Healthcare investing: how is the industry performing?
30 SEPT, 2024
The healthcare sector has so far been one of the best performers of the year, up 18% according to the MSCI World Health Care Index. In addition, European companies have outperformed US companies. Among the top performers were companies such as Novo Nordisk, Eli Lilly, UCB and Lonza Group.
In addition, two very attractive markets are emerging in the healthcare sector. On the one hand, the treatment of neurological diseases such as Alzheimer's is emerging as a promising market, with important advances from companies such as Roche. On the other hand, the diabetes market, dominated by Novo Nordisk and Eli Lilly, is becoming increasingly attractive. Demand for obesity and diabetes drugs will remain high.
Rune Sand-Holm, portfolio manager of the DNB Fund Health Care, analyses the health sector's performance during the year and its future prospects.
Healthcare stocks, such as Novo Nordisk and Eli Lilly, have clearly outperformed the broader equity market so far this year. Healthcare is likely to remain a promising theme going forward.
The peaks and troughs of healthcare stocks are close together. While 2023 was the worst year since 1999 in terms of relative performance, the healthcare sector is among the best performers this year, with a gain of around 18% as measured by the MSCI World Health Care Index (in USD). It is also worth noting that European healthcare companies have outperformed their US counterparts on average.
Many European companies have interesting pipelines. Among the best-performing stocks since the beginning of the year are the biopharmaceutical company UCB and the Swiss contract drug manufacturer Lonza Group, which has strong capabilities in biologics, among other things. Swedish-British drugmaker AstraZeneca has also had a very good run this year and continues to look very promising, especially with regard to its oncology portfolio.
Alzheimer's: a market of the future
One of the next big markets is likely to be the treatment of neurological diseases. Two drugs are already on the market in the US for the treatment of Alzheimer's disease. Although their efficacy is not revolutionary, these drugs offer patients a treatment option where previously only symptomatic treatment was available. So there is a huge unmet need for this devastating disease. And we believe there is more to come, as industry is focusing and investing heavily in this field. In the next few years, or the next decade, there could be treatment options for many other neurological diseases that cover the entire spectrum of unmet medical needs for neurological diseases such as Alzheimer's, psychosis, Parkinson's and depression.
Swiss pharmaceutical giant Roche is currently experiencing a renaissance thanks to its combination of low valuation and a promising product portfolio. One example is the development of an Alzheimer's drug based on brain transport technology, which could overcome some of the problems associated with transferring the drug across the blood-brain barrier that occur with similar drugs already approved in the US. This barrier between the bloodstream and the central nervous system protects the brain from harmful substances, but also from large-molecule drugs such as antibodies. Roche also wants to accelerate the development of its diabetes and obesity drug candidates, potentially serving one of the most attractive pharmaceutical markets today.
Diabetes: currently the most attractive biopharmaceutical market
Novo Nordisk and Eli Lilly dominate the diabetes and anti-obesity market with their popular drugs Ozempic, Wegovy, Mounjaro and Zepbound. Eli Lilly clearly outperformed expectations for the second quarter, while Novo Nordisk had a rather mixed quarter, but still posted very impressive growth figures. The stock market pushed Eli Lilly's share price up by around 20%, while Novo Nordisk lagged behind. However, we do not expect things to change much for the worse for the Danish industry leader, as there is no doubt that demand for these slimming drugs will outstrip supply in the coming quarters and possibly even years.
Opioid-free pain management
US-based Vertex Pharmaceuticals serves a lucrative market as a global leader in cystic fibrosis drugs. Its promising product portfolio currently includes a pain treatment drug that is opioid-free and therefore non-addictive. It is currently in the final phase before approval. We believe this could be a great opportunity for the company, as opioid addiction is a serious problem in the US today and average life expectancy has decreased by about five years due to opioid overuse.
