The likes of AstraZeneca and GlaxoSmithKline need to “sprint on a treadmill just to stand still”, said Mumford, who prefers investing in smaller healthcare companies who offer better growth.
These smaller healthcare stocks currently make up around 8% of his Cavendish Opportunities fund, 20% of the firm’s AIM fund and 4% of its UK Equity fund.
Mumford said he views healthcare stocks in the same way he does investments in oil companies. A discovery which would be insignificant for the likes of BP and Shell could be “transformational” for a smaller company, he said.
“The large companies are probably the only ones that the very large firms can be invested in. The advantage for big companies is that for an investor they offer good dividend yield and I think they are relatively safe if you want a good global presence,” Mumford said.
Instead, in a similar way to his oil stocks, Mumford looks for the smaller firms where the constraints of research and development and regulatory hurdles are less of a headwind to growth.
Problems for the pharma giants such as drug patents expiring and the length of time it takes to develop new ‘wonder’ drugs means they can only grow so far, he added.
Beximco Pharmaceuticals, Consort Medical, Alliance Pharma and Clinigen are all among Mumford’s holdings.
He said: “I think it would be very difficult to see Glaxo growing five-fold or ten-fold, but of course if you are investing in the smaller companies they still have that room to grow.
“In smaller companies if you get that big find then it can be quite transformational.”
