​Medical science is entering an exciting phase, but investors need to evaluate each opportunity carefully, says Andy Acker, Portfolio Manager of Global Life Sciences Team. Andy and his team have plenty of healthcare themes to pursue, many of which are already yielding results not just for investors, but also for the health of people across the world.

In search of a panacea

Acker and his team are focused on innovations, including solutions to tackle cardiovascular disease, cancer and diabetes. Heart disease, for example, causes 17.9 million deaths per year¹ and cost the world $863 billion in 2010. That figure is estimated to rise 22% by 2030².

Rising wealth is generally regarded as a positive for the global population. But more disposable income typically leads to increased meat, processed food and sugar consumption. As a result, the number of diabetes sufferers globally quadrupled since 1980³. The yearly bill for treating the world’s diabetics already tops $800 billion⁴.

Global spend on cancer medicines continues to rise. Therapeutic and supportive care use was $133 billion globally in 2017, up from $96 billion in 2013⁵. Meanwhile, the number of new cancer cases per year is expected to rise to 23.6 million by 2030⁶. Life science is focused on improved detection of cancers and then ensuring that the disease is curable and no longer a killer.

‘Immuno-oncology medicines are a genuine revolution. They harness the immune system to target and attack cancer cells, often with impressive results,’ Acker says. One recently approved immunotherapy, Keytruda, reduces the risk of death from the most common form of lung cancer by half.

‘Immuno-oncology medicines are a genuine revolution.’

Genetic disease is another area of interest to Acker and his team. Scientists have identified over 7,000 such diseases, but fewer than 5% have available treatments.

Since then, the development of new treatments has kept pace with our improved understanding of diseases. New treatments for haemophilia, sickle cell anaemia and muscular dystrophy may not be far away. The US Food and Drug Administration (FDA) approved 59 new therapies in 2018⁷. – an all-time record. But garnering approval is no easy feat.

Picking the winners

Before these drugs gain approval, they face significant development and testing costs with no guarantee of regulatory approval.

‘Drug development is binary and leads to extreme outcomes. The winners who gain approval stand to make millions of dollars for their backers and to improve millions of lives. The odds can be stacked against the innovators, however, 90% of drugs that enter human clinical trials fail to reach market,’ Acker says.

REAL EXPERTISE IN LIFE SCIENCES

Portfolio Manager, Andy Acker, comes from a long family line of physicians. His background in biochemistry reinforces his belief that one must intimately understand the science in order to reach best investment outcomes. He is backed by a team with industry experience in immunology and organic chemistry. Together, Global life sciences team taps on over a century of collective experience in order to bring best health ideas to the portfolio.”

He points out that even successful innovations do not always lead to the returns that investors expect. Some 90% of consensus estimates of a drug’s revenue potential miss the mark – as actual revenues can under- or overshoot expectations within three years of each launch. As such, picking a stock with a life-enhancing product is a matter for strict valuation.

‘Investors should be keenly focused on valuation, looking for stocks that trade below the scientific and commercial potential of a company’s products and pipeline. After the market’s pullback last year, we feel a number of biotech stocks, today, offer attractive valuations, potentially leading to a pickup in mergers and acquisitions,’ Acker says.

On the fast track

In terms of getting product out to market, global regulators are, today, finding themselves having to adapt to the rapid pace of change in life sciences. The European Medicines Agency is aiming to cut approval times by a third, while China now accepts foreign clinical data for its assessments of new treatments, potential cutting approval times. The FDA is following suit and expects to approve as many as 20 gene and cell therapies per year⁸.

Prevention as important as cure

Newspaper headlines often focus on new treatments, but the Global Life Sciences Team also keeps a close eye on the medical devices market for new means to reduce the time it takes to detect diseases, or that significantly lowers cost, allowing more people access to treatment.

‘In key areas of health, the technology is often just as important to ensuring patients stay healthy.’ Acker says.

Investing in life

There are many reasons long term investors might consider looking at global life sciences. Demographic trends are conducive, with the world population growing in size, age and wealth– hundreds of millions of people will require and have access to health services and medications as they live longer.

Structural change has also tended to benefit investors in healthcare stocks. Historically, the healthcare sector has had low correlation to the broader equity market, an important distinction as we remain in a period of low global growth.

Last but certainly not least, the sector has historically displayed defensive characteristics. For example, the MSCI World Health Care index fell on average one third less than the World Index in each downturn since the year 2000⁹.

A long-term view

Indeed, the road to drug pricing reform in the US has taken some surprising turns this year. Acker’s team believes this reform, a key agenda of the US President, will continue to be vigorously pursued as the 2020 presidential election looms. New proposals could create more uncertainty. Acker’s long-term view – to focus on companies delivering innovation and value to the healthcare system and those making the healthcare system more efficient – could become even more vital, as these firms look well positioned to take market share on the long and winding road to reform.

In the meantime, structural changes have historically tended to benefit investors in healthcare stocks. The sector has also historically displayed defensive characteristics. For example, the MSCI World Health Care index has fallen, on average, one third less than the World Index in each downturn since the year 2000. ‘These are certainly important considerations to make as we approach a period of low global growth,’ concludes Acker.

Footnotes:

¹World Health Organisation, 17 May 2019 [https://www.who.int/news-room/fact-sheets/detail/cardiovascular-diseases-(cvds)].

²The Global Economic Burden of Non-communicable Diseases, Harvard School of Public Health/World Economic Forum, September 2011.
 

³World Health Organisation, 30 October 2018 [https://www.who.int/news-room/fact-sheets/detail/diabetes].

⁴Worldwide trends in diabetes since 1980: a pooled analysis of 751 population-based studies with 4·4 million participants, NCD Risk Factor Collaboration, 6 April 2016 [https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(16)00618-8/fulltext#%20].

⁵The IQVIA Institute for Human Data Science, Global Oncology Trends 2018, May 2018.

⁶National Cancer Institute [https://www.cancer.gov/about-cancer/understanding/statistics] April 2018.

⁷FDA as at 31 December 2018.

⁸Food and Drug Administration, 15 January 2019 [https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm629493.htm].

⁹FactSet, as at 30 June 2019.