Watch a replay of the live session here or read our top takeaways below…
The investor panel at Optimum’s Annual Healthcare Investor Conference provided a critical insight into the current investment landscape, where specialist fund managers are focused and the outlook for the sector.
Hannah Kuchler, Global Pharmaceuticals Correspondent for the Financial Times, chaired the Public Market Investor Panel with Ulrica Slåne Bjerke, CIO and Co-Founder of Arctic Asset Management; Paul Major, Portfolio Manager at Bellevue Asset Management; Victoria Darbyshire, Equity Analyst at J.P. Morgan Asset Management; and Geraldine O’Keeffe, Partner at LSP.
An unpredictable landscape
Following an exceptionally strong performance in healthcare stocks during 2020, there was a feeling that valuations had become difficult to understand by the end of the year with investors taking a more defensive stance. Meanwhile, 2021 has seen a “detached appearance” with a strong contribution from vaccine companies while others have been left out in the cold.
Panellists agreed that the Summer months were hard to interpret, prompting a move away from Covid related companies, with some dipping a toe into small/midcap biotechs as valuations became more appropriate. Others added to their healthcare weighting across medtech and services, taking advantage of innovation and valuation opportunities by increasing exposure to both biotech and large cap pharma as valuations hit all-time lows.
Biotech in vogue but volatility prevails
Investors considered that small to midcap biotech offered innovation and potential versus the more volatile pharma stocks but stressed interest rate worries and a difficulty in explaining individual biotech stories. They also spoke about the increase in venture capital investment on the private side and emphasised the importance of taking a long-term view given the recent patterns of short termism that have led to some companies dropping (against all common sense) up to 30% on an FDA approval. Panellists cited generalist retail investors and hedge funds as creating volatility but stressed that investors who are patient and take a long-term view should reap rewards eventually.
The impact of politics
All the panellists spoke about the impact of US politics on the pharma sector. There was an agreement that, while there is a willingness to progress on issues such as drug pricing reform, US legislation, bureaucracy, and a lack of bi-partisan political support, with no political party having enough power to push policy through otherwise, continues to prevent headway. Wrangling over pricing persists and has been very detrimental to R&D productivity, effectively putting a wet blanket over the whole sector, with small nimble biotech companies the only ones convincingly able to deliver true innovation.
M&A will continue
Investors agreed that big pharma needs to buy in as much as a third of its innovation and is reliant on biotech as its source. While M&A at a good premium is an important element of market rebound, it will take time before buyers and sellers are in the same price ballpark, and complications around getting deals passed by the US Federal Trade Commission, which has new leadership, continue to prevail.
A future ripe for innovation
On the landscape post-pandemic, our panellists spoke of the areas and technologies that are exciting and/or offer good value for future investment. They mentioned diagnostics and the scope for clinical trials to be done in a different way. They expressed interest in seeing who will move forward in the anti-viral space and how vaccines will develop with a focus on RNA and cancer vaccines. CNS was highlighted, as were rare diseases and, linked to that, cell and gene therapies, due to their potential for removing a lifetime of chronic treatment that has both monetary and quality of life costs.
The panel concluded by talking about the need for clinical trials to be less dominated by the US, citing the UK’s front running position in vaccine, antibody and steroid studies for Covid as paving the way for rapid advances in clinical care. If we can take the necessary risks to expand and drive clinical trials forward, it will accelerate the pace of innovation for society as a whole.