Monthly Commentary
June 2020

Equity markets were in modest, positive territory in June, losing some momentum following a marked recovery in late March, April and May. The pause for breath is not unreasonable, especially when one considers the re-acceleration of COVID-19 cases in certain regions and the implications for the shape and magnitude of the economic recovery.

With regards to healthcare, biotechnology and life sciences and tools were solid whereas healthcare facilities and managed care had a difficult month, presumably reflecting concerns around volumes and the US elections, respectively. The Company’s NAV decreased by 1.97% in June, outperforming the benchmark (Morgan Stanley Global Healthcare Index) which was down 0.7% for the month.

While we continue to adopt a constructive, medium-term stance on the healthcare sector, US politics and political rhetoric should not be ignored given the election is just over four months away. The status quo and a second term for Donald Trump is probably the best-case scenario for the healthcare sector but with Joe Biden leading the national polls ( had Joe Biden with a nearly 10-point lead at the end of June), it is worth reflecting on some key points.

The national polls are interesting, but it is voting within the key states such as Pennsylvania, Michigan, Wisconsin, Florida, Arizona, North Carolina, Iowa and Ohio that probably deserve closer attention. Joe Biden’s choice of vice president is also an important consideration, especially given Biden, if elected, may only serve one term as president. This announcement should come before 1 August with a more progressive candidate like Elizabeth Warren likely to cause more volatility for the healthcare sector than a more moderate appointment like Kamala Harris.

A Democratic clean sweep might be a sentiment negative for the healthcare sector, but without a majority in the Senate significant changes in legislation will be tougher to achieve, especially given there may be some conservatism amongst Democrats. As a reminder, in the absence of a 60:40 majority in the Senate, bills need to go through budget reconciliation to get passed.

In terms of healthcare specifically, Joe Biden will invest in the current Affordable Care Act (ACA) infrastructure so areas that could flourish might be managed care companies exposed to the ACA exchanges and/or providers ie hospitals, plus areas that are more insulated from politics such as distributors, life sciences and tools, dental and ophthalmology companies.

There is also a possibility that Biden’s administration will look to lower the age requirement to opt in to Medicare to 60 from 65 – approximately 20 million US citizens. Such a policy would have positive implications for those exposed to Medicare Advantage but negative implications for commercial plans.

Drug pricing concerns will undoubtedly be raised, given disquiet from both sides of the aisle, but we believe the more draconian measures such as direct negotiation for drug pricing by the government for Medicare are unlikely to pass. More likely avenues of pursuit might be external reference pricing and mechanisms to control price inflation. Tax reform might also be a consideration for companies that are 100% domiciled in the US.

The COVID-19 crisis has highlighted the importance of innovation and R&D dollars, with the biopharmaceutical industry very much at the fore. As such, the biopharma industry really has a tremendous opportunity to present itself as part of the healthcare solution as opposed to being perceived as part of the problem. The COVID-19 crisis has also, however, served as a reminder that healthcare is an important topic for the general populous and is therefore highly likely to be a regular item on the US political agenda. If Joe Biden’s positive momentum continues, sentiment may well adversely impact the market’s appetite for healthcare, potentially creating interesting investment opportunities. By contrast, if the negative momentum in Donald Trump’s campaign starts to reverse, we could see investor appetite improving sooner rather than later.

June was yet another busy month for clinical news flow, with some standout positives. Starting with Eli Lilly, the company surprised the market by announcing positive data for Verzenio in early-stage breast cancer. Results from a pre-planned interim analysis revealed that Verzenio significantly reduced the risk of breast cancer recurrence or death compared to standard therapy alone. Eli Lilly hopes to file the data with the regulatory authorities before the end of the year, potentially opening up a multi-billion dollar market opportunity.

