With high-class medical research and health infrastructure, Australia’s health care system has been the global benchmark for decades. The Australian government invested about 3 billion Australian dollars per annum to support medical research projects and infrastructure development. In addition, Australia is also widely recognised as one of the best locations for clinical trials in the world. There are more than 1000 clinical trials launched annually by Biotech Corp, pharmaceutical companies, and medical device companies.
Australian Pharmaceutical Sector
According to IMS Institute, oncology medicine, a leading specialty medicine, is projected to generate more than $100 billion sales in global markets by 2020. Viral hepatitis, the second most promising specialty drug, will generate about $50 billion in 2020 (recent hepatitis C treatment included). Australia has outpaced its international peers in oncology and hepatitis R&D.
Hepatitis C Drugs Included in PBS
Hepatitis C infection is a blood-borne viral infection which could lead to causes both acute and chronic infection. The latest estimate from the Polaris Observatory shows Australia had some 202,000 people living with chronic hepatitis C infection at the end of 2016.
Thanks to DAA (directly acting antiviral drugs) incorporated in PBS (The Pharmaceutical Benefits Scheme), all Australians have complete access to treatment at non-specialists. DAAs have been proven to be safe and effective in clearing the hepatitis C virus from the body, a revolutionary treatment that is replacing the previous peginterferon worldwide.
DAA includes Daclatasvir, Ledipasvir, Velpatasvir, Ravidasvir, and Elbasvir. The drug Epclusa® enlisted in PBS – a combination of sofosbuvir 400mg and velpatasvir 100mg – is the first of the DAA effective for all 6 genotypes of the disease.
Between 2014 and mid-2017, an estimated 47,700 individuals, equating to 21% of the people living with chronic HCV infection in Australia, received DAA treatment through PBS-listing, and early DAA access avenues, including clinical trials, pharmaceutical company compassionate access programs, and generic importation.
The Australian Government has set an ambitious target to eliminate hepatitis C in Australia by 2030 and it should be remembered that people who inject drugs are a vital piece of the hepatitis C puzzle. Unlike hepatitis B, which is transmitted through a variety of pathways, hepatitis C infection is strongly correlated with injecting risk behaviour in Australia. HIV infectors are twice as likely to develop cirrhosis and six times as likely to develop end-stage liver disease. At the top of agenda, health department needs to enhance community awareness campaigns, and systematic monitoring and evaluation process.
Globally, 71 million persons are living with HCV. Low- and middle-income countries account for the largest proportion of persons living with HBV (96%) and HCV (72%) as in accordance with WHO report. The prices of WHO-recommended DAAs for HCV vary substantially (US$ 200–45,000 for a curative course). With that being said, prices have been falling rapidly, and most countries should be able to procure generic medicine at affordable prices.
As mentioned, Australians now pay a lower price to be treated. India has also come up with cost-effective DDA treatment. A pioneer in HCV cure, Gilead (NYSE: GILD)’s Sovaldi has now been approved in 79 countries and achieved huge sales success. AbbVie (NYSE: ABBV)’s Ombitasvir and Paritaprevir are also widely accepted, for instance, China Food and Drugs Administration. However, these pharmaceutical companies must be prepared to compete with local generic drug providers.
Spotlight on Cancer Immunotherapy
In recent years, the success of immunotherapy has subverted the entire field of oncology treatment. From 2016 to 2017, tumor immunotherapy was elected as the top priority of the year by the American Society of Clinical Oncology twice. Loncar Cancer Immunotherapy Sector Index and ETF (NASDAQ: CNCR) also build awareness within the investment community.
Novel Active Substances (NAS) for Cancer by Mechanism, Targeting Type
Oncology immunotherapy comprises of Cellular Immunotherapy, Immune Checkpoint Inhibitor therapy, and Oncolytic Virus therapy.
Cellular immunotherapy is a cell-transfer based treatment that engineers patients’ own immune cells to treat their cancer. TCR-T (T Cell Receptor Technology) and CAR-T (Chimeric Antibody Receptor Engineered T Cell) are proved to have excellent clinical effects at present, while others such as NK, CAR-NK, and TIL are to mature and require further justification.
