Vaccination campaigns in most countries have reached phased progress

Vaccination campaigns in most countries have reached phased progress

Record cases in France, Portugal, Turkey, Italy, Sweden, the Netherlands and Israel; Italy will mandate vaccines in >50 year olds in public sector jobs. Most estimate that Omicron has reduced effective protection rates against infections globally by an average of nearly 25pp, contributing to the variant’s much faster spread relative to Delta. GS’ effective protection rate against infections now stands at 50% in the US, UK, and India, 40% in the Euro Area, 20% in Japan, and just 5% in China. But, protection against hospitalisations has held up well, with a negative effect from lower vaccine efficacy offset by a positive effect from lower intrinsic severity. Their effective protection rate against hospitalisations now stands at 85% in the US and the UK, 80% in the Euro Area and India, 75% in Japan, and 70% in China.

The combination of much faster virus spread and still high levels of immune protection against hospitalisations suggests that most economies will experience very large waves of Omicron infections with a much smaller share of cases resulting in hospitalisations and especially fatalities, consistent with the experience in South Africa and London. However, with enough infections the near-term rise in hospitalisations may be quite high. Large infection waves will likely weigh on early Q1 services demand and labour supply in most economies as a substantial share of consumers and workers isolate. Omicron also poses large downside risks to growth in China (given its low infection protection rate and strict covid policies), and large upside risks to goods inflation. But then one can see most economies transitioning to a more endemic stage in the spring driven by accelerated vaccinations, declines in the share of individuals without any form of immunity, and the widespread use of antiviral drugs (barring unexpectedly negative additional mutations).

Follow up PCR tests are positive lateral flows are being scrapped in the UK and no doubt a PCR needed on arrival from abroad will also be ceased. Here are the figures showing the estimated coronavirus infection figures in England last week by age group:

·       Age two to school year 6 - 1 in 15

·       School year 7 to 11 - 1 in 15

·       School year 12 to age 24 - 1 in 10

·       Age 25 to 34 - 1 in 15

·       Age 35 to 49 - 1 in 15

·       Age 59 to 69 - 1 in 25

·       Age 70 plus - 1 in 45


London is the highest region at 1 in 10:

But, there’s also plenty of rhetoric on case counts losing their importance here:

Pfizer expects clinical data in <5 year olds in April.

Australia's Border Force confirmed Djokovic's visa had been revoked, while the source said the player's lawyers planned to file an injunction to prevent his removal, to be heard exactly now (05:00 GMT).

Over the past few months, the vaccination requirements for players wishing to compete at the Australian Open left a profound mark on the professional tours. Uptake of Covid vaccines in tennis had been extremely slow, but once Victoria state government rules were confirmed, the rate of vaccination rose (the ATP has said that 95% of its top 100 players have been vaccinated). The original decision grant Novak Djokovic an exemption from Covid-19 vaccination requirements to play in the Australian Open in Melbourne has been labelled “appalling”, with some players expressing surprise at the late decision:

The chief executive of Tennis Australia, Craig Tiley, said the exemption granted was the same medical exemption anyone can get under the Australian Technical Advisory Group on Immunisation (Atagi) guidelines. The Atagi guidelines state exemptions can be given for those with acute medical conditions, including undergoing major surgery, those who have had Covid-19 in the past six months or have had a serious adverse event attributed to a previous Covid vaccine dose. Hard to believe, right?

While Djokovic never explicitly revealed his vaccination status, he has offered numerous indications of his general stance. Long before vaccines were available, he stated his concern about having to be vaccinated in order to travel. He has often stressed the importance of embracing “natural” solutions; early in the pandemic he held Instagram live conversations in which he spoke of how the power of gratitude could “turn the most toxic food, or maybe most polluted water into the most healing water.” After he underwent surgery on his right elbow in 2018, a procedure that has allowed him to win nine grand slam titles since, he said that he cried for three days. He has said “I wouldn’t want to be forced by someone to take a vaccine in order to be able to travel … But if it becomes compulsory, what will happen? I will have to make a decision.”

His belief in alternative medicine is complemented by his commitment to alternative history. He frequently retreats to hills in Visoko, Bosnia and Herzegovina, where he meets up with the businessman Semir Osmanagic – whose claims that there are ancient man-made structures with magical healing powers, refuted by scientists, have turned the hills into a lucrative tourist destination. Djokovic has expressed support for the ultranationalist alternative historian Jovan Deretic, whose writings claim, among other things, that numerous European cultures, including ancient Greeks, Celts and Etruscans, are descended from Serbs.

