How to get healthy gains from your investments

Juliet Schooling Latter 01/02/2023 in Income investing

At the turn of the millennium, the then US President and UK Prime Minister, Bill Clinton and Tony Blair, celebrated the completion of a first draft of the human genetic code which identified the 3bn chemical ‘letters’ of our genome, with a White House press conference.

Around the same time, two giants of biology and technology, Craig Venter and Steve Jobs made the prediction that, “If the 20th century was the century of physics, the 21st century will be the century of biology.”

There is now increasing evidence that this will be the case with the success in new technologies countering Covid and many other exciting areas of development.

Here, we take a look at four companies that are producing medicines and products that should all hopefully increase the quality or our lives, and the funds investing in them.

Biogen, slowing the progression of Alzheimer’s

Biogen is the second biggest holding in the AXA Framlington Biotech fund*. At a recent meeting, manager Linden Thomson told us about the company’s new Alzheimer’s drug, Lecanemab, which it has developed alongside Japanese pharmaceutical company Eisai.

Alzheimer’s disease along with other types of dementia is the seventh most common cause of death globally. This drug works by targeting and reducing amyloid proteins in the brain which are believed to be the cause of Alzheimer’s. Until recently, there was debate as to whether these types of drugs would work. Linden believes recent data from Biogen has finally put this debate to rest – in well-controlled clinical tests, it has slowed the progress of the disease by 27% after 18 months. This should allow patients more time to spend with their loved ones and to live independently – and will also reduce the burden on healthcare systems.

“This positive data is fantastic news for the fight against Alzheimer’s and also bodes well for upcoming Alzheimer’s drugs from Roche and Eli Lilly which work in a similar way,” she said. “After decades of failure, biotech companies seem to be making real progress in the fight against Alzheimer’s.” AXA Framlington has gone as far as saying that it “heralds a breakthrough in the treatment of the disease – and could signal the start of one of the potentially largest markets within biotech.”

Novo Nordisk, the fight against diabetes and obesity

Novo Nordisk is a Danish pharmaceutical company known for goal of defeating diabetes and other serious chronic diseases. A holding in Comgest Growth Europe ex UK, the company performed well in 2022. In a recent update*, the managers of the fund said: “Novo Nordisk delivered its strongest organic growth in over a decade thanks to continued dynamic growth of its GLP1 anti-diabetes franchise, in addition to very strong uptake for Wegovy, its successful anti-obesity product. Obesity is one of the biggest, and growing, burdens to healthcare systems around the world, creating we believe a decade long growth opportunity as Novo Nordisk and its peers help address this chronic condition.”

The managers of Capital Group New Perspective fund are also positive on the firm. Speaking about it in December, they said: “Novo Nordisk added to relative returns as the shares rose 6%, buoyed by positive sentiment on the demand outlook for the biopharmaceutical company’s diabetes and weight loss drugs, together with signs it had resolved supply issues for its weight loss treatment Wegovy.”

The obesity drug was somewhat of a surprise accidental by-product of other research. Alexander Darwall, manager of the European Opportunities Trust, told us more about this in a podcast interview:

“There are a hundred million people in America classified as obese, with BMIs over 130,” said Alexander. “[The drug] is getting enormous attention in the US and the payors [the authorities] are very keen. Because the benefits of reducing people’s body mass by 17% – and indeed, the next iteration of this drug, is going to be nearer 25% loss in body mass – the benefits for the comorbidities are very significant. That’s to say, if you don’t have diabetes, but you can reduce your weight before the onset, you make the onset of diabetes much less likely. You have fewer cardiovascular problems; you get fewer problems of glaucoma. There are many healthcare benefits of reducing weight and the authorities are prepared to pay for that, because they understand the pharmaco- economic benefits of it.”

AbbVie, easing arthritis

AbbVie is best known for manufacturing Humira — a medication used to treat moderate-to-severe rheumatoid arthritis and Crohn’s disease. This drug will come off patent in 2023, and investors are weighing up the potential impact to sales due to greater market competition.

“2022 was a strong year for the biopharmaceutical giant, which grew revenues c.5% year-on-year off the back of particularly strong demand for its immunology drugs,” the managers of Guinness Global Equity Income fund said*.

“Humira, which was launched in 2003 when AbbVie was still part of Abbott Laboratories, brought in more than $20 billion in revenues last year. CEO Rick Gonzalez expects to see up to 45% erosion in Humira’s revenue beyond the patent cliff, but the market has already priced much of this in. Investors remained optimistic due to AbbVie’s immense pipeline coming to market over the coming years, including 65 abstracts across eight different types of cancer that have potential to reach FDA-approved status.

“Additionally, AbbVie’s biopharma portfolio seems well placed to fill the Humira void. Two new immunology drugs, Skyrizi and Rinvoq, have been on the market less than two years but are expected to bring in $7.5 billion in sales for 2022, ahead of company estimates. This strong showing from its nascent portfolio leaves the company well placed to maintain its immunology stronghold and has contributed to the positive sentiment over 2022.

“Additionally, the well-known ‘dividend king’ grew its dividend 5% to $1.48 a share in its 51st year of consecutive increases. We remain confident in AbbVie’s ability to outperform going forward, given its robust R&D pipeline, established foothold in core markets, continued revenue growth and ongoing commitment to return excess cash to shareholders.”

Roche – making medicine more affordable

Roche, a holding in the Fidelity Special Values investment trust, is the world’s largest biotech company. It has medicines which are used in oncology, immunology, infectious diseases, ophthalmology, and diseases of the central nervous system. Roche is also the world leader in in vitro diagnostics and tissue-based cancer diagnostics and is a frontrunner in diabetes management.

“Roche has the highest spend in research and development (R&D) in the European sector and its R&D track record is unrivalled,” commented the team behind Fidelity Special Values.  “Historically, and going forward, the focus of its pipeline is on high unmet needs and areas of high innovation where it can transform medical practice and patients’ lives.

“Roche has also had a disciplined and fair pricing strategy relative to the strength of the drug and the cost to the healthcare system, with recent high profile launches at lower prices than prevailing products despite the stronger data, for example with Hemlibra (haemophilia) and Ocrevus (Multiple sclerosis).

“From a stock perspective, the valuation of the company is at attractive levels following two high-profile clinical setbacks in 2022 and a resulting sentiment of fear/disbelief in the R&D story. This ignores the track record of the company and strength of its human capital. The underlying portfolio is growing strongly but this is currently masked by the unwind of COVID-19 related sales which, together with the R&D sentiment, means the stock is trading at attractive levels for both its medium-term growth and pipeline optionality.”

*Source: fund provider, 31 December 2022

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