Immune Checkpoint Inhibitor Therapy
CTLA-4 antibody, PD-1(programmed cell death protein 1) antibody, and PD-L1 antibody are the most prominent immunological checkpoint inhibitors. However, it is worth noting that the efficacy of these drugs against solid tumors is only 20% to 40%.
Oncolytic Viruses Therapy
Research and clinical data have shown that antibody drugs combined with oncolytic viruses have a significant effect on tumor treatment. For example, oncolytic virus drugs T-VEC and PD-1 antibody-drug therapy of melanoma tumor raise remission rate up to 62%, and complete remission rate up to 33%. Oncolytic viruses act to kill both local and metastatic cancer cells through cell lysis and the potential generation of an immune response against the cancer cells.
China Opens Up to Anti-Cancer Drugs Import
The demand for anti-cancer medicine is projected to continue soaring globally in the next five to ten years. With severe air pollution and quick-paced urbanization process, cancer has been a leading cause of death since 2010 and a significant public health problem, especially breast cancer and lung cancer. According to National Bureau Statistics of China, cancer is the most common chronic diseases in China. More than 7500 people die from cancer every day.
Premier Keqiang Li recently announced tariff cuts on some consumer goods, particularly on innovative anti-cancer drugs urgently needed by patients. The import tariff of anti-tumor medicine could drop to zero, which presents a substantial opportunity for Australian industry players.
U.S. Tax Overhaul Will Boost Oncology M&A Deals
High EV/EBITDA multiples indicate a slower year for M&A deals in 2017. In 2018, tax policy in both U.S. and China highlight M&A in the pharmaceutical industry, i.e. sponsor and tech acquisitions. U.S. President Trump will lower the income tax rate from 35% to 21%, encouraging U.S. companies to repatriate cash from foreign subsidiaries. According to Reuters, the tax reform will bring more overseas M&A opportunities to the pharma giants, especially more oncology deals. It is crucial for large-cap pharma companies to maintain a pipeline of new medicine continuously through regular acquisitions or licensing agreements.
Uncertainty in Oncology Innovation Leads to Volatile Valuation
As a typical research-driven industry, pharmaceutical sector features high input, high yield, high risk, and technology-intensive. High R&D costs and marketing of new medicine are the main sources of revenue generation. Throughout its product lifecycle from first toxicity dose to market approval, a treatment has an average success rate of 4.9%.
Anti-tumor drugs have the lowest probability of success, merely 5.1%. The success rate from clinical phase I to phase II is about 63%, from phase II to phase III 25% and from phase III to NDA 40%. Valuation of pharma R&D projects varies between different phases and should be consistent with the success rate of corresponding clinical trial phase.
Recent Oncology Deals and Potential Takeovers Boost the Sector
Merck & Company (NYSE: MRK) acquired Viralytics Limited (ASX: VLA) for A$502 million to expand its immuno-oncology pipeline with full rights towards CAVATAK® (CVA21), a virus-based cancer drug. The company’s leading investigational product is currently under clinical trials, which is used to treat bladder, lung cancers and melanoma.
Varian Medical Systems (NYSE: VAR) acquired Sirtex Medical Limited (ASX: SRX) as its wholly-owned subsidiary for A$28 per share. Sirtex’s leading product targets internal radiation therapy for certain liver cancers. It has PMA approval from the U.S. Food & Drug Administration (FDA), the European Union (CE Mark) and Australia’s Therapeutic Goods Administration (TGA). The manufacturing arm of Sirtex operates in the United States, Singapore, and Germany.
Due to a strong technical barrier, Australian pharma sector is patent and capital-driven. Companies who possess the unique technology and adequate capital stand out. Australia biotech and pharma corporations have a positive outlook, and potential takeovers will allow shareholders to harvest the premium.