The prime minister, Scott Morrison, subsequently said when Djokovic arrived “if he is not vaccinated he must provide acceptable proof that he cannot be vaccinated for medical reasons. If that evidence is insufficient, then he won’t be treated any different to anyone else and will be on the next plane home.” Russian tennis star Natalia Vikhlyantseva announced in December she would skip the Australian Open because the Sputnik vaccine she has received is not recognised in Australia. These are standard on line reactions:

There are plenty of back stories too like this one:

In the US, “the CDC is updating our recommendation for when many people can receive a booster shot, shortening the interval from 6 months to 5 months for people who received the Pfizer-BioNTech COVID-19 Vaccine.  This means that people can now receive an mRNA booster shot 5 months after completing their Pfizer-BioNTech primary series.  The booster interval recommendation for people who received the J&J vaccine (2 months) or the Moderna vaccine (6 months), has not changed”:

Ontario along with Israel and the UK wins my award for insightful real world data/population analyses in real time. A team in Ontario estimated vaccine effectiveness against infection (irrespective of symptoms or severity) caused by Omicron or Delta between November 22 and December 19, 2021. We included individuals who had received at least 2 COVID-19 vaccine doses (with at least 1 mRNA vaccine dose for the primary series) and used multivariable logistic regression to estimate the effectiveness of two or three doses by time since the latest dose. They included 3,442 Omicron-positive cases, 9,201 Delta-positive cases, and 471,545 test-negative controls. After 2 doses of COVID-19 vaccine, vaccine effectiveness against Delta infection declined steadily over time but recovered to 93% (95%CI, 92-94%) ≥7 days after receiving an mRNA vaccine for the third dose. In contrast, receipt of 2 doses of COVID-19 vaccines was not protective against Omicron. Vaccine effectiveness against Omicron was 37% (95%CI, 19-50%) ≥7 days after receiving an mRNA vaccine for the third dose. Two doses of COVID-19 vaccines are unlikely to protect against infection by Omicron. A third dose provides some protection in the immediate term, but substantially less than against Delta. Their results may be confounded by behaviours that they were unable to account for in our analyses:

In nearly 12,000 households in Denmark, a group provide some of the clearest evidence of Omicron’s advantage. Economist Frederik Lyngse of the Danish Statens Serum Institute and his colleagues found that in households with a Delta outbreak, the unvaccinated were twice as likely to be infected by a household member as those who were fully vaccinated. In households struck by Omicron, unvaccinated and fully vaccinated people had roughly equal chances of catching the virus. The SAR was 31% and 21% in households with the Omicron and Delta VOC, respectively. That doesn’t mean COVID-19 shots don’t work; other data clearly show they still prevent severe disease. And in the Danish study, a booster shot cut the risk of infection by Omicron in half. Being vaccinated also reduces an infected person’s chance of infecting others, Lyngse notes: for both variants, an unvaccinated case was 41% more likely to infect another household member than a fully vaccinated one. There’s another possible explanation for Omicron’s explosive spread that the household study would not be able to pick up, notes epidemiologist Bill Hanage of the Harvard T.H. Chan School of Public Health. If the virus is really better at replicating in the upper airways, it might be expelled more readily into the surrounding air, making it more likely to trigger superspreading events. And if it truly causes milder illness, even people who shed a lot of virus might have few symptoms, making them more likely to be out and about. If so, banning large gatherings and closing down nightlife and restaurants might be even more effective at slowing the spread of Omicron than that of previous variants, Hanage says:

MorganStanley have further modelled Omicron scenarios. With more data from SA, their base case is Omicron will peak in 3-6 weeks in the US with daily cases of ~1M. If the US follows SA exactly, the time to peak could be as short as 1-2 weeks with ~700K daily cases. However, given the high transmission rate they assume a slower decline. By using an established relationship between the effective reproduction rate (Rt) and case growth they can estimate the time to and size of upcoming Omicron waves. The case wave reaches a peak when R returns to 1. Currently in South Africa, R is below 1 and lower than last week, reflecting the steep decrease in cases. Rt is still growing (and thus cases are as well) in the US, UK, and EU4.

