. So that’s a highly speculative play,” he says.

From that perspective, he suggests using ETFs such as ETFS S&P Biotech ETF (ASX code: CURE) or actively managed funds that capture the top companies, to assist investors to manage the risks and volatility inherent in the sector.

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