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Healthcare innovators to shine as Covid clouds…

Healthcare innovators to shine as Covid clouds…

The space is also being transformed by millennials, who are unlikely to put up with the bureaucracy, inflexibility, and one-size-fits-all approach that characterised healthcare interactions before the pandemic.

After two years of trading driven by Covid-related sentiment, company fundamentals are now returning to the fore in the healthcare sector.

The backdrop presents unique opportunities for skilled active managers to generate alpha opportunities across this diverse market – which encompasses hospital conglomerates, biotech start-ups, medical device manufacturers, life sciences tools, and networks of pharmaceutical companies.

Luxury brands can withstand economic pressures

We have noted a number of compelling trends within the healthcare space, which continues to gravitate towards more preventive medicine and outcome-based models.

Therefore, we took advantage of the market sell-off during the first half of the year to add to likely beneficiaries of continued economic reopening and increased demand for various treatments delayed by the pandemic. These areas tend to be less cyclical and could shine as Federal Reserve tightening takes a bite out of economic growth in the period ahead.

As a result, the healthcare sector weight in our PGIM Jennison Global Equity Opportunities fund increased from 6% at the start of 2022 to almost 22% at the end of July.

Rapid pharma development

We continue to witness compelling opportunities in select innovative biopharmaceutical companies, which now have a number of different ways to treat diseases, as the types of technologies being employed are increasing at a rapid rate.

As more therapies come to the public market, investors must consider not only which therapies will be most successful in shaping patient outcomes, but also which will be approved by regulators, reimbursed by insurers, and adopted by physicians and patients.

To capitalise on this trend, we established a new position in Danish multinational pharmaceutical company Novo Nordisk during the early part of the year.

The company has transitioned into the early innings of a new accelerating, highly durable growth cycle, anchored by its best-in-class and first-in-class portfolio in diabetes and obesity, with potential to further penetrate other cardiometabolic diseases – which are very large total addressable markets.

In addition, we recently added Eli Lilly and Argenx to our portfolio.

Due to its product pipeline and R&D plans, we expect Eli Lilly to witness significant growth in revenues and earnings – driven largely by new treatments for obesity, diabetes, and Alzheimer’s.

As for Argenx, which develops antibody-based medicines for autoimmune diseases and cancer, we initiated a new position due to its attractive pipeline and the global commercial opportunity for Vyvgart – a prescription medicine used to treat generalized myasthenia gravis, a rare neuromuscular disease.

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Simplifying the process

Next, medical device companies can improve or simplify the surgical process by making it less invasive or more automated.

The role of active managers is to assess which devices have more technological advantages and will likely see greater adoption by medical professionals.

In the early part of the year we initiated a new position in US medical device company DexCom, which manufactures the leading continuous glucose monitoring (CGM) device in the market today. The device eliminates the need for diabetes patients to test their blood glucose levels through finger sticks. CGM penetration will likely continue to grow globally.

Ease and convenience

Elsewhere in the healthcare space, we also see appealing long-term potential in medical tools and diagnostics companies, which have developed technologies to take the guesswork out of care and make it easier and more convenient for patients to be engaged in their health. These tools can accelerate the research and manufacturing process to further interrogate biologic systems and their interactions.

Here, we recently added Thermo Fisher to our portfolio, as the company well positioned to benefit from elevated levels of demand for higher-end analytical tools over the next several years.

Mark Baribeau, portfolio manager of the PGIM Jennison Global Equity Opportunities fund

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