They use data from South Africa to define our scenarios. A large infected population with Omicron will eventually decrease the transmission rate (Rt), which could be what caused the rapid decline in South Africa (figure below top; blue line). It took South Africa 4-5 weeks to reach peak cases (mid-Nov to mid-Dec), which is faster than Delta (~9 weeks). Rt peaked ~2-3 weeks ahead of the case peak and decreased from ~2 to ~1 in 20 days (first figure bottom). Daily cases and Rt value in United States and South Africa:

They are closely watching Europe to understand Omicron's trajectory in the US. They provide three scenarios of how a wave could play out. In the UK the Omicron spread is still accelerating and Rt has not yet reached a peak (below). In Denmark, Rt is lingering around 1.2 and the future trajectory is still not clear. Based on the current trajectory of R in countries with an Omicron wave, they expect an Omicron driven wave to have an Rt peak of ~1.4-1.6 (note that Delta's R peak was ~1.2 -1.3), and the current Ris ~1.33. Three scenarios are illustrated here.

  • Bull case: Assuming US follows the SA trajectory - Rt will go up quickly and then start to decline at the current rate in South Africa (-1/ 20 days), they predict Omicron cases will peak in 1-2 weeks (mid-Jan). The peak daily cases would be around 3.5-4.5x compared to the Delta wave or ~600-700K daily US cases. See background data for methodology.
  • Base case: If Rt decreases at the same rate as Delta (-0.25/month), they predict Omicron cases will reach a peak in ~3-6 weeks and the peak daily cases would be ~6-7.5x higher than the Delta wave or ~0.9M-1.2M daily US cases.
  • Bear case: If Rt reaches an elongated plateau as the virus infects a significant portion of the susceptible population, we predict Omicron cases will reach a peak in 1.5 - 2 months. The peak daily cases would be 8-10x higher than the Delta wave or ~1.2M-1.5M daily US cases. In this bear case the majority of people will eventually get infected with Omicron.

With a view to turn India into a manufacturing hub, Merck has entered into licensing agreements with eight domestic drugmakers, including Dr Reddy's, to make and supply generic versions of molnupiravir to over 100 low- and middle- income countries:

When it comes to Covid pills I note that Shionogi disclosed development progress for its protease inhibitor treatment and vaccine on January 5. For the closely-watched COVID-19 treatment S-217622, enrolment in Japan has been completed for the Phase 2a Part of the Phase 2/3 clinical trial and the Phase 2b/3 Part is currently underway. Progress is somewhat slower than Shionogi’s initial guidance that aimed to file for approval during 2021, but most had expected a delay until Jan-Mar 2022 or later in light of the difficulty of securing participating patients after the start of clinical trials.

Since vaccinations started in December 20 across the globe, many are still astonished to realize that the global full vaccination rate is hovering around 49% as of 30 December 21, meaning that half of the world’s population still hasn’t obtained enough protection against the circulating variants. The still relatively low global vaccination rate is largely due the distribution of available vaccine supply; picturing 2022’s population vaccination progress, we think that public consensus should be increasingly important in 2022's vaccination program as many epidemiology data in 2021 among highly vaccinated countries suggest updated information related to Vaccine Efficacy and Vaccine Safety.

People are concerned about vaccine efficacy due to the fact that more breakthrough cases within fully vaccinated people have emerged across the globe and more epidemiology data seem to suggest a potential waning of antibody levels over time, regardless of vaccine type. 2021’s dialogue regarding population vaccination was of trying to achieve 'herd immunity' under two key assumptions that the vaccination provides reasonably longer protection against COVID-19 risk and the vaccine would be highly effective against all future variants. Infection statistics in 2H21 would suggest those two assumptions have been largely challenged.

Thus, the dialogue in the 2022 vaccination program should be based on the stance that the vaccine's potential benefits outweigh potential risks (hospitalisation/ mortality, etc.). This is a somewhat different dialogue compared to 2021’s vaccination programme. Thus, we believe that building public consensus with more related vaccine efficacy data should be very essential in 2022’s vaccination programme. In that context, we would argue that public disclosure of daily new cases of infection might be less informative, especially in 2022. This would be an appropriate time to switch public data towards relative severe cases/ hospitalisation over hospital capacity instead of new cases of infection.