Australia Healthcare Devices and Diagnosis Skills
Continuous Positive Pressure Ventilation for Sleep Apnea
CPAP — or Continuous Positive Airway Pressure — is a type of therapy that applies mild air pressure to a person’s upper airway to keep their airway open so that they can breathe normally while they sleep. There are two types of CPAP pumps: fixed pressure and automatic pressure. Fixed pressure pumps apply continuous pressure that has been pre-set to suit your specific requirements. CPAP relies on two main parts: the pump and the mask. There are typically four types of sleep apnea masks: nasal pillows, nasal masks, full-face masks, and oral masks.
According to SBWire, global sleep apnea devices market is expected grow at a CAGR of 7.7% from 2017 to 2024. Worldwide, 26% of adults have sleep apnea, and most of the sufferers are in China, India, Brazil, and Eastern Europe. The market is huge and unpenetrated, with 80% of apnoea sufferers remaining undiagnosed. If left untreated, apnea would lead to hypertension, stroke, type II diabetes or adult onset diabetes, weight gain, impotence and cardiovascular diseases. Some of the major factors driving sleep apnea devices market are increasing prevalence of sleep apnea, rising geriatric population, changing lifestyle, rising disposable income and increasing awareness of health.
More specifically, the global sleep apnea devices market has been categorized into sleep apnea therapeutic devices and sleep apnea diagnostic devices. Sleep apnea diagnostic devices (PSG, actigraphy systems, and pulse oximeters) are used for the screening of sleep apnea, while positive airway pressure and oral appliances (PAP, facial interface, ASV, airway clearance systems, oxygen concentrators) are used for sleep apnea therapy.
Major Australian CPAP suppliers include: ResMed (NYSE: RMD, ASX: RMD), Fisher and Paykel (NZX: FPH, ASX: FPH), Philips Respironics (NYSE: PHG, Euronext: PHIA), Compumedics Limited (ASX: CMP), SomnoMed (ASX: SOM) and Oventus (ASX: OVN). Other key players in the global sleep apnea devices market are Carefusion Corporation (U.S.), Curative Medical, Inc. (U.S.), BMC Medical Co., Ltd. (China), Natus Medical Incorporated (U.S.), DeVilbiss Healthcare (U.S.), Global Medical Holdings, LLC (U.S.), Itamar Medical, Ltd. (U.S.), and Weinmann Medical Devices GmbH & Co. KG (Germany).
Looking into the future, healthcare informatics form the new basis of competition as well-informed patients have a bigger say in the market. Motivated patients are looking for simple ways and small gadgets to track their timely health outcomes on cloud, as well as personalised one-stop solution to help themselves. Instead of traveling, patients are likely to be supported remotely by clinicians. Effective data collection and analysis can also be used to better design health services and support clinical research. As healthcare provision is moving away from reactively treating illness to proactively promoting wellbeing, sleep apnea wearables are poised for strong growth.
Artificial Cochlea Demand Outpaces Supply
A cochlear implant is an electronic medical device that replaces the function of the damaged inner ear. Unlike hearing aids, cochlear implants function as inner ear (cochlea) to transmit sound signals to the brain.
Many people have cochlear implants in both ears (bilateral). Listening with two ears can improve your ability to identify the direction and remoteness of sound.
At present, 2% of the world’s population has hearing problems. 0.5% of the population needs to implant a cochlear implant or use other devices to solve hearing problems. However, only 40,000 patients are currently served. Accordingly, technological development and market prospects of cochlear implant technology are positive.
Cochlear (ASX: COH) to Set Up First Overseas Factory in China
Australian cochlear implant manufacturer Cochlear decided to invest approximately A$50 million in China to establish the first overseas factory. The factory will produce cochlear implant devices and acoustic processors.
Chinese potential market is also underlying Cochlear’s choice. According to national sample survey in 2006, China had 27.8 million people with hearing impairment. Due to the lagging implantable treatment, the proportion of hearing-impaired children using cochlear implant treatment in China is much lower than the international average. Currently, the government is providing a subsidy for children to use cochlear, particularly those below living standard. Coupled with that, China has a growing number of highly skilled audiology professionals and scientific research in hearing loss is also picking up.
This article on the Australian Healthcare Sector is written by Henry Fung, Managing Director at MF & Co. Asset Management, a boutique investment firm based in Sydney Australia. For MF & Co.’s full website and further articles follow the link: MF & Co.