Skip to the content

Drug companies won’t make any money from a coronavirus cure, warns biotech manager

22 April 2020

Veteran biotech investor Carl Harald Janson says a successful drug is unlikely to be developed fast enough to have an impact on the Covid-19 pandemic.

By Anthony Luzio,

Editor, Trustnet Magazine

Drug companies are unlikely to make any money from a vaccine or cure for Covid-19, even if they manage to develop such a treatment before the virus peters out, according to Carl Harald Janson, manager of the International Biotechnology Trust.

Biopharmaceutical company Gilead rallied by more than 30 per cent from the start of February after its drug remdesivir showed promise in early clinical trials for treating the coronavirus.

Yet while Janson holds Gilead in his portfolio, he believes investors in the stock are getting ahead of themselves.

“It’s kind of fascinating how the valuations can shift,” he said. “Going into this year, Gilead had a drug in development for Ebola which still wasn’t on the market but that it said might work for Covid-19.

“All Gilead did was start clinical trials to find out if it worked. And for that reason, the stock has appreciated from $60-$65 to $80-$85. On Friday last week, the share price was moved hard on the upside, just based on rumours that it might work.

Performance of Gilead stock (price only) in 2020

Source: Google Finance

“We thought that was kind of a little bit too hard – you still have to look at fundamentals and you have to have better results from clinical trials.”

Janson takes a different approach to his peers when investing in biotech. Rather than trying to second-guess binary events such as clinical trials, he will often trim his position in a company ahead of a major announcement in a bid to avoid a potential double-digit price fall if the results disappoint.

In a previous interview with Trustnet, Lucy Costa Duarte, head of investor relations on the trust, said this strategy works because the market is inherently optimistic.

“We ride the optimistic price rise, sell out, leave maybe a bit on the table until the data comes out and then we are not in a position of holding a falling knife and looking for a hasty exit if the news is bad,” she explained.

“And if it is good, we can buy it back pretty quickly and even if we lose a little bit, on a risk-weighted valuation basis, it’s actually probably cheaper.”

Janson claimed that even if remdesivir or any other drug for treating Covid-19 does prove successful in clinical trials, it is unlikely to make much of a difference from an investment point of view, for a number of reasons.

The first of these is related to the speed with which the virus is spreading – clinical trials typically take years to complete and the manager said the pandemic may be over by the time a successful drug has gone into development.


“Or even worse, the pandemic is over even before we have been able to fully test the drug as we have no patients left to test it on,” he added.

“Gilead developed remdesivir for the first clinical trials in China because that was the first country that was hit. Now it has announced trials in China have stopped because there are no more patients to recruit. That could of course also happen in the West if the pandemic wanes quickly.

“The virus was out of the box before they shut down – it's pretty widespread in Germany, France, Italy and Spain. I think most people will be infected pretty quickly and then it will go away because there are no new people to infect.”

Yet even if a company manages to develop an effective drug fast enough to have a meaningful impact on the pandemic, Janson does not think it will be a particularly lucrative endeavour. With the global economy in such a precarious position and thousands of lives at stake, large businesses do not want to be seen to be profiting from other people’s misery. As a result, the manager believes any coronavirus treatment is likely to be sold at cost price, or even given away.

“There is no real economy in this,” he continued. “As you may know, in general it hasn’t been very lucrative to develop antibiotics or antivirals in the last 20 years. There are a few exceptions, like Hepatitis C or HIV. Otherwise, it’s not very lucrative.

“So it is still unclear who is going to be the winner, when there is going to be a winner or if there is even going to be a winner. There is still very little we know about this virus.”

In terms of where he does see opportunities within the biotech sector, Janson is positive on treatments for rare or orphan diseases, which tend to be severe and lifelong in nature. He is also optimistic about oncological drugs, due to powerful forces on both the supply and demand side.

The manager pointed out that because cancer is primarily a disease that affects the elderly, lengthening lifespans should mean an increased number of patients.

On the supply side, meanwhile, he said we are in the middle of a super-fast expansion of knowledge in this area.

“There are many different tumours where drugs have started working pretty well in combination,” Janson added.

“So, there are many opportunities. But it's also difficult to make similar drugs in oncology – it is pretty tricky to show that a new drug is superior to an existing drug in terms of mortality, survival. It is more shielded. And there are many smaller companies here that are being acquired by larger companies in order to protect their pipeline.”

Data from FE Analytics shows International Biotechnology Trust has made 37.63 per cent over the past five years compared with gains of 41.03 per cent from the IT Biotechnology & Healthcare sector and 25.5 per cent from the Nasdaq Biotechnology index.

Performance of trust vs sector and index over 5yrs

Source: FE Analytics

The trust is on a discount of 3.31 per cent to net asset value (NAV) compared with 1.9 and 2.57 per cent from its one- and three-year averages.

It is not currently geared. It has ongoing charges of 1.3 per cent.

Editor's Picks


Videos from BNY Mellon Investment Management


Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.