In that regard, I think that Singapore/ Malaysia’s public disclosure is pretty informative to us. Asia considering their lack of exposure may be the next hot bed. But even here data shows that vaccines largely reduce the risk of COVID-19 infection in fully vaccinated people and protect them against serious illness (i.e., death or ICU admission) and short/long-term complications, compared to unvaccinated people. In Malaysia/Singapore, the number of mortality cases per 100k population in not fully vaccinated people is 19x/5x higher than that in fully vaccinated people, respectively, meaning that COVID-19 vaccines do offer protection against serious illness:

In the US, data tracking by National Vaccine Information center shows that death/hospitalisation cases per million doses in United States post COVID-19 vaccine inoculation is 116 times that post influenza vaccine inoculation in 2021:

Based on full doses, Asia’s vaccination rate just climbed to 56% as of year-end. Low vaccination rates in countries such as India, Indonesia and Philippines are still below 50% full vaccination coverage and may further lag behind other DM countries in terms of booster shot campaigns. Unstable vaccine supply and distribution might be a vital challenge to tackle this. Hence, it is reasonable that Asia countries stockpile with more doses to facilitate vaccination campaigns ahead in the next year, especially factoring in booster shot necessity following immunity waning.

Under the assumption that governments are able to build strong consensus for 2022's vaccination programs or provide more incentives to vaccinated groups including vaccine passports, I think vaccinations would be repeated with relatively faster speed in 2022 compared to 2021's progress. This is due to vaccine supply in 2022 might be less of a concern in Asia. Based on my observation, the procurement book suggests that the majority of Asian countries have secured enough (300%+ coverage = vaccine secured/total population) vaccine procurement book to conduct large scale vaccination programs in 2022. The rationale behind this includes that each country or region, especially with lower-than-average vaccination rate, will continue to facilitate full vaccination rate and reserve buffers for widespread booster shots. Thus, from the perspective of conservatively managing hospital capacity, I believe large vaccination programs would last for at least the next 6 months under the ‘With Covid' strategy.

Vaccination campaigns in most countries have reached phased progress, but it is still observed that unvaccinated groups in India, Indonesia, and Philippines take up a considerable portion of the total population (i.e., over 40%+). Also, I note that there exists certain levels of unvaccinated population (5-20%+) among highly vaccinated countries as well. In Asia, a majority of countries are not mandating vaccination. This is due to the basic principles for the inoculation program of COVID-19 vaccines in Asia being “informed, consented and voluntary”. That said, whilst the incentive for vaccinated populations is expected to be expanded, we equally expect more restrictions potential among unvaccinated groups in 2022. This would include not allowing those individuals to enter public places such as government offices, workplaces, restaurants, etc. under the framework of ‘vaccine passport with validity’ especially in Asia:

And, assuming that previous infection provides strong protection against death, I get (observed IFR)/(IFR for immune-naive patients) = 1/(1 + (fraction of population with some immunity*risk of positive test for those with immunity)/(fraction of population without*risk of positive test for those without))

  • With made-up numbers: For Delta in South Africa:
  • 1/(1 + (27% seropositive beforehand)/(73% not)*1/(20x protection from positive test due to immunity)) = 0.98
  • For Omicron in South Africa:
  • 1/(1 + (41% seropositive beforehand)/(59% not)*1/(2x protection from positive test due to immunity)) = 0.74
  • So, if observed IFR is the same for both, that suggests that Omicron is actually about (0.98/0.74 – 1) = 32% more dangerous for the immune-naive.
  • =Problems for China. But the IFR doesn’t seem to be the same.

Next, a letter in the BMJ signed by 100 Professors is worth perusing, an extract of it here:


We welcome the World Health Organisation’s recent guidance on community and healthcare mask use, but believe more can be done to suppress transmission without adversely impacting economic or social activity. Accordingly, we call upon the World Health Organisation and national governments to:


1.      Unequivocally declare SARS-CoV-2 an airborne pathogen and stress the implications for preventing transmission.18 A clear message from the World Health Organisation will help to remove confusion that has been used to justify outdated policies.

2.      Promote the use of high-quality face masks for indoor gatherings and other high-transmission settings. The significant benefits of community masking are now well established. Respirators (e.g. N95, P2/FFP2 or KF94) should be preferred in all indoor settings where people mix, and for healthcare workers at all times.

3.      Advise on effective ventilation and filtration of air. It is time to go beyond opening windows and aim for a paradigm shift to ensure all public buildings are optimally designed, built, adapted, and utilised to maximise clean air for occupants—strategies which have been shown to reduce SARS-CoV-2 transmission.

