Worldwide healthcare equities followed the broader US indices but pharmaceutical companies once again underperformed broad healthcare markets. The Nasdaq Biotechnology Index performed slightly better (+2.9%, in USD) driven by small and mid cap companies.
Sector concerns for drug stocks were fueled once more by political rhetoric, policy papers, and Presidential Tweets, variously pointing to potential US government-led price controls, and more likely setting up campaign platforms in anticipation of the midterm elections later this year.
Investors have been cautious about the risk of drug price control legislation – and this sentiment has been associated with continuous negative fund flows for the biotech sector. These generalist investor reactions are understandable, but we believe that some of the strategic ideas being discussed in US healthcare are constructive, while others are not.
In the complex US healthcare system, improved transparency and the removal of inefficient incentives will ultimately spur innovation. The best innovation will create the best drugs, which, when priced for cost effectiveness and responsible budget-impact, will continue to create enormous value for shareholders.
Overall at this time one sees more attractive emergent biotech innovation, which carries the potential to improve health, than ever before in our 25-year successful run. BB Biotech’s leading companies are paying careful and explicit attention to the very real question of value for money in healthcare and it remains highly attentive to the opportunities created by and for sector experts in these remarkable times. Despite turbulence, this is a time to invest judiciously, not a time to retrench and eschew innovation.
Since valuations are now well off their 2016-17 highs, BB Biotech’s analysis shows no reasons for despondency. One can reasonably expect selective M&A events to offer attractive exits for some positions in the portfolio. In the meantime, BB Biotech looks forward to attractive fundamental growth in the sector and will continue to marshal its portfolio including further new investments in leading smaller and mid cap positions which promise high growth rates.
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