Short-term benefit from booster vaccination, but from Diabetes in the long term

The coronavirus has had a firm grip on the world for almost two years now and has led to a previously unimaginable surge in innovation, not least in the medical and pharmaceutical sectors. In the long term, however, diseases of affluence such as obesity and diabetes will outstrip the virus in the healthcare sector.

By Maximilian-Benedikt Köhn, Fund Manager of DJE - Europa and Healthcare Sector Analyst at DJE Kapital AG

In the field of biotechnology, the Covid 19 pandemic brought about the rapid further development of mRNA technology to the point of a proven vaccine against the virus. Although the technical basics had been known for many years, research had so far lacked the necessary investment to bring mRNA technology to application maturity. Today, BioNTech/Pfizer and Moderna are leading the way in terms of capacity, with over three billion vaccine doses delivered this year. And the current rapidly rising incidences and high utilisation of ICU beds make it clear that booster vaccination is needed for all those already vaccinated to renew the vaccine protection that declines over time.

A good strategy against covid-19 needs both - vaccines and drugs

Apart from vaccinations against the virus, promising study data on oral Covid-19 drugs have been published in recent weeks by the two US pharmaceutical companies Merck & Co. and Pfizer. The Pfizer studies show that the drug paxlovid reduces the risk of a severe course with hospitalisation or death in Covid-19 patients by 89 percent compared to placebo. The condition was that the patients were treated within three days of the onset of symptoms. This puts the US pharmaceutical giant Pfizer in the shade of its competitor Merck & Co. with its drug Molnupiravir - which was only able to halve the risk in comparable tests. The Pfizer tablet is administered in combination with ritonavir, an older antiviral drug against HIV. The combination treatment blocks an enzyme that the coronavirus needs to replicate. Merck's pill Molnupiravir has a different mechanism of action, which aims to introduce errors into the virus's gene code. This means that so many errors occur during the replication of the viral genetic material that no functional viruses can be created.

The market potential of both pills is enormous. Merck & Co. can already produce over 20 million doses in 2022 and Pfizer over 50 million doses. The price of an oral therapy will be around 700 US dollars. Thus, both companies together could generate over $45 billion in sales. But these drugs are curative and do not have a preventive effect like a vaccination. Thus, while the development of effective drugs is an important building block in the fight against the pandemic, it cannot and will not replace the Covid 19 vaccine. Nevertheless, the demand for covid-19 drugs will be very high, and many countries will order these drugs to be on the safe side, especially since the price seems relatively low compared to the inpatient or intensive care treatment of covid-19 patients.

Losers of the Corona pandemic

The Corona pandemic not only affected sectors such as tourism or brick-and-mortar retail, but also the healthcare sector - even though the picture in this sector was mixed. Of course, many companies involved in the research, development and production of the Covid 19 vaccines benefited. At the same time, diagnostic manufacturers and diagnostic laboratories were also able to create an additional sales market. On the other hand, operations that could be planned had to be postponed considerably. In Great Britain, for example, almost five million people are waiting for inpatient treatment. But classical pharmaceutical companies also suffered from the Corona pandemic. There were hardly any new therapies or changes in medication, especially during the lockdown phases. This negative effect was already evident in the last quarterly reports of the pharmaceutical companies.

Diabetes - a long-lasting growth market

Covid-19 had only a limited impact on the diabetes market. Here, the long-term drivers remain intact. There are currently over 463 million diabetics worldwide, many are not controlled or not optimally controlled, and the number of new diabetics will continue to increase. What diabetes means for national health systems is particularly evident in two parameters: Firstly, about 70 percent of all diabetes patients are of working age. On the other hand, more than 12 percent of the worldwide health expenditure amounting to more than 730 billion US dollars is spent on the treatment of diabetes and its secondary diseases such as kidney damage, strokes, heart attacks and circulatory disorders. More and more, however, the worldwide increase in obesity as a cause of, for example, type 2 diabetes or chronic liver diseases such as non-alcoholic fatty liver are coming to the fore. The market potential for type 2 diabetes in particular is still enormous. According to the World Health Organisation (WHO), there are more than 1.9 billion people who are overweight, of which more than 650 million are obese and have a body mass index of over 30. Lifestyle measures such as fitness programmes have only a temporary effect, if any. Therefore, complementary therapy options are necessary. Currently, only two percent of obese people are treated with medication, and in some cases with only moderate success.

New generation of drugs

The main goal of the development of new diabetes drugs is to reduce the causes, but also the consequences, of diabetes. The effect of these drugs is not only to reduce high blood sugar levels. Because: Studies have shown that a purely glucocentric view in diabetes therapy has no positive influence on morbidity and mortality. One example of new products is GLP-1, which stands for glucagon-like peptide 1. The duopolistic market is currently dominated by the Danish diabetes specialist Novo Nordisk and the US pharmaceutical company Eli Lilly. GLP-1 is an intestinal hormone that belongs to the incretins and helps to control the glucose metabolism. It promotes the release of insulin, a hormone that lowers the blood sugar level. However, it also has effects independent of diabetes via other mechanisms. The market continues to grow at a double-digit rate even in times of Corona - even with the current price pressure in the USA. Even in the Covid-19 pandemic, Novo Nordisk was able to grow by more than 200 per cent in the first three quarters of this year with a new oral GLP-1. But Novo Nordisk was also recently able to launch a new product on the American market with regard to possible diabetes sequelae. The new slimming product Wegovy promises a guaranteed 15 percent weight reduction within one year. Novo Nordisk was apparently so surprised by the high demand in the USA that the product is often already sold out in the US. The market with slimming products is not only a mass market, but also a strong self-pay market. Apart from the very lucrative margin potential for Novo Nordisk, this also means added value for the healthcare systems, because the secondary diseases of diabetics devour more than 377 billion US dollars in the USA alone.

Classic versus modern

Diabetes management around diagnostics and glucose monitoring is one of the most advanced fields in digital medicine. The applications, combined with artificial intelligence and data analytics, can achieve strong medical benefits for patients. The global market for diabetes devices was about $26 billion in 2020, and the compound annual growth rate is expected to remain at least in the high single digits in the coming years. Among the major medical technology companies, Medtronic and Abbott Laboratories are the pioneers in diabetes treatment, but development does not stand still, with innovations coming to market all the time. Roche, for example, is clearly lagging behind with its classic Accu-Check blood glucose meter. It has long since ceased to be necessary to put a small amount of blood on a test strip for each measurement in order to determine the blood glucose level. New applications, be it from Abbott Laboratories or also from the smaller niche suppliers Dexcom and Insulet, can check the blood sugar balance at any time via the app in the mobile phone thanks to a small patch on the arm (so-called continuous glucose monitoring).

Corona - come to stay

The Corona pandemic will continue to occupy us all. However, when it comes to investment decisions, divisional selection and regional diversification are becoming more and more important. In the short term, companies producing oral covid-19 drugs or booster vaccines could benefit. After the end of the pandemic, Sars-CoV-2 will only occur endemically, scientists now agree on this. This means that the virus will continue to circulate and cause seasonal and regional outbreaks all over the world. We will all have to learn to live with the virus - just as we do with seasonal waves of influenza. Regardless, diabetes remains a long-term, structural growth area. Companies that positively influence the risk factors with their drug portfolio or curb secondary diseases associated with diabetes are likely to be particularly promising.

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