4.      Set criteria for imposing or relaxing measures to reduce covid-19 spread based on levels of transmission in the community. Effective find, test, trace, isolate, and support will continue to be essential to intercept transmission. Low rates of transmission give all available measures the best chance of being effective, creating a positive, self-reinforcing cycle of disease control. Sufficient financial and practical support for isolation should be implemented everywhere, particularly in low- and middle-income countries and deprived parts of high-income countries.

5.      Support urgent measures to achieve global vaccine equity, including vaccine sharing, suspension of vaccine patents, removal of barriers to technology transfer, and establish regional production centres to create a plentiful local supply of high-quality vaccines everywhere. Global vaccine rollout should include coordinated efforts to tackle misinformation to ensure people have access to timely, accurate data on vaccine effectiveness and protection.


Vaccines-plus is affordable and achievable. It is the policy advocated by the Director General of the WHO, Tedros Adhanom Ghebreyesus in his statement of 14 December 2021: I need to be very clear: vaccines alone will not get any country out of this crisis. Countries can and must prevent the spread of Omicron with measures that work today. It’s not vaccines instead of masks, it’s not vaccines instead of distancing, it’s not vaccines instead of ventilation or hand hygiene. Do it all. Do it consistently. Do it well”:

Next, the markets. After seeing the successes of the likes of Moderna and BioNtech in the news practically every day during this second year of the pandemic, the casual observer could be forgiven for assuming that the biotech sector was having a banner year in 2021. Such an assumption would also seemingly fit, one would think, with the fact that the broader stock market has been regularly making new highs this year. However, if you are the casual observer, you might be surprised to learn that the reality is far from it. Not only is biotech not having a rip-roaring 2021, but the sector is in fact arguably having its worst year in a decade. We biotech investors are really feeling it. And it’s had a bad start already this year.

Below is the harsh reality laid out in a chart. While the total return of the S&P 500 Index is up 29.4% year-to-date through December 27 (as represented by the SPY ETF that tracks it), the S&P Biotechnology Select Industry Index is down -18.2% over the same period (as represented by the XBI ETF that tracks it). In fact, biotech is the worst performing of any of the 11 S&P 500 sectors this year (note: XBI is equal weighted. Within the biotech community, it is generally believed to represent the performance of typical mid-to-small cap biotech stocks). As a biotech investor, it is honestly bad enough to be having such a challenging year, but to be having it at a time when the broader stock market makes all-time highs is about as frustrating as it gets. So, what in the world is going on here?

If you are surprised to see the chart and want to better understand the context and the drivers causing it, I’ll try to bring you up to speed by explaining what I think are the elements that have contributed to this year’s challenging environment for biotech. Also, I’ll try to inject some optimism throughout my analysis. While this has been a year we biotech investors would like to forget, I am personally optimistic heading into 2022 (note: I generally wasn’t heading into 2021) and will explain why I think things might be much better next year regarding these elements.  

  1. Many biotech stocks started 2021 in a bubble valuation territory

If one looks back on the year with an open mind, I think you realistically must accept the fact that a large portion of biotech, which peaked on February 8, entered the year in a bubble valuation territory. I was worried about the possibility of this happening heading into the year because the pandemic and other factors put biotech in the spotlight, and too much money was flowing into the sector as a result. It is of course generally a good thing when investment in biotech increases. However, given the scale of the sector, it is best when it flows in with moderation and over a reasonable period. Biotech can only handle only so much at a time, or otherwise dislocations occur. That is what I believe caused a mini bubble this time last year. 

For example, there is a genomics ETF that grew from $2.5 billion in assets to $12.5 billion over a three-month period from mid-Nov 2020 to the mid-Feb 2021 biotech peak. Approximately $7 billion of this was due to pure cash flowing into the fund. This kind of explosion in AUM for one fund is very rare. While it is a nice accolade for the manager, it caused a big problem for stocks. Biotech is a shadow of the tech sector and individual biotech companies do not have the scale to take in the kind of money that comes with those inflows over such a short period of time without stock prices being significantly moved. That is how a genomics company like Editas Medicine tripled from $30 to $90 during the same three-month period with no change in fundamentals, to illustrate one dislocation out of many.

I believe what has been happening ever since February 8 is simply a rationalisation of prices as they come back down from the inflow-fuelled mania. XBI is now down 34% since then, which I think is essentially a hangover effect from all the attention. While it has been painful to experience, the good news is that I personally do not believe this is the type of dislocation that takes years to recover from such as some of the bigger bubbles we have seen in history like the internet bubble of the 1990’s. The fundamentals of biology today are too strong for that to be the case, I believe. I think this is more likely the kind that results in roughly a bad year like we have been experiencing lately. A lot of good companies have been dragged down with it, and I believe there is compelling value in certain areas of the sector today if you follow the right science.

