The M&A trend in the healthcare sector is causing concern among investors, as some fear businesses are only focused on acquiring other companies, according to sector specialist Christophe Eggmann.
The Citywire AA-rated manager, who runs the Julius Baer EF Health Innovation fund, believes Hilary Clinton’s much-discussed Tweet regarding drug price hikes in September was not the sole reason the NASDAQ Biotech index dropped strongly last month.
‘It was not only the comment from Hilary Clinton that put pressure on the market. It started with the volatility that we had ahead of the first possible Fed rate hike in nine years, we saw investors switching out of growth into value and into oil and commodities.’
‘The areas that were affected were specialty pharmaceuticals. Quite a lot of companies have done acquisitions in the past and some investors have questioned the rational of some of these acquisitions,’ he told Citywire Global.
‘The only business model was to acquire the company, change the product a bit and increase prices massively. I think that is why investors got a little concerned that this could come to an end and M&A could come to an end.’
Eggmann said his fund has benefitted from the M&A activity in the market, with pharmaceutical company Allergan being the second largest holding at 5.19%. The group purchased Kythera in June, which followed a number of other acquisitions.
‘The Allergan acquisition last year was a big success for the fund. We were very convinced about the rationale for this deal and we’ve held smaller companies like Kythera Biopharmaceuticals and Oculeve, which were acquired by Allergan. There are a number of examples where we have benefitted from the M&A trend.’
The largest country allocation in the fund is the US at 83.7% and Eggmann thinks the structure of the market is changing, but only partly due to the merger activity.
‘The consumer is more aware of the healthcare market and takes a more active role in managing their healthcare and this has implications for a number of companies who really need to find their business models and these need to adjust to the new market as quick as possible.’
Eggmann is following a few areas of research that could benefit investors as well as patients.
‘One of the very interesting areas is in immune-oncology, which uses the immune system to fight cancer cells. We think that this could be a revolution in the sense that it could turn some cancers into a chronic disease, so this would be a big step forwards.’
‘We think that gene therapy is a very interesting area to be in. This replaces a dysfunctional gene in patients’ cells to cure them from diseases such as eye diseases which lead to blindness or some blood diseases,’ he said.
The Julius Baer EF Health Innovation fund returned 35.4% in US dollar terms over the three years to the end of September 2015. This compares to a rise of 19.9% by its Citywire-assigned benchmark, the MSCI World/Health Care TR USD, over the same timeframe.