It could get worse.
I know, those are four words that you don't want to hear right now. And, unfortunately, I'm not referring to the state of affairs relating to the novel coronavirus or the COVID-19 disease that it causes -- although the head of the Centers for Disease Control and Prevention (CDC) warns that a second wave of the virus could be worse than the current first wave.
No, my admittedly bleak statement pertains to what could happen after COVID-19 is under control. The stark reality is that something worse than the coronavirus could be on the way. Here's what it is and how you can invest accordingly.
The rise of the superbugs
Matt Hancock, the United Kingdom's Secretary of State for Health and Social Care, warned in a speech last year at the World Economic Forum about "a danger to humanity" that is "as big a danger as climate change or warfare." He was referring to antimicrobial resistance (AMR). AMR occurs when microbes such as bacteria and viruses change as a result of exposure to antimicrobial drugs in ways that make them resistant to those drugs. The microbes are often called "superbugs."
Of course, politicians have been known to exaggerate a wee bit every now and then. Is Hancock's concern about the rise of the superbugs really something to worry about? The answer is an emphatic yes.
The CDC believes that one type of AMR, antibiotic resistance (bacterial resistance to drugs), in particular, is "one of the biggest public health challenges of our time." Each year, at least 2.8 million Americans develop an antibiotic-resistant infection. More than 35,000 of those individuals die. It's not just a problem for the U.S.: Antibiotic-resistant superbugs have been found in every country in the world.
Some superbugs are more alarming than others. In a 2019 report, the CDC listed five microbes as urgent threats, with another 11 as serious threats. Two of the antibiotic-resistant bacteria included in the CDC's urgent threat category killed more than 8% of hospitalized patients in 2017. That's a significantly higher fatality rate than we're seeing with COVID-19 in the U.S. so far.
Bacterial infections also compound problems with viral infections. For example, during the 2009 H1N1 swine flu pandemic, as many as 55% of the nearly 300,000 deaths worldwide actually resulted from secondary bacterial pneumonia. The virus weakened patients' immune systems, leaving their bodies wide open to a bacterial attack.
But the issue is even more daunting than the CDC's urgent and serious threats. Scientists estimate that up to 70% of bacteria have developed resistance to at least one antibiotic. The problem isn't limited to just bacteria. Viruses including HIV and influenza have developed resistance to some drugs, according to the World Health Organization (WHO).
One positive aspect of the fight against COVID-19 is that quite a few drugmakers already had platforms that enabled them to rapidly develop experimental vaccines targeting the novel coronavirus. Inovio Pharmaceuticals, for example, stated that it designed its COVID-19 vaccine within three hours after the publication of the genetic sequence of the virus thanks to its previous work in developing an experimental vaccine targeting MERS, another member of the coronavirus family.
But that's not likely to happen in battling new superbugs. For nearly four decades in the latter part of the 20th century, no new major classes of antibiotics were approved to treat common antibiotic-resistant bacterial infections. In 2003, a new class of antibiotics received FDA approval. Another 16 years went by before the FDA approved another antibiotic with a new mechanism of action.
Most drugmakers simply aren't focusing on developing new antibiotics. The potential returns don't justify their investments. The CDC says that nearly four out of five major pharmaceutical companies scaled back or completely eliminated their antibiotic research since 1990.
There are currently around 50 antibiotics in development plus another 10 biologic drugs that hold the potential to fight bacterial infections. Unfortunately, though, these candidates don't offer much benefit over current treatments. And only a few of them target the types of most critical antibiotic-resistant bacteria.
The CDC doesn't hold out much hope that new antibiotics will provide a panacea. The agency's 2019 report identifying antibiotic-resistant threats stated, "Once a new antibiotic is used, the countdown starts for how long it will be effective."
How to invest accordingly
How should investors change their game plans in light of the clear and present dangers? I think there are three strategies you can use:
- Buy stocks of companies that are key to the fight against antimicrobial resistance.
- Buy stocks of companies that are likely to develop diagnostics for detecting infections.
- Buy stocks of companies whose products and services will enjoy high demand even with the rise of the superbugs.
I think one great example of the first category is Emergent BioSolutions (NYSE:EBS). The company focuses in large part on emerging infectious diseases and has developed antiviral and antibacterial therapies for deadly diseases including anthrax and botulism. It's one of a handful of biotech stocks that have soared during the COVID-19 pandemic.
Emergent BioSolutions arguably has one of the best infrastructures in place of any company to rapidly respond to the growing threat of superbugs. It also has forged strong relationships with key government agencies including the U.S. Biomedical Advanced Research and Development Authority (BARDA) that would serve it well should a superbug crisis develop.
Abbott Labs (NYSE:ABT) stands out, in my view, as a company that would be a top contender to quickly develop diagnostics for detecting superbug infections. In late March, the healthcare giant rolled out the fastest test yet for diagnosing COVID-19 -- just a few weeks after WHO declared COVID-19 as a pandemic.
While there are several companies that could be among the first to develop diagnostic tests for detecting superbug infections, Abbott can marshal greater resources than most can. It ranks as the second largest medical device company in the world and is in the top 10 biggest healthcare companies.
You can probably think of plenty of companies whose products and services would enjoy high demand regardless of whether or not the world faces a serious superbug threat in the future. One that immediately comes to my mind is Amazon.com (NASDAQ:AMZN).
We're seeing Amazon's resilience during the current COVID-19 crisis. Shares of the e-commerce and cloud giant recently hit all-time highs despite continued quarantines across the world and a worsening global economy. The fear of infection is driving demand for online shopping and streaming TV, both of which directly benefit Amazon.
I started out by stating that "it could get worse." I probably should have said instead that it almost certainly will get worse. CDC Director Robert Redfield wrote last year that Americans must "stop referring to a coming post-antibiotic era -- it's already here." And he said that the threat from superbugs is one that "will never stop."
There is good news, though. Redfield expressed optimism that preventing infections, improving antibiotic use, detecting threats, and quickly implementing interventions could save lives and help protect the U.S. and the world from antimicrobial resistance.
The rise of the superbugs isn't a black swan event that can't be predicted. It's entirely predictable. That's even more good news for investors. You can prepare now by aligning your investment strategy to the reality of a new world of microbes that mutate and resist existing therapies. Your portfolio doesn't have to be infected by the superbugs that could -- and probably will -- be on the way.