Bellevue Emerging Markets Healthcare

Global stocks closed the first month of the new year with a very pleasing performance. The MSCI World gained 3.5% in USD. Markets were driven higher by good, albeit not exceptionally good, economic data, including a slight downturn in inflation, as well as solid quarterly earnings announcements. For a change, companies in the healthcare sector ranked prominently among the companies reporting positive earnings surprises. Pharma companies in particular beat analyst estimates, in some cases by a significant margin. Healthcare stocks therefore outperformed the broader market with a month-on-month gain of about 6.5%. Emerging market stocks were unfortunately unable to keep pace with global stocks and ended the month with a gain of just under 2%. Healthcare stocks in the emerging market space even closed 0.5% lower. Where stock markets go from here will largely depend on the scope and duration of the trade war that the Trump Administration has started. The imposition of hefty US import tariffs would ripple across the globe in the form of higher prices, hitting consumers hard, and would also make it difficult for central banks to ease monetary policy.

The US-Chinese biotech company Beigene, which opened a regional office in Basel years ago, is changing its main tax domicile to Switzerland as well. Its patents have been filed in Switzerland for many years. The company has also changed its name from Beigene to BeOne Medicines, which indicates that the company wants to raise its profile as a European or American biotech company and downplay its Chinese roots. The more important news, however, was management's forecast that BeOne would turn a profit in 2025, for the first time in the company’s history. Its BTK inhibitor Brukinsa, approved for treatment of chronic lymphocytic leukemia (CLL), has become the top-selling drug for this indication and is likely to generate more than USD 3 bn in sales in 2025. BeOne will continue to focus its research and development activities on oncology. Over the past few years the company has built up a broad pipeline, including 16 "degrader” programs and 23 ADCs, four of which are already in clinical development. 

Sun Pharmaceuticals, an Indian specialty pharmaceutical company, reported another set of strong quarterly results. While the temporary weakness in the US had been expected, owing to margin erosion and lower sales of gRevlimid, its business in India once again delivered excellent results. Sun is the only pharmaceutical company in India whose growth is being fueled not only by rising prices, but also by higher volumes. Besides scores of new product launches, its growth can be traced to a powerful marketing and distribution organization. With 14000 employees, Sun’s domestic sales force is by far the largest in India and it has established very close relationships with doctors. This seems to be delivering a sustained payoff. Sun's reported 14% sales growth in India is well above the underlying market growth rate, which is currently about 8%.

Existing positions in Wuxi Bio, Max Healthcare and Wuxi Apptec were increased during the month under review and new positions were opened in Mouwasat and Teva. Sino Biopharm and SK Biopharmaceuticals shares were sold and the position in Innocare was completely closed.

The fastest growing countries in the world can be found in emerging markets, and they contain more than half of the world's population. Asian emerging markets are also forecast to account for more than 50% of global GDP by 2050. It is known that the economic growth model of countries shifts from manufacturing to the services sector as household incomes rise. A growing middle class fuels demand for modern medicine. Healthcare ranks increasingly high on their wish list. Billions are being invested in infrastructure, technology, and research to modernize the healthcare systems in emerging market countries. This is giving a greater swath of the population access to better healthcare. Meanwhile, rapid population aging is also stoking demand for healthcare. In 30 years, there will be 400 to 500 mn people over 60 in China alone, and they will have a growing need for modern health services and medicines. Outside Asia, Brazil’s rapidly expanding private-sector healthcare market offers a range of interesting investment opportunities. The quality and long waiting times of the country’s public health system are no longer acceptable to many higher-income Brazilian households, and they are increasingly embracing these new services offered by private-sector healthcare providers. Hospital chains embedded in a fully-integrated ecosystem are but one example of the beneficiaries of this structural change. The fund serves as a defensive vehicle for capturing the above-average growth potential emerging markets offer. It invests in the entire healthcare system value chain, from hospital chains, drug developers and device manufacturers to medical research specialists and digital health companies.