  1. It has been hard for the sector to digest the numerous IPOs that have been happening

The last two years have seen an incredibly strong IPO market for biotech. Just as with inflows into already public stocks, a strong IPO market is generally a good thing, but this is another element that is best when played out in moderation and over a reasonable period, or dislocations occur. In 2020, there were over 75 biotech IPOs, and in 2021, there have been over 100. These numbers do not even include the numerous SPAC mergers that have taken place. This IPO volume is twice the typical rate for our industry. That’s too many new companies over too short a period, in my opinion, for the biotech market to be able to efficiently handle. It is going to take time for specialist investors to digest all of that. There are approximately 700 publicly traded biotech companies on U.S. markets today vs. approximately 125 in 2012. It is a great thing overall, but this type of explosive growth at times can cause natural growing pains. 

Another issue with the IPO market lately is not just the sheer number of companies going public, but how early stage they generally are in their development. In fact, many biotech IPOs today are preclinical companies, meaning they have not yet started the human stage of testing of their drugs. A handful of years ago it was unusual, if not taboo, for a preclinical company to go public, but today it is quite common. This is a sign that many companies going public lately are immature and have not yet reached a proof-of-concept moment that helps investors gain a higher conviction through data that their drug or platform might work. It also means that the failure rate of such companies is likely to be high. Earlier stage companies also typically have much thinner liquidity than later stage ones and can get dragged down hard in a bad market like we have today. 

I expect the IPO market to rationalise in 2022 and believe this will be a good thing for the sector overall. For years, crossover investing, which is when funds invest in private companies shortly before they go public and often also participate in the actual IPOs as well, has been like printing money in biotech. Earlier this year, I heard crazy stories about funds that are new to biotech fighting to get in on crossovers since the market has historically been so lucrative, as per Tiger’s strategy. However, the music finally stopped and many of those crossover investors are now underwater in the companies they have helped bring public, and in many cases they are stuck in less than ideal liquidity situations. Approximately, 80% of the 100+ class of 2021 biotech IPOs are currently underwater today. After being stung for the first time in many years, I think many of these crossover investors will be more discerning about the companies they take public in the future, and this will reduce the overall numbers of them. That’s not necessarily a bad thing for the overall sector.

  1. Uncertainty raised by the Federal Trade Commission (FTC) put a chill on mergers and acquisitions earlier this year

M&A is always an important contributor to the overall health of biotech markets. Because biotech is so risky and volatile, a part of owning any smaller biotech company is your hope as an investor that there is at least a chance it could be acquired by a larger pharmaceutical company for a premium. In investing we call this a call option, and it has value. Take the call option away, and the risk vs. reward ratio of investing in these smaller companies changes dramatically. Therefore, it is always important for there to be a healthy level of M&A activity in the sector. When one company gets acquired, investors think they know what other companies might be acquired, and this dynamic tends to lift all boats and creates a healthy valuation floor when M&A news is regularly happening. Even for larger biotechs this happens. Only last week we heard Samsung was interested in Biogen. The shares jumped. Then next day it was denied.

Unfortunately, 2021 has been one of the slowest years for biotech M&A in a decade, and I believe this has been a big factor in biotech’s mediocre year. One reason for this is because large companies have been focused on COVID, but also another key reason is because of something else that unexpectedly arose in Washington in March that threw extra uncertainty into the mix. On March 16, the FTC issued a press release saying it was going to create a working group with its European, Canadian and other global regulatory counterparts to study whether pharmaceutical sector M&A was contributing to high drug prices, and therefore, whether deals should get a higher level scrutiny in the future. The problem is that it was announced in a very vague way that created a lot of uncertainty in the market.

Biotech industry people and investors realistically understand that FTC may want to scrutinise mega mergers more closely, such as when Bristol Myers Squibb acquired Celgene, for example. What is less clear is whether this announcement was also referring to smaller, bread and butter type deals where a large pharma buys a mid-cap or smaller biotech company. One such deal when Roche bought a gene therapy company called Spark Therapeutics in 2019 took many months longer than expected to be reviewed and made some of us wonder if there was change afoot at FTC. In March, the acting FTC Commissioner was asked about the Roche/Spark category of deals on a press call and she inferred that the FTC’s new interest was not about size and that those kind of deals could in fact be fair game for increased scrutiny in the future. Thus we have the unusual Illumina-Grail dynamic now. If true, I believe this could be problematic because, as I described above, the biotech sector needs call options on companies like Spark to be funded robustly. 