NovoNordisk also disclosed some positive data in the field of obesity. Of most interest was the phase I data for a novel asset called AM833 used in combination with commercialised asset semaglutide. After 20 weeks of treatment, participants receiving the highest dose of treatment lost an average 17.1% body weight from a mean baseline body weight of 95.1 kg. A yet-to-be established market, obesity could be a really interesting opportunity for NovoNordisk given its prevalence and the co-morbidities often associated with the condition.

Staying in Europe, UCB also produced data in psoriasis that prima facie looks best-in-class. Put simply, UCB’s psoriasis drug, bimekizumab, looks more effective and works faster than the competition. The challenge from here is one of commercialization, as UCB enters a highly competitive field.

Last, but not least, US biotechnology company Biomarin disclosed encouraging four-year data for its gene therapy, Roctavian, for the treatment of haemophilia A. Importantly, enduring efficacy is an important consideration given the high prices that gene therapies can command.

Positive relative contributors from active positions in June were Horizon Pharma, Biohaven and arGEN-X. Horizon Pharma’s performance follows on from May and can be attributed to ongoing enthusiasm for the launch of Tepezza, a drug for the treatment for an eye disorder known as thyroid eye disease. Biohaven’s lead asset, Nurtec for migraine, has only just been launched in the US following its late-February approval but is starting to show very strong prescription trends. arGEN-X’s positive momentum continued following the disclosure of compelling data for lead asset in generalised Myasthenia Gravis (a chronic and debilitating auto-immune disease that causes severe muscle weakness).

Detractors to performance were eHealth, Avantor and Bio-Rad Laboratories. An online healthcare insurance broker, eHelath has been impacted by a short report based on the company’s underlying profitability. We obviously disagree and view undue weakness as a potential buying opportunity. Avantor, in the life sciences and tools arena, is executing and delivering operationally but does sometimes struggle if the market worries about levered balance sheets. Bio-Rad, also in the life sciences and tools space, is executing above expectations and is likely suffering from profit-taking after a consistent period of outperformance.

We made a few changes to the portfolio in June. We reduced our exposure to medical devices, via sales of Boston Scientific, Dentsply and Stryker, reflecting the uncertainty the industry faces in the face of COVID-19 spikes and the potential for further delays to hospital procedures. We also took profits in Bellus Health, a clinical-stage biotechnology company whose lead asset is in development for the treatment of chronic cough. We recycled some of the proceeds into the biotechnology and pharmaceutical sectors via purchases of Exelixis and Sanofi. Exelixis has an evolving oncology pipeline whilst Sanofi, we believe, is starting to turn the corner under the guidance of new CEO Paul Hudson. With recently-launched assets that are gathering momentum, a cost-conscious CFO plus a strong balance sheet, we feel the optionality is not captured in the current valuation. We also added positions in areas where we feel there may be a level of protection as we head into the November elections. Namely, distributors via Amerisource Bergen and life sciences and tools via Sartorius.

The healthcare sector feels like it has genuine, positive momentum at present, both operationally and technically. That positivity is based on the idea that the demand for innovative healthcare products and value-enhancing services is likely to continue, and in some cases accelerate, post the COVID-19 crisis. Disruptive and differentiated therapeutics and technologies will always have a role to play in healthcare, but in an uncertain world, financially sound, large-cap companies feel especially well positioned. Add in attractive valuations, especially in the US, and technical leadership versus the S&P 500, and you have a near-term setup that looks, at a bare minimum, interesting and, at best, compelling. The US political environment may create some uncertainty, but also some potentially interesting opportunities. To quote Albert Einstein: “In the middle of difficulty lies opportunity.”

James Douglas & Gareth Powell



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Launched in 2010, Polar Capital Global Healthcare Trust plc (“PCGH”) has grown to become a leading European investor with a multi-cycle track record. Managed by a team of dedicated healthcare specialists, the PCGH aims to maximise long-term capital growth by investing in a diversified portfolio of healthcare companies from around the world. The managers’ core belief in rigorous fundamental analysis, and being unconstrained by not following a benchmark, enables PCGH to deliver global equity market outperformance through exposure to a universe of over 3,000 companies.

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