23 February 2019
The 10 most common drugs in the US are 40 to 70 percent more expensive than in the UK, Norway and Canada. Photo: Bloomberg
The 10 most common drugs in the US are 40 to 70 percent more expensive than in the UK, Norway and Canada. Photo: Bloomberg

Biochemistry stocks to become less attractive next year

The life expectancy of humans has been increasing thanks to technological progress.

In Hong Kong, it’s 81 years for men and 87 years for women as of 2013. That’s nine years longer that it was 30 years ago.

The best healthcare is preventive, that is, maintaining a healthy body through diet and exercise. It also involves periodic medical check-ups and early treatment of diseases.

The use of genetics in disease prevention and treatment could be one of most effective ways of prolonging one’s life.

The DNA was discovered by Francis Crick, James Watson and Maurice Wilkins, for which they won the Nobel prize in physiology or medicine in 1962.

In 1986, Paul Berg, Walter Gilbert and Frederick Sanger won the Nobel prize in chemistry for studies of recombinant-DNA and the determination of base sequences in nucleic acids.

Their discoveries led to a great leap in biochemistry technology.

Scientists including Stanley Cohen and Rita Levi-Montalcini discovered cellular growth factors, and they were awarded Nobel prize in medicine, also in 1986.

Their discovery paved the way for the next vital step in genetics: identification of the active nerve growth-promoting substance.

Biologists Craig Venter and Francis Collins began the research for sequencing the human genome.

Their work has enabled others to use the technology in healthcare or creating a baby with the best DNA. 

The second phase of development in the biochemistry sector started in 1999 and lasted until 2002.

The use of biochemistry technology and microelectronics has helped slash the cost for gene sequencing from US$1 trillion to US$100, as nanotechnology emerged.

The third stage sees the biochemistry sector shifting its focus to finding a cure for cancer. The technology has been used to accurately detect cancer cells and fight these cells accurately through nanotechnology.

Also, the development of stem cell technology is another major milestone. It will help increase life expectancy and offer hope to finding a cure to many diseases.

These technologies would also bring a big fortune to companies involved in these technological developments.

I’ve been favoring US pharmaceutical and biochemistry stocks. Since the start of the year, the NASDAQ Biotechnology Index has soared 8.6 percent as of Dec. 15, while the NASDAQ Health Care Index only gained 2.8 percent during period.

These stocks have stayed resilient despite the gloomy sentiment in the broader market.

But I have some reservations, chiefly related to the exorbitantly high drug prices in the United States.

The 10 most common drugs in the US are 40 to 70 percent more expensive than in the UK, Norway and Canada.

In the US, doctors need to negotiate the prices of medicines, which means they won’t have much bargaining power without a large volume.

Governments, on the other hand, can negotiate with drug companies for better drug prices.

US presidential candidate Hilary Clinton has pledged to control the prices of medicines in the US. It remains unclear whether she will be able to deliver on her promise.

Meanwhile, investors should shift some of their investment into the tech sector, which is less sensitive to US rate hikes, and reduce exposure to healthcare stocks in 2016.

This article appeared in the Hong Kong Economic Journal on Dec. 17.

Translation by Julie Zhu

[Chinese version中文版]

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Founder and Managing Director of Pegasus Fund Managers Ltd.

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