Markets & Research
Coronavirus outbreak underscores the importance of medical innovation

From drug development to telemedicine, the pandemic highlights the vital role of cutting-edge research targeting a range of diseases.

Absence makes the heart grow founder, and that’s been especially true during the COVID-19 shutdown. Limited contact with loved ones and restricted exposure to the outside world have been constant reminders of the simple pleasures that are easily taken for granted.

The pandemic has highlighted another essential element of societal well-being — health care broadly and clinical innovation in particular. The most obvious example, of course, is the all-hands-on-deck pursuit of coronavirus therapeutics.

But the push for a vaccine or treatment has highlighted the importance of cutting-edge treatments and services across the medical spectrum. For a variety of reasons — including significant medical need, advances in research tools and the need to drive down consumer costs — the health care sector has always thrived on innovation. Today, it’s yielding notable progress in areas ranging from cancer research to rare diseases to telemedicine.

This dynamic bodes well for companies that can notch genuine medical breakthroughs. However, the industry still faces question marks, including scrutiny of drug prices and the continuing debate over how to provide affordable health care to all Americans. Nevertheless, the coronavirus experience and recent bureaucratic streamlining are likely to ease some of the regulatory pressure that has hung over the health care sector, particularly the pharmaceutical industry, amid the realization that groundbreaking advances are vital for society.

“I think people have been reminded of the importance of the biopharmaceutical space,” says Craig Gordon, a Capital Group equity analyst who covers U.S. and Japanese biotechnology and pharmaceutical companies. “You have a drug industry that’s continually innovating.”

COVID-19 has given drug companies a chance to shine.

The scramble to discover a coronavirus vaccine has understandably dominated the headlines, and notable advances have been made, says Capital Group Equity Analyst Eric Keisman, who covers non-U.S. drug and biotech businesses.

But the prospects of the industry extend far beyond a single product or disease treatment, even for one as high profile as the coronavirus. The most promising companies are developing pipelines across a variety of ailments.

“It’s possible that, when this all settles down, COVID vaccines become a billion-dollar opportunity,” he says. “But there are 90 to 100 vaccines in development. I’m not willing to put my money on any of them right now, especially when other treatments offer a clear, long-term vision for investors.”

For example, he says, significant strides are being made in oncology research that have potentially enormous applicability and global demand.

Certainly, there are potential headwinds, Keisman warns. With unemployment rising, many people could lose health insurance. That would result in fewer doctor and hospital visits, and it could mean more patients would be covered by Medicaid programs, which typically reimburse at a lower rate.

And such government-backed reimbursements could fall even more in the future. Many countries are taking on debt to soften the impacts of the economic downturn; if they find themselves in dire straits, they could begin looking for places to trim costs. That’s what happened in Europe after the global financial crisis — cash-strapped nations mandated lower drug prices.

“We had 5%, 6% pricing headwinds for companies that weren’t growing that much,” Keisman says. “That undermined their defensive role, and I worry that the same thing could happen this time.”

Nevertheless, researchers are optimistic that significant progress is being made and that new treatments against cancer will make a real difference.

“The innovation thesis is playing out very well, and that has made it a very good place to invest,” Keisman says.

Virtual medical visits have gained traction.

With so many more people using videoconferencing to stay in touch and work from home, it was probably only a matter of time before they adopted online communication in other parts of their lives. That goes double for telemedicine, where a doctor visit often includes a waiting room filled with sniffles and coughs.

But virtually meeting with doctors also received two big boosts from regulatory changes, says Cheryl Frank, a Capital Group Private Client Services portfolio manager. First, HIPAA privacy rules were temporarily loosened, allowing doctors to use more communication platforms. Second, doctors can now receive patients from outside the state they’re licensed in. That’s given health care providers more reach and made online communication easier for everyone.

“I think some of these barriers will come back up, but others will stay down,” says Frank, who is also an analyst who covers health care services and the retail drug industry. “The big change is that the average doctor is now set up for telehealth.”

Other changes are helping doctors implement virtual visits, Frank says. Insurers have increased reimbursement for virtual checkups, making them more closely mirror the reimbursement for in-person visits. And, of course, the wider acceptance of videoconferencing software is a great tailwind.

The technology won’t replace traditional visits any time soon, though. It’s a good option when the doctor can just talk to or visually examine the patient — in behavioral health or dermatology, for example. However, “if you need to look in someone’s nose or ear, or palpate their stomach, telehealth isn’t going to be a good solution,” Frank says.

Proponents of telemedicine think it could address up to 25% of doctors’ visits today and even more over time. New technology will be key to increasing that share, and we’re already seeing apps and devices that could help in that goal, Frank says.

For example, a host of internet-connected medical devices already help people manage their health. Fitness trackers can monitor heart rate and estimate caloric burn; electronic scales can keep tabs on weight; and blood-pressure cuffs can log blood-pressure trends. All this information can be tallied, stored and used to alert doctors when patients are at higher risk of heart disease or other conditions.

Diabetes-monitoring devices could provide a glimpse of the future. These machines keep tabs on blood-sugar levels, a critical part of day-to-day diabetic care. New apps can process this data and alert users when they’re in danger. Additionally, they can offer wellness tips to help patients balance their disease and their life.

“I can think of a dozen ways to improve the way we do office visits,” Frank says, “so there’s a lot of room for innovation.”

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