Page 38 - DIY Investor Magazine | Issue 29

QD VIEW – ON DRUGS...
AND OTHER ASPECTS OF HEALTHCARE
James Carthew
Head of Investment Trusts
RATE WORRIES HITTING GROWTH STOCKS
After delivering impressive returns last year, the tech and biotech sectors have stumbled a bit recently. It seems unfair that trusts such as Polar Capital Technology and Allianz Technology are now trading on discounts.
However, some investors are worried about the prospect of higher inflation and what that might do to long-term interest rates. Higher rates make future cash flows less attractive, and this takes some shine off growth stocks.
There is a similar story going on in the biotech and healthcare sector too, particularly amongst the biotech funds, but in its case there are also some other factors at play. Worldwide Healthcare recently published its annual report (covering the
‘ALZHEIMER’S REPRESENTS A VAST AND LARGELY UNTAPPED MARKET FOR THE DRUG COMPANIES’
year ended 31 March 2021) and this highlights some of these.
ADUCANUMAB DECISION
First thing to note is that, whatever the big picture factors are that are affecting this sector, their influence is dwarfed by stock-specific factors such as new drug approvals. We have just witnessed one of the biggest new-drug decisions for some years. Biogen, a leading biotech stock had asked the FDA to approve its Alzheimer’s treatment, aducanumab.
Alzheimer’s represents a vast and largely untapped market for the drug companies. Anyone who could offer hope to sufferers and their families should be guaranteed success.
The FDA, however, seemed unsure whether aducanumab held that promise. Worldwide Healthcare’s managers note that, despite a mixed dataset from its Phase 3 trials, aducanumab received a glowing positive review by FDA officials, only to be rejected by an FDA committee just days later.
The FDA decided to give itself more time and they have just ruled in its favour. Robin Davison, who writes for us on this sector, wrote an article on it on 8 June.
Worldwide Healthcare’s managers point out that the pace of new drug applications and approvals has been accelerating, driven by some incredible innovation in the sector. They believe that this is likely to remain a net positive for the sector.
BERNIEPHOBIA
Big pharma stocks have been weak on worries that the Biden administration will enact reforms that drastically reduce their
‘A FEW HIGH-PROFILE DEALS RECENTLY AS CASH RICH LARGE COMPANIES SNAP UP SMALLER PLAYERS WITH PROMISING NEW PRODUCTS’
margins. Sentiment was hit by plans to waive intellectual property protections on the COVID-19 vaccines.
More importantly, Bernie Sanders ended up as chairman of the House Budget committee and he is promoting a clutch of bills aimed at reining in drug prices.
The Prescription Drug Price Relief Act, The Medicare Drug Price Negotiation Act and The Affordable and Safe Prescription Drug Importation Act would aim to peg prices of prescription
DIY Investor Magazine | Jun 2021 38