After a dramatic vote in the US Senate last month, Obamacare lives on– for now. But the US isn’t the only government intervening on healthcare policy, as administrations around the world respond to changing economic and demographic pressures. Citywire-rated fund managers discuss the prognosis for the sector.
View from the US
Andy Acker- Janus Henderson Investors
We do not rely on lawmakers for growth. Instead, we focus on companies that we believe can prosper regardless of the legislative outcome. For example, we favor firms that aim to improve efficiencies in the healthcare system, or that are bringing innovative products to market that address high, unmet medical needs.
We feel these firms can increase revenue through product launches, not price increases, and are less vulnerable to generics and so-called biosimilars. Regeneron is a prime example. This year, the company launched Dupixent, the first new drug in decades to effectively treat moderate-to-severe forms of atopic dermatitis (a severe form of eczema).
We feel this drug could have billion-dollar potential. Meanwhile, Regeneron is building a pipeline of other promising drugs, including antibody therapies to treat cancer. We continue to see a high level of innovation in the sector.
Through the first half of the year, the US Food and Drug Administration (FDA) has approved 23 new novel therapies, compared with 22 for all of 2016. Scott Gottlieb, approved as commissioner of the FDA in May, has also discussed modernizing the approval process for new treatments, which could provide further flexibility and lower costs for pharmaceutical companies.
Finally, results from four key trials on the effectiveness of immuno-oncology therapies for the treatment of lung cancer are expected in the next six to nine months.
According to some estimates, the total market potential for these types of therapies could exceed $30 billion annually. A positive result from even
one of these trials could spur strong additional growth for the sector.
View from Denmark
Jorry Rask Nøddekær- Nordea
Despite noise surrounding the US and the UK, we are seeing particular value in the Chinese healthcare space. China’s demographics and its aging society is a major part of our narrative, but there is also the growing middle class that is demanding improved services.
We currently like a number of stocks in this space, such as China Resources Pharmaceutical Group, Sinopharm, and China Medical System Holdings.
The government is listening to the people and is willing to spend more and increase budgets to meet growing costs for treatments.
This spending goes hand-in-hand with the rise of insurance take-up. The insurance industry is growing rapidly and individuals paying the costs of this are demanding quality healthcare. Insurance companies are also ensuring patient treatments are of a high standard. Ping An is one name we like in insurance, which has a strong position in a number of markets.
There are also opportunities across the healthcare value chain, as the services and equipment market is highly fragmented. There is a major drive to consolidate this market, as smaller operators are struggling to keep up with requirements like quality control and compliance. This is a strong structural growth area and for well-positioned companies and could mean a potential doubling or tripling of share prices over the next five to six years.
View from Switzerland
Stefan Blum- Bellevue
I think political noise and some ‘rogue’ individual system components created a broadly-based misconception among investors. I strongly believe the fundamental factors of the healthcare sector have been and will remain in very healthy shape.
Innovation that satisfies clinical needs and delivers economic value gets rewarded and overall healthcare demand is steadily growing due to the global demographic trends like aging, unhealthy ‘westernised-lifestyles’ and rising wealth.
Investing in the healthcare sector has become much more demanding. The tide doesn’t lift all boats anymore, which has a huge impact on how to invest in the space.
We invest in ‘medtech’ and services, basically everything in healthcare apart from drugs. The business models carry less binary risk and aren’t exposed to the perceived price risk of pharma. Generally, these are ‘normal industries’ with decent price pressure but strong innovation and product pipelines. The very services and logistic-intensive nature of the businesses
favours big incumbents and drives consolidation, creating a massive ongoing M&A wave.
Device companies tend to expand into services supported by health tech innovations like body sensors, smartphones, cloud and big data that enable completely new business models and offer huge potential for growth.
This article was originally published in the September 2017 edition of Citywire Americas magazine. To subscribe and receive the magazine click here.