Ever since the announcement in March, I think the uncertainty of the messaging by FTC made pharma companies a little apprehensive about doing deals. Second quarter M&A volume plunged by the most in a decade and the third quarter was not much better. However, the good news is that pharma companies did in fact begin to test the waters starting with relatively safe deals over the summer, and we have seen them all go through smoothly. These include Sanofi acquiring Translate Bio, Sanofi acquiring Kadmon, Pfizer acquiring Trillium and Merck acquiring Acceleron. The recent Pfizer for Arena Pharma deal could be a little more of a close call. If deals like these continue to go though, I think biotech should be fine over the long term. It is good news for our sector that they are happening, and I think this could open the flood gates to more deals in 2022.

In fact, the number one element I think could catalyse a positive year for biotech in 2022 is that I believe it might be a mega year of M&A ahead. Considering the balance sheets and lack of appetite for massive share buybacks, some believe a perfect storm is coming together to spark an M&A boom: large companies will have billions to spend, targets are generally trading at materially lower prices than they were a year ago, and the FTC issues appear to be improving (though not going away entirely) for the kind of deals that are so important for the health of the sector. In my view, this alone can spark a generally strong year for biotech in 2022 if M&A roars back to fruition.

  1. The changing of administrations in Washington has naturally caused and other regulatory uncertainties

FTC is not the only source of uncertainty in Washington that has impacted biotech lately. Given how highly regulated biotech is as a sector, it is only natural that investors and the industry at large would take a cautious stance during a transition period in administrations like has happened this year. Unfortunately, in addition to the more common issues you might expect to arise during such a time, this year has also been marked by a few unexpected surprises in policy that I think have negatively affected investor sentiment as well.

First, it was unexpected in May of this year when the United States Trade Representative publicly spoke in favour of waiving intellectual property (IP) on Covid-19 vaccines. IP is the lifeblood of biotech. If you have no IP, then you have no biotech sector. Therefore, it was disappointing to see the United States, the world leader in biotech, not firmly stand behind IP; obviously the US funds much of the world’s  R&D so the companies expect IP to be owned. Given the sophistication required to manufacture Covid-19 vaccines, it is unlikely that such a waiver would accomplish anything tangible, and I believe it was therefore unnecessarily damaging to even suggest it publicly. Other nations such as Germany came out against the policy and stood up for IP. 

Second, also relating to IP protection, President Biden signed an executive order in July that lifted a ban on using “March-In-Rights” to lower drug prices. March-In-Rights are a tool where if the federal government believes it has contributed to the creation of intellectual property of a company’s drug through federal grants or research, it may be able to waive the IP and allow another company to manufacture the drug for a lower cost. Utilising March-In-Rights has been floated in the past as an idea to cancel the IP on innovative HIV and prostate cancer medicines, for example, but was ultimately not followed through on. It is such a touchy subject for the industry that the Trump administration formally banned March-In-Rights as a lever to give owners of IP peace of mind on this. To potentially put it back on the table erodes confidence in a fundamental core principle of the business. 

Third, the administration and congress have increased efforts to enact policies they believe will lower drug prices. We all strive for more affordable prices for patients, but we also strive to ensure it is done wisely. I believe the most potentially damaging idea floated recently has been to allow Medicare and other government purchasers to negotiate drug prices unilaterally. The idea of drug price negotiations is not unworkable, the problem is that congress’s initial idea on how to structure it would have been to impose large fines on companies if the government believes they are not negotiating in good faith. The problem here is that it creates an atmosphere that is not a true negotiation. While this specific element has been discarded for now, the future direction of drug pricing reform seems clear. All of it has likely contributed to the weakness of the sector in 2021. 

These issues aside, I do think the Washington factor might quiet down next year. It is not uncommon for new administrations to aim high with new policies in their first year and then come back to a more rational position during back and forth of negotiations. We have already seen this play out to a certain degree on elements of drug pricing, and I think we will likely see it occur on some of these other issues as well now that the negative impact has been clearly felt and communicated. 

Generally, for decades Medicare has been a hot-bed of innovation as smart people have confronted the challenge of providing affordable care to the age group that needs it the most. Meanwhile, a growing number of innovators are beginning to look at an even harder population to serve—people on Medicaid.  Unlike older adults, many of whom spend hours each year choosing health plans and who vigorously engage with their physicians, Medicaid enrolees are often passively enrolled. Sometimes they don’t even know they’ve been enrolled. And they often lead complicated lives that don’t leave them much time to spend 30 minutes sitting around a waiting room while the doctor finishes seeing other patients. What’s more, there isn’t as much revenue associated with Medicaid. All of which means you have to work harder to treat a challenging cohort of patients for a lot less money.

  1. Financial sector issues may have affected biotech prices

There are also a handful of other issues relating to the financial markets that some people believe have contributed to biotech’s difficult year in 2021. I think probably the most legitimate one is inflation. Most biotech companies have no revenue today and therefore are valued based on the present-day value of revenue (risk adjusted) that is far off into the future. This means that if the present value of a future dollar becomes worth less today due to inflation, it will be these companies with far out revenue that are most affected in valuation today. Unfortunately, there isn’t anything an investor can really do about inflation, but it is something to be aware of.

Related to inflation is deciphering what kind of moves the Federal Reserve will be making and how it might affect the sector. For years the Fed has flooded the market with dollars via an easing policy, which has benefited risk assets like biotech. Alternatively, as the Fed pulls back on the money supply through tapering, it might make some elements of investing in our sector a little more of an uphill battle.

Another issue that some people think has impacted biotech stocks lately is the idea that cryptocurrency mania has lured away speculators from biotech who look for high risk areas. I personally think this theory is rubbish and is not material enough to have a tangible impact on the sector’s long-term success. I am not sure it is the type of capital we want in the sector anyway. In my opinion, biotech can thrive no matter how big crypto becomes (or not) and I believe the two are entirely unrelated. 

  1. Biotech is naturally volatile and years like this do happen

Lastly, I will conclude with a closing thought relating to this challenging year. Biotech is a rollercoaster. It is not uncommon for years like this to happen. In fact, two of the prior five years were down not unlike this one. It always feels difficult when you are going through it. Past performance is no guarantee of future results, and nobody can predict what will happen in the future. Challenging year aside, I have never been more excited about advances in science that are happening today. I cannot wait to see where science takes us next year. Biology should trump volatility.

  1. Rhetoric about drug pricing is never ending.

Only this week drug pricing advocates were rabid over the news that biopharma companies rang in the new year by hiking the prices of more than 400 drugs, according to new analysis from GoodRx. But most of the companies guilty of jacking their prices aren’t the household names you’d expect. Some of the biggest price hikes came from biotech companies like Recordati Rare Diseases, United Therapeutics, and Leadiant Biosciences. At a time when Washington is within striking distance of cracking down on how much drug makers can hike their prices each year, some of these decisions seem like serious PR disasters. Recordati’s biggest price hike, for example, was for a drug that treats premature infants at risk of a congenital heart defect, known as patent ductus arteriosus.  Neoprofen now retails for nearly $3,000 — a 10% hike. Recordati took the same price hike in 2021 and 2020, according to GoodRx data. United Therapeutics also took a 9.9% price increase on its childhood cancer medication, Unituxin, following a 9.9% increase in 2021. The drug now retails for $14,349 per vial, according to Elsevier's Gold Standard Drug Database. Leadiant even hiked the price of a 50-year old cancer drug, Matulane, by more than 15% – making it one of the few price hikes over 10% so far this year. The drug now retails for $11,969, according to Elsevier. 

Pharma isn’t blameless, however. Pfizer took price hikes for roughly 100 drugs, including a 16.8% price hike for its injectable hydrocortisone product, which a spokesperson chalked up to the “rising costs of components and materials, as well as our investments to upgrade our manufacturing facilities to produce this medicine.” (That drug still retails for less than $20.) But the currently available data suggests that many pharma giants took much smaller price hikes compared to some of their biotech counterparts. Gilead, for example, took 5.6% price hikes for all 11 of the drugs it priced up. Sanofi’s price hikes varied from 5.2% to 2.4%. 

Next up, these are the Economist’s 2022 predictions as per Dec 27th; interesting they think Omicron is 44% likely to be the dominant global variant at year end:

Here is some McKinsey slides, though am not going to include their ‘as severe as Delta’ slide, or 25% or 50% more severe:

Maybe should just use these (obviously not McKinsey):




Justin Stebbing
Managing Director

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